Indeed, 2021 has been a very special year for the cryptocurrency market. Many digital coins reached near heights between April and June. Many people have come to realize that it is possible to make a lot of money by investing in cryptos. But that is not the end of the story.
While most crypto curious people are aware of the possibilities of becoming rich by investing in digital assets, the majority of them are scared of the market. But is crypto too risky? Is it something you can handle or something to run away from?
The simple truth is that cryptocurrency trading and investing are quite risky. It is possible to become filthy rich when the market favours you. At the same time, it is possible to lose almost all your money when you make a mistake on the market. So how do you handle this?
So many experts have been discussing the risks of investing in cryptocurrencies and offering pieces of advice that can help newbies and potential investors manage these risks. Here, we are going to consider the positions of ten experts on the topic.
You may have so many ideas on what to do to manage your risks, but it is always good to consider the opinion of those who have been in the game of trading and investing long enough.
10 Expert Views on the Risks of Cryptocurrency Investing
Without further ado, here are the views of ten experts on the risks of trading and investing in cryptocurrencies:
Patrick Moore is the owner and main writer for Cryptowhat. He is a cryptocurrency expert and is known for his dedication to providing news and education about the cryptocurrency universe. He believes cryptocurrency is risky and warns potential investors to tread with caution, especially when they are venturing for the first time.
In his words, “crazy profits have been made just about as much as losses in the industry. As a crypto expert, I wouldn't advise anyone, least of all someone looking to dabble in the industry to sink their life's savings in crypto. The risk is still high: 10% or 5% of your investments would be great, but not all of it."
The words above are as honest as they come. The cryptocurrency space is truly risky, and new entrants have to be careful how they invest, how much to commit, and where to buy. You should be aware that digital currencies are extremely volatile. You should be financially and emotionally able to stomach the wild swings the industry is known for.
In line with what Patrick said above, Tanya Zhang, who is the co-founder of Nimble Made, stresses that crypto trading and investing is not for people whose investment portfolios and mental health can manage the issues it can bring.
According to her, “cryptocurrency is currently all the rage, but keep in mind that it is still in its infancy. Investing in something new comes with its own sets of obstacles, so be ready. If you want to participate, do your research beforehand and start with a small investment.”
For an industry that is less than two decades, it is surprising that the crypto space has recorded so much growth already. However, we all need to know that it is still a relatively new industry and that a lot can change in the coming years.
A mental health coach, Jared Tendler agrees wholeheartedly with Tanya Zhang. The author of ‘The Mental Game of Trading,” strongly believes that one of the major factors behind the rising interest in cryptocurrencies is the impact of trading psychology.
In his words, “people need to understand how Fear of Missing Out can impact their decision making. It is important to learn to isolate elements like FOMO that might force them to jump into positions outside of their strategy.”
Jared is also concerned that inexperienced investors can make a lot of mistakes when they rush the decision to invest in crypto. He warns of the Dunning-Kruger Effect, which is basically the tendency of 'poorly skilled performers to overestimate their abilities.' Of course, it can lead to very serious mistakes.
He added that “in the cryptocurrency market, that means inexperienced investors/traders become overconfident because they're unaware of how little they know and are therefore unable to recognize their own incompetence. That makes them very susceptible to lose in the context of other more experienced investors/traders.”
While crypto trading/investing can be fun and rewarding, it is important for everyone to understand their abilities and avoid overstepping their limits.
Ben Reynolds is the CEO of Sure Dividend and from his words, we can say he isn’t averse to investing in cryptocurrencies at all. However, he warns that investors should not treat cryptocurrency trading/investing as a conventional way to invest money. He believes that it can be in the portion of aggressive investment, which should be a small portion of overall investment.
In Ben’s words, “of course, always remember, investing in any asset, especially crypto, means only using money that you’re certain you can lose. Investors should also consider other facts like, such as lack of regulation and technical issues that could prevent you from accessing your money.”
Clearly, Ben Reynolds wants people to invest wisely. His words are true in many ways. Taking risks shouldn't mean putting money where the chances of loss are too high. There are sure ways to minimize risks while investing in cryptos. When you do, the chances of success improve significantly.
There are financial experts who strongly believe that cryptocurrency is not an ideal investment option for anyone at all. Jack Hill, the CEO of DebtHammer, is one of such persons. In fact, he is a self-styled 'outspoken critic of cryptocurrency.' He knows that the cryptocurrency space is ruled by speculations and hype, and he will have none of that.
According to Jack, “as a concept, I find them to be steeped in fake advertising, especially playing off of peoples’ fears and valid concerns. Dogecoin, for example, is being pushed up near the $1 mark. But all that is artificial inflation. It could crash tomorrow and people who were suckered into it could lose everything.”
Obviously, Jack Hill is also disappointed at the way the prices of cryptocurrencies can be influenced easily. He believes that something “that can be influenced by a single tweet from a billionaire is not a wise investment decision.”
Jack is entitled to his opinion, and he is taken seriously because his opinions are somewhat informed opinions. He knows what he is saying, but there are clearly aspects of cryptocurrencies that he knows little or nothing about. It is wrong to judge the entire cryptocurrency universe based on the characteristics of a few networks and tokens.
There are experts who will not declare cryptocurrency trading/investing as a scam but likens it to gambling. Michael Shea, a respected financial advisor at Applied Capital, is one of such persons. It is obvious he will not encourage any of his clients to dabble in crypto. He clearly said that himself.
“I would not recommend dabbling in crypto. There has been a lot of hype and speculation around the currency. This has brought a lot of attention to it and driven up prices in recent years. The problem is that you're not buying an income-producing asset. There is not a future income stream you are purchasing like when you're buying a business."
Obviously, Michael is obsessed with future cash flow. His next words say as much.
“People value an investment in a company based on its projected future cash flows. The current stock market price reflects this information which changes from day to day. In crypto, you're buying a currency that may or may not have sustainable value due to lack of income and lack of regulation. There are still too many unknown risks associated with it which makes it too risky of an investment in my opinion."
Good thing that Michael concluded with the words ‘in my opinion’. His opinion is absolutely sound, but there is sustainable value to some crypto assets. You just need to know the right cryptos to buy.
Robert R. Johnson
Most financial experts will always advise potential investors to focus on traditional investing, rather than dabble into cryptos. Robert R. Johnson, a professor at Heider College of Business, Creighton University, is one of such persons. He feels that crypto is just too risky and unstable.
In his words, “my advice would be just don’t do it unless you are willing to lose your entire commitment. Don’t even think about it. The major disadvantage in speculating in Bitcoin or any other cryptocurrency is that Bitcoin has no intrinsic (real) value. One cannot invest in BTC, one can only speculate in BTC. For the vast majority of investors, the KISS mantra – keep it simple, stupid – should guide their investment philosophy. The idea behind index investing is ‘if you can’t beat ‘em, join ‘em.’ Investors simply can’t afford to make oversized bets on individual securities. Investing in a broadly diversified basket of securities is a prudent strategy.”
There are obviously lots of sound arguments there, but the professor is clearly underestimating the potentials of the cryptocurrency universe. He is probably unaware that some crypto networks and their native coins solve real-life problems and have been adopted by many reputable entities.
Adam Garcia is the founder of Stock Dork. His conservative views of cryptocurrencies are funny to some extent. He has never supported investing in cryptos, claiming that they are as "hot-tempered as a 12-year old."
If you have ever traded cryptocurrencies in the past, you may have an idea of what he is trying to achieve with the comparison above. Explaining further, he said, “You never know what you’ll get each new day. Cryptocurrencies have tremendous ups and downs in their value. There’s no doubting that some are really popular at the moment, but we’re not sure how long they’ll last. The price reduces when someone sneezes! Investing in cryptocurrencies is, to put it simply, risky.”
Of course, investing in cryptocurrencies is risky, but there are exaggerations in the comment above. There are coins that are not as volatile as others and there are some that are actually stable, including Tether, the stablecoin pegged against the US dollar.
Some of the big names that have backed cryptocurrencies have several wonderful reasons to back their support of the growing industry. One of the biggest arguments is that cryptocurrencies can be used as a hedge against inflation, in spite of their volatile nature. Jeff Hancock, the CEO of Coinpass, believes that the crypto universe is an excellent alternative to traditional banking systems.
Making the case for cryptocurrencies, Jeff said, “Everyone should be looking at a small venture into crypto. Crypto is not only an emerging technology but an emerging asset class. Bitcoin has been the largest appreciating asset in the last 10 years and the tokenization technology will affect many other, if not all markets in the future. Future markets will tokenize their stocks, shares, oil contracts, commodity futures all based on the same tech as Bitcoin. There could even be Bitcoin trading pairs similar to what we see with the US dollar as a reserve currency.
Clearly, Jeff is a sort of a visionary. His thoughts may seem too far-fetched, but there are lots of possibilities in the cryptocurrency universe as we have come to see in recent years. Jeff Hancock also encourages everyone to invest in cryptos, even if it means a little percentage of an overall investment portfolio.
In his words, “having even a small disposable amount of capital in one’s portfolio for crypto exposure will ensure an investor isn’t left behind when the market starts to grow further. With increasing regulation for crypto businesses global, more market participants are set to enter into space in 2022-2025.”
We’ve said t before – Jeff Hancock is a visionary, and there is a good chance that his predictions will work out.
Connor Brown, the charismatic founder of the website, After School Finance, is an outspoken supporter of cryptocurrencies. He may not have fancy educational achievements, but he has done well in online trading and can stand shoulder to shoulder with experts.
Connor believes everyone should invest in cryptocurrencies only after they have taken care of their major investments. According to him, “so, max out your 401K and your IRA and then dabble in a bit of crypto. But you should only invest in crypto with the understanding it is very volatile and overall a risky investment. Of course, like all high-risk investments, it does have the potential for high rewards. As long as you’re responsible with other investments, there’s no reason to not give crypto a try. You can consider it an investment experiment that just might pay off big.”
That’s just about the most honest advice about crypto trading out there. While he’s trying to encourage everyone to invest in crypto, he’s doing it in a subtle yet confident manner. He’s also being very honest.
Should You Invest In Cryptocurrencies? Our Opinion
Cryptocurrency is quite risky – we all know that. But there is an element of risk in all types of businesses and investments. Also, risk-takers are the most successful people in life. Yes, we believe everyone should invest in cryptocurrencies. We also believe that crypto converts should invest wisely.
We agree with most of the expert opinions discussed above. However, we align with those who are positive about cryptocurrencies. The crypto market is developing at an unprecedented pace, and many of the networks solve real-life problems. Many cryptos have also been adopted in different industries, making them valuable assets, even outside their respective ecosystems.
Trading/investing in cryptocurrency can be as rewarding as it is risky, if not more. You can earn a lot of profit when you invest the right way. You need to know the right coins to buy, when to buy, when to sell, and when to hold an asset for long-term purposes. It is all about developing or adopting the right strategy for your portfolio.
Important Tips for Investing In Cryptocurrencies
There is a lot of information in the expert opinions above. We understand that many readers may find it challenging to pick out the most important points. In that light, here are general tips that can help you trade or invest in cryptocurrencies the right way:
- Make sure you are financially and emotionally ready before dabbling into cryptocurrencies. Do not let the Fear of Missing Out lead you to make the wrong call.
- Do not go into cryptocurrency investing with your life’s saving because the market is volatile, and you can lose your money. In other words, only invest money that you can lose. Of course, you shouldn’t even think of borrowing money to invest in cryptocurrencies.
- Research properly before investing in any digital asset. You should also learn how to distinguish authority websites like Trading Education from the rest.
- Don’t buy a cryptocurrency simply because the price is low. There are several other factors to consider, such as market capitalization.
- Have a defined motive for entering each trade because crypto trading is mostly a zero-sum game that can go either way.
- Watch out for scams as there are several con artists parading as crypto experts. It is always better to trade with reputable platforms and brokerages like eToro.
- Secure your cryptocurrency to avoid theft by hacking. This normally happens at exchanges, so it is better to store your digital assets in digital wallets.
- Diversify your cryptocurrency investment. It is always better to have different assets in your crypto portfolio.
- Track your results and note the strategies that work for you and those that don't work.
- Take continuous learning seriously. Always read relevant cryptocurrency trading articles and take quality trading/investing courses to hone your skills. They will help you minimize your risks and stand a better chance of making profits.
Are You Ready To Dabble In Cryptos? Always Choose the Smart Way of Investing
Cryptocurrency trading and investing can be quite risky. At the same time, it can also be highly rewarding. Many financial experts agree that investing in cryptocurrencies is not a bad idea. Most progressive advisors will encourage you to go into crypto trading/investing, but you must do so with caution.
One of the best ways to minimize your risks is to research properly before making any investment at all. It is always helpful to study the market at all times and take a decision only after diligent research. Trading Education always has the right information to guide you and help you make the best decisions for your investment portfolio.
eToro – The Best Platform to Buy Cryptocurrencies
eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.
Virtual currencies are highly volatile. Your capital is at risk.