This week, many investors had a front-row seat to the conflict between two of the largest cryptocurrency exchanges, FTX and Binance. The aftermath shows a grim picture of frightened investors looking for a way to minimize risk and cut their losses after some steep declines in popular coins like Bitcoin and Ether.
Others are taking this opportunity to capitalize on plummeting prices and “buy the dip.”
Whether you’re interested in buying or selling crypto, the most popular avenues usually involve purchasing or selling coins through an exchange via an app or a website. But what’s the safest way to go about buying and selling your cryptocurrency? Well, it’s complicated.
Crypto is still the new kid on the block when compared to other assets. There’s always some level of risk involved when it comes to investing, but as a newer, alternative investment, risk is almost certainly part of the deal. What makes crypto attractive to so many investors is the loose regulations around this investment. Compared to other types of assets like stocks, cryptocurrency is not currently well-regulated.
The downside is that putting your funds behind crypto exposes you to greater risk of fraud, losing your funds in the event of bankruptcy, and major losses due to increased volatility.
Many crypto enthusiasts argue that regulation could stunt innovation and defeat the purpose of decentralized currency, which is to cut out middlemen like big banks and the federal government. But industry pros argue that the cryptocurrency market is flawed in a big way, and investors are paying the price.
“Many crypto–assets operate on open, permissionless networks that allow anyone, anywhere to trade on the network, which—by design—makes it difficult to track individual actors,” said FDIC Acting Chairman Martin J. Gruenberg at the Brookings Institution on The Prudential Regulation of Crypto-Assets. “This design feature also makes it nearly impossible to ensure compliance with anti–money laundering and counter terrorism financing requirements.”
Still, even with the potential risks associated with investing in crypto, cryptocurrency can be a valuable way to diversify your investing portfolio and spread your risk across a few different asset classes.
Some investors regard cryptocurrencies like Bitcoin as a valuable hedge against inflation because there are a fixed number of coins that can be mined, unlike regular currency controlled by the central bank which sees regular increases and decreases in supply—although some experts say this has changed over time.
If you’ve decided to invest in crypto, there is no surefire way to eliminate risk, but there are a few steps you can take to invest safely.
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