Cryptocurrency is gaining popularity among investors for various reasons, including its unique structure and the potential for high returns.
According to Chainalysis, 15 million Indians are now trading digital coins, and CoinSwitch Kuber records about 14+ million users in their platform alone. This puts India on par with the United States, where 23 million people currently trade cryptocurrency.
While most people are familiar with common currencies and assets, potential investors are unaware of the vast array of assets available or how they work.
Before you invest, you should be aware of the volatile nature of various cryptocurrencies and potential security, legal, accounting, and tax concerns. In the subsequent sections, We'll go over the potential risks in crypto investing and ways to manage the risks involved in cryptocurrency trading.
High volatility
Volatility is one of the factors driving the crypto market. If you don't know what volatility means, it is the sudden shifts in market sentiment that can result in significant and rapid price movements.
Volatility is not something that is only concerned with the crypto market. They are visible in other financial sectors, but the intensity and spread are higher in the crypto space. There are several reasons for the high volatility in the concerned asset class, including its nascent schematics as compared to other forms of investment.
But there are a few reliable and relevant methods to deal with it like a boss. Let's go over it in more detail later in the article.
Market risks
Like other commodities, crypto assets are exposed to risks arising from market movement. There are two types of risks associated with cryptocurrency trading, i.e., systematic risks and unsystematic risks. The systematic risk is present in all cryptocurrencies because it is inherent in the crypto markets. Unsystematic risk, which is particular to a single crypto asset, could involve a change in the company's fundamentals.
Tax-based concerns
There is some uncertainty regarding the tax status of cryptocurrency investments and returns. Depending on the jurisdiction, bitcoins and other cryptocurrencies may be classified as assets in certain countries and as currency in others.
For example, El Salvador has made Bitcoin a legal tender. Whereas in countries like the US and Canada, trading in virtual currencies is legal. On the other hand, China and Russia have even prohibited trading practices.
Purchases and transactions in digital currency, for example, may be subject to sales or value-added taxes (VAT). Depending on where they tango, digital currency investors may need to seek tax advice on a regular basis.
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