If you’re considering investing in cryptocurrency, you may be wondering whether or not you should worry about the risks. Cryptocurrency prices fluctuate, and some financial advisors advise against it. According to Peter Palion, certified financial planner, it is safer to stick to a currency backed by the government. However, wealth advisor Ian Harvey, based in New York, believes that it is safe for investors to consider cryptocurrency. In his recent article, he explains the benefits of investing in crypto, and why investors should be wary.
Unlike traditional financial instruments, cryptocurrencies have no physical value and are traded for cash. Because they lack physical value, they are traded as derivatives based on the expected future value. Because there is no inherent physical value, cryptocurrencies rise and fall on an unpredictable supply and demand cycle. Because of this, individual investors have little or no idea when the cycle will cease. In addition, the volatility of crypto makes it a risky investment, but it is also extremely convenient.
In contrast, fiat money has an unlimited supply because governments and central banks can print new money whenever they wish. Cryptocurrency has a limited supply that is determined by a mathematical algorithm. For example, bitcoin, the first cryptocurrency, has a cap of 21 million coins and no additional coins are allowed to be created until that number has been reached. By the time that the limit is reached, the protocol will stop adding new coins and cryptocurrencies to the network.
Because it’s hard to verify the authenticity of cryptocurrency, the prospectus for a particular cryptocurrency is an important factor. The more detailed the prospectus, the more likely it is to be legitimate. Even if it is legitimate, the currency can be a target for scammers. While most countries consider crypto to be legal, China has banned it. As with all financial instruments, regulations and laws vary from country to country. So it’s important to do your research and understand the nuances of crypto before deciding whether to invest in it.
Many banks don’t offer virtual currency services, and some can even refuse to do business with companies that use the technology. Another issue with cryptocurrencies is their lack of consumer protection. While the FDIC provides protection for funds held in bank accounts, cryptocurrency users do not have such protections. Because crypto transactions are final, it may not be possible to get a refund if your cryptocurrency is lost. In addition, there’s no recourse for losing it.
Despite its lack of mainstream adoption, cryptocurrency is becoming a viable alternative to traditional payment methods. Major retailers, such as Nordstrom, eBay and Whole Foods, accept cryptocurrency payments. Likewise, other major online services and websites like PayPal and Etsy offer crypto services to their customers. If you’re looking for an investment opportunity, cryptocurrency can be a valuable tool. However, the risk of losing it is too high. As a result, many investors shy away from investing in crypto.