This week, many investors had a front-row seat to the conflict between two of the largest cryptocurrency exchanges, FTX and Binance. The aftermath paints a grim picture of scared investors looking for a way to minimize risk and cut their losses after some steep falls in popular coins like Bitcoin and Ether.
Others take the opportunity to take advantage of falling prices and “buy the dip.”
Whether you are interested in buying or selling crypto, the most popular avenues usually involve buying or selling coins through an exchange via an app or website. But what is the safest way to buy and sell your cryptocurrency? Well, it’s complicated.
Cryptocurrency is inherently risky
Crypto is still the new kid on the block compared to other assets. There is always some risk involved when it comes to investing, but as a newer, alternative investment, risk is almost certainly part of the deal. What makes crypto attractive to so many investors is the loose rules surrounding this investment. Compared to other types of assets such as stocks, cryptocurrency is currently not well regulated.
The downside is that if you put your money behind crypto, you expose yourself to a greater risk of fraud, losing your money in the event of bankruptcy, and large losses due to increased volatility.
Many crypto enthusiasts argue that regulation can stifle innovation and defeat the purpose of decentralized currency, which is to cut out middlemen like big banks and the federal government. But industry professionals argue that the cryptocurrency market is flawed in a big way, and investors are paying the price.
“Many cryptoassets operate on open, permissionless networks that allow anyone, anywhere to trade on the network, which — by design — makes it difficult to trace individual actors,” said FDIC Acting Chairman Martin J. Gruenberg of the Brookings Institution on The The Prudential Regulation of Crypto Assets. “This design feature also makes it nearly impossible to ensure compliance with anti-money laundering and anti-terrorist financing requirements.”
The benefits of investing in crypto
Still, even with the potential risks associated with investing in crypto, cryptocurrency can be a valuable way to diversify your investment portfolio and spread your risk across a few different asset classes.
Some investors view cryptocurrencies like Bitcoin as a valuable hedge against inflation because there is a fixed number of coins that can be mined, unlike fiat currency controlled by the central bank, which sees regular increases and decreases in supply – although some experts say this times have changed.
How to invest safely
If you have decided to invest in crypto, there is no surefire way to eliminate risk, but there are a few steps you can take to invest safely.
- Use a secure device: Public computers and WiFi networks expose you to potential fraud. When buying crypto, you will likely be asked for personal financial information that you don’t want hackers to get their hands on. Choose to use your personal computer and a virtual private network (VPN) to help establish a secure connection between you and the Internet and keeps your sensitive information safe.
- Choose a reputable exchange: You will want to explore different crypto exchanges and compare the cryptocurrencies offered, fees associated with buying and selling crypto, and the track record of the exchange. Do your research to determine if this exchange is well-established and if there have been any security breaches in the past. Read each exchange’s user terms and agreements carefully to learn more about where your money is kept and what happens to your money in the event that the exchange goes bankrupt. You can also spend some time figuring out if there are any big red flags to watch out for.
- Think carefully about how you plan to store your crypto: When you invest in crypto, you have the option of keeping your currency in a web-based wallet hosted by your exchange. While this can be a low-lift option, it can cost you down the line if you need to turn your coins into real cash or if your exchange fails. Alternatives like “hardware wallets” keep the private key of your cryptocurrency safe on an offline storage device. Alternatives like “hardware wallets” keep the private key of your cryptocurrency safe on an offline storage device.
- See your budget: Whether you’re investing in crypto, stocks, bonds, commodities, or any other type of asset, you need to carefully assess your current financial situation to determine how much you can comfortably afford to invest. There are no guarantees in the world of investing and it is never a wise idea to risk more than you can afford to lose.
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