Before engaging in the investment world of cryptocurrencies, ensure you understand what makes them attractive. Unlike other financial products, crypto assets are not backed by any government. They are volatile and involve a high degree of risk. In the United States, regulators have issued public advisories about the dangers associated with digital assets.
Less expensive than traditional financial products
When engaging with a crypto exchange, it is essential to understand that these assets are volatile. Many credit card companies do not allow crypto purchases, as it is considered a high-risk investment. You should also note that the amount of time it takes for deposits and withdrawals to clear may vary. In addition, there may be fees associated with each payment method, including potential deposit and withdrawal transaction fees.
More volatile than stock markets
Cryptocurrency exchanges are relatively new and still developing, meaning that the regulatory framework still needs to be implemented. Also, the volume of these exchanges is much smaller than those of stock markets. It makes them less volatile than stock markets. However, this can have positive and negative effects. While low volatility means a stable market, it also means that investors have to wait longer for their reward.
Another difference between stocks and crypto exchanges is the volatility of their prices. While this can be beneficial for the investor, it also means that it is riskier. It is because it is possible to lose a large amount of money quickly. For this reason, you must limit the amount of money you invest in these assets. It would be preferable if you just employed them for long-term investments because of the potential influence their price fluctuations may have on your financial requirements.
No need for a bank account
There are no guarantees when investing in cryptocurrencies, and the value of those assets fluctuates dramatically. That is one reason you should not count on the return of your investment, says Ryan Cole, a certified financial planner and founder of investment advisor firm Citrine Capital in San Francisco. Another drawback is that they are not widely accepted in everyday transactions, and it is essential to have a bank account to trade them.
No need for a credit card
You don’t necessarily need to use your credit card when engaging with a crypto exchange. The best exchanges, though, accept various payment options, including credit cards and ACH, so it would be best if you kept that in mind. Besides, most of these exchanges accept PayPal and can process instant payments.
Using a credit card to purchase cryptocurrency comes with many risks. First, the interest on your balance can eat into your investment returns. Moreover, it can hurt your credit score. In addition, you’ll have to pay transaction fees. In addition, many cryptocurrency exchanges charge a fee for processing credit card transactions, so it’s a good idea to avoid using credit cards to buy crypto.
No need for a self-custody account
While self-custody is not mandatory when engaging with a crypto exchange, it is recommended for people using cryptocurrency to safeguard their funds. Self-custody allows you to manage your crypto accounts independently without relying on a financial institution. This practice offers several advantages over traditional banking services, such as increased access to your funds at all times. However, it is essential to remember that self-custody involves some risks.
A self-custody account requires a significant level of responsibility on the user’s part, including maintaining a private key. In addition, it increases the risk of losing funds, especially if the investor is inexperienced. For example, if a user forgets their password, the exchange cannot restore their funds. However, if the user maintains the account themselves, they will be more protected from scams, crypto hacks, and other threats.