Anyone investing in crypto-currencies should be aware of the immense dangers that the young, unregulated market brings with it. So far, no one can reliably predict how virtual currencies will develop.
Especially when trading, there is always the risk of a total loss, because the market value of a crypto currency is based solely on demand and can fall into a bottomless pit at any time. So you should really only invest if you can do without the invested capital.
No investor protection
The fact that crypto-currencies by nature escape any regulation by states consequently also means that there is no investor protection whatsoever. Be aware that no one will inform you about the risks of your actions and inform yourself in detail.
In principle, the value of a crypto currency is based on trust and acceptance. In contrast to established currencies such as the euro, dollar and co., which are monitored and hedged by central banks and states, however, behind a crypto currency there is only a technical system in which anyone can participate and for which the stability of the currency is irrelevant.
Between January and April 2018, all crypto currencies together lost around seventy percent of their market capitalization. Increasing attempts at regulation by various countries, such as South Korea, unsettled investors and caused them to withdraw billions from the heated crypto market. As a result, the exchange rates of the individual currencies collapsed as quickly as they had risen.
Crypto currencies are extremely volatile and exchange rates can change at a radical rate. So if you really want to trade in crypto money, you not only need to invest capital, but also a great deal of time and attention in your investment. If you keep a cool head with daily price fluctuations in the double-digit range, an investment in crypto currencies may be an interesting, speculative addition to the other investments in your portfolio.
People who own a large share of a currency could use it to manipulate the exchange rates to their advantage. In the case of crypto-currencies, there are no laws prohibiting this, nor are there control authorities to prevent such practices.
Converting crypto currencies into fiat money
Crypto-currencies cannot be easily exchanged into Euro or Dollar, because there are no stable exchange rates. Most of the time, you first have to exchange into one of the larger crypto currencies like Bitcoin and then sell it for Euros. This can become a problem especially with young currencies from one of the many new issues.
Sometimes transactions take quite a long time because the block chain is overloaded. In the time you wait for the transfer, the prices can fall due to the high volatility and you lose money.
In addition, you have no choice but to rely on the exchange rate information provided by the traders. These are also not subject to any controls whatsoever.
Crime and theft
Since cryptocurrencies guarantee anonymity, it is not necessarily possible to trace who owns them. Which makes them the perfect prey for cyber attacks. In January 2017, the largest raid to date took place: Hackers facilitated the Japanese crypto exchange Coincheck and its customers by 500 million NEM, at that time the equivalent of about 500 million €.
The oldest Blockchain exists since 2009 and since then it has been working its way up. So far there have been two incidents that have affected the Bitcoin based on it. It is not yet foreseeable whether this will be repeated in the future or even whether far-reaching errors could occur.
In addition to the drastic investor risks, crypto-currencies are characterized by another disadvantage: Their management and generation requires massive amounts of electricity.