5 Risks Of Trading In The Crypto Market 

Top Five Risks That Every Cryptocurrency Investor Has to Face  

Many widely consider cryptocurrency a riskier investment wherein there is a possibility that you can lose your principal amount.  

However, on the other side, cryptocurrency also allows you to earn handsome profits, and that too in a brief period, but to do that, you face several associated risks.  

Let us now have a look at them:  

1. Volatility in Prices  

• It is the substantial risk associated with trading in the crypto market. A decentralized investment asset, Cryptocurrencies, and no one regulates it. The crypto prices operate on sentiments, and there is nothing like value investing or fundamental analysis.  
• “It was yesterday that I invested $50,000 in a cryptocurrency. It has been less than 24 hours. I am shocked to see the value of my investment reducing to half. The reason is simple. The world’s richest man tweeted that he no longer holds it,” said Olivia Jackson, a resident of the Greater Toronto Area and a first-time crypto investor.  
• A similar incident happened on 19th May 2021 when the price of Bitcoin (the most popular, invested, and traded cryptocurrency) crashed by 30%. The news is that the Chinese Government is cracking on the mining and trading activities related to cryptocurrencies.  
• Thus, cryptocurrency investment is the summit of speculation. The crypto price you invest today might increase manifolds the next day or reduce to zero within hours in the wake of unwelcome news.  

2. Cryptocurrency Scams  

 Scammers and fraudsters are present in every investment market. And even the sophisticated cryptocurrency is not immune from such scams.  

As per a study conducted by the Federal Trade Commission (FTC), only between October 2020 to March 2021, over 7,000 people were victims of the crypto scams. They suffered accumulated losses running into USD 80 billion.  

Do you remember the cryptocurrency “SQUID,” introduced after the success of Netflix’s Korean show “Squid Game”?  

Yes, this is a classic crypto fraud. The “SQUID” was a fake cryptocurrency. As soon as its prices skyrocketed because of an instantly gained strong demand and popularity, its developers vanished after conning investors of more than USD 3 million.  

We know this technique as “rug pull,” using which the developers:  

• Caused the market price of the “SQUID” to increase at a rapid pace  

and  

• When it peaked, they dumped all their holdings in the market and disappeared  

It is a mess, and it does not stop here. There are frequent cases of:  

• Unauthorized access made into the digital wallets of investors where they are holding cryptocurrencies  

• Making you transact and transfer the cryptocurrencies held by you to the wallet of a scammer  
• Social Engineering Scams, romance frauds, phishing frauds, imposter, and giveaway frauds, etc.  
• Cryptocurrencies operate on a decentralized platform and lack any KYC requirements. It further promotes illegal activities and encourages fraudsters to engage in them.  

3. Lack of Regulatory Framework  

• Any financial institution (public or private) or any government authority does not back the entire ecosystem of cryptocurrencies.  
• It is just that a few developers minted a cryptocurrency. It gained popularity, and people started buying it using online crypto exchanges, hoping for a surge in value.   
• Thus, with fraud, crypto investors practically have no recourse as there is no established law which regulates and punishes the culprits. This lack of recourse makes such investments even more speculative and susceptible to fraud.  

4. Lack of Tax Awareness  

• It is pertinent to note that Canada Revenue Agency (CRA) levies a tax on most cryptocurrency transactions. However, you are not required to pay any tax purchasing and then holding cryptocurrency.  
• The cryptocurrency is still not a legal tender in Canada, and hence CRA taxes it by considering it a “commodity.” As per the Income-tax Act:  
• You are officially required to report losses and gains that arise from your crypto transactions  
• It can be taxed as either:  
  • Business Income, where 100% of the profits earned from cryptocurrency are taxable or 
  • Capital Gain, where 50% of the profits earned from cryptocurrency are taxable  

• With a crypto loss, it can be treated as a Capital Loss or Business Loss  

Most Canadians are still not aware of the taxation structure associated with trading in cryptocurrencies, which leads to penalties and interest charges. These taxation laws keep changing, making it hard for crypto investors to track them and remain compliant.  

5. Complex Crypto Holding Structure  

You lose your wallet’s private key; you lose your coins. The rule is simple, and it applies to all. There are frequent stories of several crypto investors sitting on a pile of notional profits but cannot cash them out because they have lost their private key.  

Guessing your code can even come to your rescue, but the attempts are limited. In case you have exhausted them, your coins will get encrypted forever.  

Wrapping It Up  

Cryptocurrencies are decentralized and deregulated. They are a product of some graphics-rich computer systems that work day in and day out to mine the transactions.  

Owning a coin is not a guarantee of profits. It only gives you a glimmer of hope of earning profits. And you do not fall prey to the seamsters!  

So, is it a haven? Let us know what you have decided.  

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