Cryptocurrency is decentralized and doesn’t require any third party. The cost of processing transactions is also lower. Last year, $5.6 billion was raised through initial coin offerings. Companies have found a way to raise capital by developing their own cryptocurrencies. However, many small-time investors have become victims of scams and unscrupulous individuals who offer suspicious digital coins that have volatile value or don’t exist at all. While the volatile value is a normal characteristic of digital currencies and investors are fine with it as they’re hoping that the cryptocurrency will quickly increase in value, most of them don’t have any idea when to cash out. There’s also the question of whether the system will allow them to do it.

Risks of Investing in Cryptocurrencies

Jay Clayton, Chairman of Securities and Exchange Commission, noted in a statement in December 2017 that there’s substantively less investor protection in ICO and cryptocurrency markets than there is in securities. He said that these markets span state borders and that substantial trading may take place on platforms and systems outside the U.S. This increases various risks such as the possibility that market regulators may not be able to recover funds or track bad actors.

While investors may enjoy significant returns, there are various risks that one must consider before jumping into the cryptocurrency bandwagon. Cryptocurrency exchanges have been hacked by malicious individuals and there is also the risk of lost tax revenue, criminal activity and fraud. Regulatory scrutiny has caused the value of cryptocurrencies to drop. Securities and Exchange Commission announced in early March that digital asset exchanges should be registered with the agency. In mid-March, the value of cryptocurrencies dropped to $60 billion.

China barred initial coin offerings in September 2017.  Twitter, Google, Reddit and Facebook have also banned all cryptocurrency-related ads.  Ads for cryptocurrency exchanges, cryptocurrency trading advice, cryptocurrency wallets, initial coin offerings and related content are no longer allowed. This initiative is driven by their goal to protect the community and themselves from unscrupulous activities related to digital currencies.

The value of cryptocurrencies could increase or drop significantly at any moment. The high volatility of cryptocurrencies may not be favorable for those who want a more stable source of profit. Anyone who wants to join the cryptocurrency market should first conduct their own research about the digital currency that they are interested in. This can help them avoid major losses and decide whether it is really worth investing in cryptocurrencies.