Cryptocurrency has forever changed how millions think about personal finance and business. Thanks to blockchain projects, users have gained access to decentralized and secure transfers with minimal fees, and cryptocurrency traders have begun to earn large sums of money.
Over the years, digital assets have caused controversy, criticized, and generated crime, but at the same time, they provide an opportunity to make good money. It is not for nothing that the query of how to buy cryptocurrencies has become one of the most popular in search engines in recent years.
Investing in cryptocurrencies is a rapidly growing market that has the potential to generate high returns, but it also comes with significant risks. That is why it is essential to understand the main factors that drive the market and have a solid investment strategy.
Only a detailed study of the crypto market trends and a clear understanding of the possible risks will allow you to get a guaranteed profit. Consider the main problems of the cryptocurrency market that prevent the introduction of digital assets in all areas of our lives.
Lack of legislation and legal risks
The future of cryptocurrencies depends on the economic situation in the world markets and the regulator’s position in a particular country.
Today, each country approaches the legal regulation of cryptocurrencies in its way. The lack of a single well-thought-out system for regulating the cryptocurrency market increases the uncertainty of their future. Regulators in many countries are concerned that cryptocurrencies will facilitate speculation, money laundering, and other illegal activities and therefore are in no hurry to legalize them.
However, with the growing popularity of cryptocurrencies, government agencies in many countries are beginning to actively develop various legislative initiatives to regulate the circulation of virtual currencies.
Countries that have introduced the regulation of virtual currencies – Switzerland, Japan, the United States, Canada, the United Kingdom, Ukraine, and others. China banned ICOs (Initial Coin Offering – initial placement of coins), announcing that 99% of ICOs are fraudulent schemes.
Legislative crypto industry regulation is necessary to protect citizens from losing invested funds and fraudsters. Since there is a risk that when transacting with cryptocurrency, the counterparty will refuse to fulfill its obligations.
A crypt is an intangible digital code that has no ownership rights. Suppose a hacker has stolen cryptocurrency from a virtual wallet. In that case, the owner can neither identify the thief (due to anonymity and decentralization) nor prove their right to the coins (due to the lack of personal property law). That is why regulatory challenges in digital currencies need to be addressed immediately.
Hacker attacks and malware
Security risks in digital assets are one of the main reasons many newbies fear joining the crypto community.
Hackers periodically break into cryptocurrency wallets on exchanges and private accounts. At the same time, hackers manage to steal money even from significant hedge funds. Regular hacker attacks lead to the fact that there are no funds left to pay users on the accounts of many large exchanges, and they become bankrupt. Losses of some sites reach hundreds of millions of dollars. In addition to stealing money, hackers gain unauthorized access to confidential user information.
Fighting hackers in the current environment is extremely difficult. The level of protection against cyber attacks today remains at a low level. According to experts, security concerns in cryptocurrency will hinder the full market expansion for a long time. No technology or mechanism can protect cryptocurrency from hacker attacks and fraud.
Owners of digital assets should be highly vigilant, use reliable anti-virus protection, check all addresses, and not follow suspicious links.
Market volatility in digital assets is a severe problem for investors. For example, the fluctuations in the value of Bitcoin in the short term are almost unpredictable, and this adds to its riskiness. Those who want to protect their capital from sharp fluctuations can exchange BTC/USDT. This is a stable coin, and each issued coin 100% backed by the dollar.
But this is not enough to solve the problem of volatility.
Financial experts can predict the near-term value of the dollar, euro, and other fiat currencies with relative accuracy. But no one can predict what the price of Bitcoin will be tomorrow.
Factors that cause volatility in the value of Bitcoin are large exchange trading volumes, legislative initiatives from regulators, integration of virtual currency with various companies, and much more. In addition, experts in the field of the cryptocurrency market note the high sensitivity of the exchange rate of Bitcoin to news reports.
Today, the cost of cryptocurrency per day can change by 5-10%. Such intense volatility makes the process of investing quite a challenge.
For traders, high volatility is an advantage. It allows you to earn in a matter of hours or even minutes. However, it is possible to make a profitable deal only if you have special knowledge and skills. And although high volatility seems like an attractive investment, it is associated more with risks and losses than benefits in the crypto world.
Bankruptcy and closure of exchanges
Cryptocurrency market analysis shows that half of the cryptocurrency exchanges have closed in the last five years. Among them were pretty promising projects. When the exchanges closed, users did not have time to withdraw money from their accounts, which led to multimillion-dollar losses.
The main reason for the closure and bankruptcy of exchanges is low profitability. The project’s founders must invest large sums to create, develop the exchange infrastructure and conduct an advertising campaign. Due to such high costs, many exchanges cannot provide a sufficient cryptocurrency turnover. Much more significant amounts are needed to support the site’s service fully.
Also, exchanges sometimes experience technical failures, due to which clients can lose their funds. Due to the lack of a legal framework, investors who have suffered losses cannot claim a refund.
To avoid such risks, choose only reliable crypto exchanges with an impeccable reputations and high security. WhiteBIT is one of the top three exchanges in terms of reliability, with the highest AAA rating. WhiteBIT stores 96% of digital assets in cold wallets and uses Web Application Firewall (WAF) to block hackers. This means that your money will always be safe.
Psychological barriers and fear of investing
In recent years, investing in cryptocurrencies has become so popular that trading has become mainstream. Millions of young enthusiasts worldwide actively discuss the ups and downs of various digital assets, their investment potential, and trends in the cryptocurrency market. However, after over a decade of rapid cryptocurrency industry development, most people still do not understand its specifics. Such ignorance naturally gives rise to fear and insecurity in people. This happens due to a lack of information and poor awareness. Many do not understand blockchain technology advancements and how cryptocurrency exchangers and e-wallets work. It seems to some that investing in crypto is accompanied by serious risks, and in general, everything is a soap bubble that will burst sooner or later. Older people, namely 50+, generally think Bitcoin is a financial pyramid.
Let’s add here the fact that cryptocurrency is primarily a financial sector. From this, the feeling of fear and caution in people doubles. Nobody wants to lose their money. Even if it is possible to earn much more. But complex theoretical and practical training is needed to succeed in the cryptocurrency market.
Despite the cryptocurrency market’s intense volatility, it will still grow in the long run. The sooner you enter it, the more chances you have to multiply your capital.
Taxes and financial regulation
Investors should consider that there is considerable uncertainty regarding the taxation of the circulation of virtual currencies in different countries. The problem is that only a few countries have integrated cryptocurrencies into their economies. For this reason, additional difficulties may arise with paying taxes and transactions with electronic money.
Network scaling problem
Challenges of digital currencies are associated not only with external circumstances but also with internal reasons. One of them is the problem of network scaling. It lies in the fact that with an increase in the number of users and transactions in the network, performance problems arise. This trend is evident in the example of Bitcoin. The blockchain of the first cryptocurrency is not designed to be used by hundreds of millions of people simultaneously. Therefore, with a high load on the network, the transaction speed drops from 10 minutes to several days, and commissions soar to $30.
Of course, web developers have been working on a solution to this problem for a long time, but none of the proposed options is an ideal solution. And if the network congestion problem worsens, it will affect the position of Bitcoin as a payment instrument.
Decreased profitability of mining
Recently, it has become less and less profitable to mine cryptocurrency. Now the benefits of mining are less significant than a few years ago. Depending on the video cards used and their computing power, Bitcoin mining pays off in a year, Ethereum – in six months.
Young cryptocurrencies bring more profit if you accumulate them after mining rather than selling them immediately. Sooner or later, the cost of a cryptocurrency starts to grow sharply, and you can make good money on this by selling coins at the maximum price.
Having considered the main cryptocurrency market challenges, we can come to the following conclusions. Cryptocurrencies are a good and exciting solution for profit-making, but only for investors willing to take risks. Indeed, in the cryptocurrency market, there are no guarantees of minimum profitability or, at least, break-even of investments. Any investor working with cryptocurrency must clearly understand what it is and have a well-thought-out plan for all possible scenarios.
Those who want to invest in cryptocurrencies need to follow all the changes in different countries laws and be aware of all the innovations.
Extensive asset research and diversification of the cryptocurrency portfolio will help reduce potential risks and ensure safer investments. In addition, it is essential to avoid impulsive decisions. Instead, take the time to study and understand cryptocurrency patterns and indicators to make informed decisions.
If you want to be part of the modern crypto community and start your journey as a crypto investor, start by looking for a reliable and secure crypto exchange. We advise you to pay attention to WhiteBIT. It is the largest European centralized crypto exchange, with over 3.5 million registered customers worldwide. Over 350 trading pairs, 270+ assets, and six government currencies are on the exchange. It is a secure and easy-to-use platform, the main goal of which is the mass adoption of blockchain technology and the expansion of the crypto community.