I've wanted to cover this topic for some time because I feel a lot of investors want to see big returns while refusing to understand the risks involved. Then suddenly once the market swings downwards, irrational investors panic and end up dumping assets taking a loss. If you don't understand the risks then you may find yourself struggling to achieve impressive returns.
How can you evaluate an asset if you don't understand the risks that carry along with it? And on top of that, in MOST cases, things that carry the highest risk you would probably want to avoid. But again, how do you determine the risk factor? That is the question I will cover in this topic.
Keep in mind this is all my personal opinion and I am just speaking what's on my mind. Obviously this post is not meant to scare you, but allow you to remain confident during the highs and lows. So lets begin by highlighting some key risks below.
THE REGULATIONS
As new as blockchain technology is, we have a long way to go before everything matures into a mainstream supported market. Of course I feel mainstream would love to have crypto, but ONLY if it's regulated. As a large investor myself, I would rather see rules and regulations enforced while removing services that don't comply. Why? It's because I wouldn't want to risk losing my investment. I don't care if it's an asset, exchange, or a business operating in the real world.. If you don't follow the rules, then you are putting yourself and your investors at risk.
Risk vs Reward says... Make sure the companies you invest in have the ability and resources to comply with rules and regulations. For example, If the underlying business is enforcing AML/KYC requirements, then I would not see this as a negative, but a positive. The business (and asset) now has a higher chance of surviving an authoritative crackdown.
THE EXCHANGES
Not many people realize how much exchanges play a role in providing a clean, fair marketplace. Without auditing exchanges there is no way to tell if exchanges are insider trading or hedging bets against the market. Many people can claim exchanges are manipulating the market, but without enforcing regulations, crackdowns and audits, we wouldn't know. And when this does happen on a larger scale, how do you think the market will react when/if exchanges are being seized/shut down by authorities?
Risk vs Reward says... When exchanges don't comply with rules and regulations, especially when it deals with user finances.. things can get ugly. These exchanges (and your assets) could suddenly disappear or close down without warning. Or perhaps in some cases, governments may even seize the domain.
THE MANIPULATION
This is one of the largest issues crypto faces. When people think of manipulation they often think of traders, exchanges, and financial institutions.. And although this may be true (as mentioned above) manipulation can come from anywhere, including the assets themselves. A large (and I mean large) amount of assets on the market are simply manipulating investors into buying assets that have absolutely no long term value.
Risk vs Reward says... Research, research, research! The price of something is ONLY what someone is willing to pay for it. If there is no demand for the asset, the true value may always be $0.
THE WHALES (BIG INVESTORS)
It's a no brainer there are whales in this industry.. From BTC to ALTs. But how many of these whales actually have investing experience? How many even care? Some of these whales bought in very early, others because they come from a wealthy background or just worked hard and earned every dollar they invested. Either way, these whales can exit at any time and not just from 1 asset... but numerous assets. It's hard to explain the amplification that a growing whale could have on the market. In the long term this whale could become enormously large, and then dump. (This is already going on)
Risk vs Reward says... Every investment is a risk, but with research you should be confident it's one worth taking. When a whale exits or when the market swings low, this should not affect your judgement. Instead you could use this as an opportunity to buy the asset at a discounted rate.
BAD PR
People make mistakes, it happens.. however, when it comes to companies, investors are not as forgiving. A single piece of bad news can cause an asset to start tumbling down in value. But just because others decide to bail doesn't mean it's always the right decision. In fact, like Benjamin Graham says "The best time to buy an asset is when it's on the operating table.".
Risk vs Reward says... The market is very volatile and there will be many highs and many lows in general as it is.. If you are able to be patient and ride out the typical swings, then you should be confident in riding out a low due to bad PR. Or, buy more because you truly believe in the companies long-term vision.
FIAT vs BITCOIN
Without creating too much controversy you must understand the risk posed when an asset is only paired to BTC. As time goes on more crypto will be paired to the fiat which will start affecting the BTC dominance / dependency. In addition, rules and regulations may push mainstream adoption to only allow crypto to be purchased using the fiat, not BTC. Throughout this maturing process the market will be volatile.
Risk vs Reward says... Assets that are focusing on getting paired to the fiat will be less volatile long-term as the BTC dominance lowers. This is not implying the BTC value will be lower, but trillions of dollars could enter the crypto market via the fiat without BTC.
SCAMS OR NOT
Okay so let's try and define the word 'Scam'... Would it be someone who is after self gain with no morals? Selling assets that have no value? Someone in their basement who made a coin overnight? Or maybe a pyramid scheme? How about Bitconnect? False advertising? How about not getting what you paid for? I could go on and on... point is, all these things exist in crypto... and avoiding getting scammed comes down to one primary thing.. "Consumer Awareness" If you do not research or understand what you are investing in, there is no one to blame but yourself when things get ugly.
Risk vs Reward says... Research everything you invest in! You must actually do some work by researching and learning about the company, the market and understand what you are investing in. Become confident in your investment. Consumer awareness is the best way to minimize your risk.
SECURITY & HACKS
When it comes to finances, security is everyone's big concern. Because this industry is relatively new it is more vulnerable to phishing, deception, exploits, bugs, glitches, hacks and flaws. We all must be aware that the risk of a major hack or major loss indeed has it's own odds. Which, depending on the scale, could have a major impact on the market.
Risk vs Reward says... You can reduce the risk of loosing assets in this event by storing them in a wallet (off the exchange). Although, as we've seen in the past, this will not stop the market from possibly taking a turn for the worst. In this event your patience will really be tested.
THE ASSETS
Everyone should already know that everything you invest in is a risk. There are NO exceptions! I just listed a bunch of risks above that would affect the entire market alone. But when it comes to specific assets it comes down to research and believing that what you invested in 'holds a value'.
Risk vs Reward says... The higher and/or faster the market cap rises the riskier an asset becomes. The opportunity for impressive returns are very far and few with high market cap investments (but they are there). When looking for impressive returns you must research and find the next big 'undervalued' blockchain company. Once you are confident and ready to invest, you must also be patient.
RISK VS REWARD
So as you see, the market is not all sunshine and rainbows with rockets taking off left and right. (Probably what some expected when they first started investing) There is no "get rich quick" strategy and there will certainly be highs, lows, bubbles, dips, crashes and unexpected results. If you don't understand these risks then you may find yourself in a panic the next time the market swings low. So be patient! The entire blockchain infrastructure and the companies utilizing this innovative technology are not built overnight.
The best investment you can make is investing in yourself! When you take the time to research, you will find yourself coming across great companies, amazing teams, and revolutionary blockchain services. There are many great investment opportunities out there, many! But the most important thing you need to achieve impressive returns, is confidence and patience.
Regards,
BTC2018
Remember no matter what I post or what I say, you should always do your own research, come up with your own assessment and talk with your financial adviser before making any investment decisions.
[link] [comments]
from Cryptocurrency news and discussions. https://ift.tt/2DQBgCn
No comments: