Dramatic gains are possible, but so are devastating losses, and investors should understand crypto’s wide-ranging risks. Here’s an overview of crypto volatility risk, technology risks, regulatory uncertainty and other issues that could affect the value of your investment.
Price volatility
Cryptocurrency prices can fluctuate wildly from week to week, or even within a single day. On May 19, 2021, for example, bitcoin’s price dropped 30%, after the Chinese government cracked down on bitcoin mining and trading.
Crypto prices may also rise and fall based on diverse factors such as changing public sentiment, world news, mainstream adoption, protocol upgrades, impending regulation, hacks, scams and more. Plus, crypto is still a relatively new asset class, and the market is still in the process of price discovery.
Technology risks
Cryptocurrencies’ underlying blockchain technology is built with numerous security measures, including decentralization, cryptography and consensus mechanisms to confirm that transactions are legitimate. However, no blockchain is immune to every threat.
Backing up your crypto wallet regularly and storing it safely helps to protect you against computer failure, device theft and your own mistakes—such as accidentally uninstalling your digital crypto wallet. But it’s harder to guard against threats such as software bugs, data glitches and 51% attacks (when a group of crypto miners takes control of more than half of a…
