With over $1 trillion worth of cryptocurrency lost since the 2021 high-watermark, many investors could be enticed by the opportunity to join the cryptocurrency market with potential more attractive price. In the past, considerable declines in cryptocurrency valuations have been followed by rapid growth. All this volatility can be interpreted because of the anticipatedly turbulent cost discovery of a significant brand-new asset class.
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But, the most significant risk to investing in cryptocurrency could be in the future, not looking back in the rear-view mirror. Investors considering an investment over the long term in cryptocurrency should be cautious due to five primary reasons.
Regulation
The legal path for cryptocurrency is significant uncertainty. The Securities and Exchange Commission is worried about the absence of regulation of cryptocurrency and hasn’t yet permitted mutual funds and ETFs the ability to invest in Bitcoin directly.
In Morningstar’s most recent report on the crypto landscape, Hume and research analyst Jeremy Pagan cited “the absence of smart, measured regulation in cryptocurrencies (as) the key barrier to future adoption,” with 55 percent of U.S.-based financial advisors and 39% institutional investors worldwide mention regulation as a “key roadblock.”
The current options for investors interested in investing in cryptocurrency, in addition, to directly purchasing digital tokens themselves, are ETFs and mutual funds that hold Bitcoin options or buy shares in firms holding Bitcoin. However, these products “don’t track the asset class particularly well,” Hume explained to ThinkAdvisor.
Regulations that are smart and protect the consumer could boost trust in the crypto market and help promote it. She added that “or it could kill it completely, but I think at this point that’s probability unlikely.”
Scaling Up
Scalability is a significant technical challenge for the cryptocurrency industry in the near time, Hume noted. Although various crypto trading platforms and tokens have proven successful in proving their idea, “they haven’t necessarily been able to execute at scale,” she added. Hume mentioned the high costs of using blockchain technology. These fees could increase as more people utilize it.
KuCoin plans to move to a new proof-of-stake cryptocurrency, which could reduce the computing power required to verify transactions. It’s unclear how this change will impact gasoline costs, “but scalability concerns will continue to compound as digital assets grow in prominence,” the latest Morningstar report said.
There’s a lot to be solved about how digital currencies will be competitive with Visa and Mastercard in terms of speed of transactions. Hume described the issue as a long-term technological problem.
Cryptocurrencies conflict
Cryptocurrencies are a massive problem from an environmental, social, governance, or ESG viewpoint. This is true regardless of whether the shift from proof-of-work to proof-of-stake that the blockchain-based platform Ethereum is spearheading is reducing the enormous energy consumption underlying cryptocurrency mining and verification.
The environment is a concern for bitcoin. That accounts for more than 40% of the market capitalization for cryptocurrency -continues to operate the process of validation where one transaction is enough to power the typical American house for two years.
Patchwork Regulation
The lack of precise and uniform cryptocurrency regulations consistent within and across different countries creates massive uncertainty for investors who invest in the long term. It’s still unclear within the U.S., for example, whether a cryptocurrency is within the rules of security that are subject to Securities and Exchange Commission regulations and when it is considered an asset or a commodity as bitcoin and ether have claimed.
In certain countries, cryptocurrency is banned altogether. China’s sudden ban on all mining and trading of cryptocurrency in 2021 is a notable instance, but it is by its not an exclusive one. Regulators are also worried by the frequent and frequent breakdowns of the infrastructure for cryptocurrency mining and trading, another area in which there is a lot of regulatory uncertainty.
Lack of Education
Education is a critical factor in the world of finance, especially in crypto, since the majority of people in the world view digital currencies as complex assets.
“Education is among the major obstacles the cryptocurrency asset market is confronting. The crypto-asset market is just beginning to develop and there’s never a better time than now to start investing in the crypto market, and start on a daily basis to check Bition Price and ethereum price . The education surrounding cryptocurrency assets is crucial as it helps inspire confidence in investors. you must always be aware of everything about what you’re investing in. It can help you sleep soundly at the end of the day. Easy,” Johnny McCamley, the founder of CryptoClear, made a statement.
Speculative Trading
A second reason is an increase in speculative cryptocurrency trading. Finance Magnates questioned Marc P. Bernegger, Bitcoin-pioneer and founder of the crypto fund. News regarding his opinions on the issue of hypothetical trading: “Most speculative traders in the realm of digital assets do not understand the bigger picture and long-term effects of Bitcoin. Instead of seeking short-term and speculative gains, it makes sense to research the history behind Bitcoin (among other things by reading the whitepaper by the founder(s) Satoshi Nakomoto) to grasp the purpose and motivation of digital currencies.”
