Is Cryptocurrency a Risky Investment? A Comprehensive Guide

Investing in cryptoassets can be a risky endeavor, but it also has the potential to be highly profitable. If you're looking to gain direct exposure to the demand for digital currency, cryptocurrency is a great option. However, if you're looking for a safer but potentially less lucrative alternative, you can buy shares of companies with cryptocurrency exposure. When it comes to cryptocurrency investments, one of the most important legal considerations is how central authorities view them.

In the US, individual investors are required to hold cryptocurrencies and must comply with capital gains tax laws when reporting their cryptocurrency expenditures and gains on their annual tax returns. Another risk associated with cryptocurrencies is related to their decentralized status and the particularities of transactions. Unlike physical currency or e-money transactions, which involve a trusted financial institution in the creation and settlement of deposits and credits, cryptocurrency transactions are completely decentralized. This means that if an exchange is hacked and customer funds are stolen, there is often no standard practice for recovering the lost funds.

If you decide to invest in cryptocurrency, you'll need to store it somewhere. You can store it in an exchange or in a digital wallet, such as one of the cryptocurrency wallets described in our blog post Which Cryptocurrency Wallet to Choose. There are many types of wallets available, each with its own advantages, technical requirements, and security features. As with exchanges, you should research your storage options before investing.

It's also important to be aware of fraudulent websites and how to spot them. Cryptocurrency is very risky and is not like conventional investment in the stock market. Additionally, although some of bitcoin's consumption is renewable (an estimated 39%), fossil fuels are still used to power the mining and servicing of the digital currency. Banks continually weigh up the risks associated with cryptocurrencies and some make it easier for their customers to move money to and from cryptocurrency exchanges.

However, the UK's financial watchdog has blacklisted cryptocurrency exchange Binance and banned it from any regulated activity due to concerns about its money laundering controls. This means that financial services cannot offer retail customers contracts for difference, spreadbet options, futures, or exchange-traded notes that focus on digital currencies. On 18 May, three state-backed organisations announced that there would be no protection for consumers if they lost money trading cryptocurrencies. The stablecoin has also not been without controversy: last year it was fined by the New York attorney general and banned from the state. Times Money Mentor has been created by The Times and The Sunday Times with the aim of empowering readers to make better financial decisions for themselves. We do this by giving them the tools and information they need to understand their options.

We do not make any recommendations in relation to regulated activities as we are not regulated by the Financial Conduct Authority. In some cases, we may provide links where readers can purchase a product from a regulated supplier with whom we have a business relationship. If you purchase a product using a link, we will receive a payment which helps us maintain our content and continue investing in our award-winning journalism.

Faisal Abdul
Faisal Abdul

Extreme internet specialist. Wannabe twitter junkie. Friendly zombie geek. Freelance twitter buff. Professional student. Passionate tv evangelist.

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