Be aware of the dangers of a one-size-fits-all approach to crypto investing
Cryptocurrencies and blockchain technology have the potential to transcend national borders and remove geographic restrictions. People all over the world can buy the same digital assets, although access may vary. Those in economically unstable countries can access the resilience of stable coins denominated in US dollars. But as mass adoption approaches and governments grapple with regulatory challenges, new barriers stand in the way of investors.
Although crypto has the potential for global adoption, a one-size-fits-all approach to investing will not serve unique investment needs. Each investor’s situation is different, not only based on the ownership structures available in their jurisdiction, but also the types of investments they wish to pursue and their risk appetite. The lack of personalized solutions hampers both beginners who are new to the space and experienced investors who want to strategically optimize to suit their own needs.
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From an individual’s perspective, navigating the myriad of considerations across investment decisions, structuring, operational security and regulatory considerations is difficult and daunting. The daunting tasks for newcomers to make decisions across the choice of wallets, exchanges, assets and devices before arriving at their first transaction should not be done without expert guidance. Newbies are often attracted by the highly attractive and advertised opportunities to invest in crypto, but they should also be made aware of ever-evolving examples of scams, hacks and busts within the asset class. In the past year alone, millions of crypto investors saw their assets frozen due to mismanaged and faceless investment apps.
The collapse of FTX, Voyager and Celsius revealed an obvious problem in the path of crypto’s mass adoption. Many users have lacked proper guidance and treated these exchanges with the same risk tolerance as they would with regulated banks rather than new technologies, and the security of their assets suffered accordingly. Investors gave up control of their private keys and when the platforms failed, their money was lost. It is important for crypto holders to understand where their assets are held and who is responsible for their security. This problem reflects, among other things, the need for broad crypto education.
Block Inc. conducted a study on Bitcoin knowledge and perceptions earlier this year. The survey clearly highlighted the need for crypto education. It revealed that the main reason people don’t participate in crypto is lack of knowledge. Crypto is often seen as a lone wolf game. The status quo forces people to learn everything on their own or sacrifice all autonomy on a faceless centralized financial platform. Understandably, many people do not want to venture into an asset class when they have little idea what makes it tick.
The solution is not to throw underinformed investors onto exchanges to take the guesswork out of their portfolios, but rather to provide opportunities to learn about tokens, blockchain technology, and operational security best practices. It is the responsibility of brokerages and other businesses in crypto to provide honest and reliable information whenever possible. Personal training can enhance the learning experience and make cryptocurrency more user-friendly while removing the fear barrier when entering the crypto space.
The next barriers to participation are security concerns, price volatility and regulatory uncertainty. Hacks and breaches are constant threats to anyone involved in crypto. The first step in protecting yourself is to recognize and avoid fraud. It is often difficult for beginners to identify a legitimate crypto investment from a scam, but a dedicated, personal broker can serve as a guide and steer investors away from fake offers.
However, fraud is not the only concern for holders of digital assets. Some of the most damaging cyber attacks occur on online exchanges. These crypto trading hubs are particularly vulnerable to hacks due to the inherent risk of holding large amounts of assets in hot wallet solutions. Securing one’s funds in safekeeping is essential to successful investment and wealth management.
Cryptocurrency is an exciting but speculative asset with high volatility. Investors should consider whether crypto fits their portfolio objectives, risk profile and their own convictions before gaining exposure.
Blockchain technology holds the key to sustainable development for the world’s poorest people. The 2008 Bitcoin White Paper led with a collective mission to promote financial inclusion and economic equality. But inaccessibility and a lack of user education make it impossible to achieve this goal. Recent popularity growth in cryptocurrency can be attributed to its widespread availability. The same cannot be said for understanding the fundamentals of crypto investing, which is the next step to achieving mainstream success.
In recent years, access to crypto has exploded. More and more traditional financial companies and platforms are entering the space, further legitimizing the asset class and accelerating its future. However, if investors join the space without understanding their opportunities or having the right guidance, it can ultimately backfire for individuals as well as institutions.
