What to Expect from Crypto?

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What started as a solution borne out of the frustrations of the 2008 Global Financial Crisis, Bitcoin has given rise to a myriad of coins and tokens in less than two decades. Currently, the cryptocurrency space is still growing and the participants involved in it are more diverse. According to a report by Metav.rs, there was a substantial 706% increase in cryptocurrency engagement in Asia during 2022. As this dynamic landscape evolves, it is ever more important to understand the different profiles of crypto investors, risks, and rewards before entering into crypto. 

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Different Profiles of Crypto Investors

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Institutional Participants

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Institutional investors are large corporations and hedge funds that utilize large-scale investment strategies when participating in crypto. Companies like MicroStrategy and BlackRock are some of the well-known names that implement such strategies. As of 2023, MicroStrategy has acquired more than 150,000 bitcoins which they have accumulated over the past years, while BlackRock became vocal about introducing cryptocurrencies to institutional investors through their filing for an exchange-traded fund (ETF). 

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Retail Participants

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These are individual traders and investors whose main objective is to earn money through their investments in crypto. Retail participants have varied risk appetites and goals, much like how each of us have different plans for our careers. Traders generally have high-risk appetites and short-term horizons for their goals. Whereas, investors generally have low to moderate risk appetites and long-term horizons for their goals.

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Industry Professionals

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Technology enthusiasts were the first to appreciate the ingenuity of blockchain technology and cryptocurrencies. It would even be fair to say that they were the early adopters of blockchain technology who advocated for its potential. Right now, these are your blockchain developers, engineers, project founders, etc. 

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Risks and Rewards in the Crypto Space

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Risks

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While adoption has been widespread, it's important to acknowledge the potential risks before entering the cryptocurrency space. Listed below are the risks you should consider before delving into crypto:

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1. Volatility: The cryptocurrency market is a 24/7 market that never closes, and market capitalization is low compared to other traditional financial markets which means that large buy or sell orders can have a big impact on its price, leading to extreme volatility.
2. Regulatory Uncertainty: There is a lack of regulation globally which may lead to questions regarding taxes and the legality of owning crypto. Additionally, cryptocurrencies are not backed by the government or central bank. 
3. Scams and Hacks: The inherent anonymity of cryptocurrencies makes them more susceptible to scams and hacks. An example of a common scam to watch out for is phishing links, deceitful links that imitate legitimate websites, designed to trick you into revealing sensitive information. Another example is ponzi schemes. These schemes are fraudulent investment schemes promising high returns, using "cryptocurrency" as an excuse for where they will generate these falsely guaranteed returns. 
4. No Insurance: Unlike traditional or digital banks, you have no insurance if your crypto wallet is hacked.
5. Market Manipulation: The cryptocurrency space can be conducive to market manipulation given the lack of regulation overall.
6. Lack of Consumer Protection: If assets are lost, such as by sending to the wrong address, they are often irretrievable. Having a trusted exchange, online crypto wallet, or offline crypto wallet, are ways to help securely manage your crypto assets.

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Rewards

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Risks exist alongside rewards, shaping the interesting dynamic in this space and the allures that participants look forward to. Here is the list of the rewards to think about before you decide to enter the cryptocurrency space. 

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1. High Returns: Cryptocurrencies are known to potentially generate high returns due to its volatile nature. When Bitcoin was created last 2009, the price was less than $1.00 per bitcoin. The first notable price peak it made was in 2013 when it rose to more than $1,000 per bitcoin (100,000%+ increase). In mid-2023, the price of bitcoin was around $30,000 per bitcoin (2,900%+ increase). 
2. Innovation and Early Adoption: There are numerous revolutionary innovations yet to be made in the space and getting in early has the potential to reap great rewards.
3. Accessibility: Cryptocurrency grants accessible financial services globally. All you need is an internet connection and a crypto wallet. 
4. Portfolio Diversification: Cryptocurrencies, with its growing market capitalization and multiple applications, are becoming more attractive as an asset class for diversifying your investment portfolio. 
5. Transparency: Every transaction made on the blockchain can be seen and tracked by anyone. This disincentives malicious actors from using crypto for money laundering since anyone can track those transactions.
6. Decentralized:  Cryptocurrencies are known to be decentralized, enabling users to manage their own assets. No one else has access to your crypto unless they obtain the private keys to your crypto wallet. 

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In less than two decades, crypto has evolved from the inception of Bitcoin as a response to the 2008 Global Financial Crisis to a diverse ecosystem of coins and tokens. As various profiles of participants find value in this domain, it's important to acknowledge the presence of risks, which test the foundations of crypto's decentralized framework. In response to these challenges, the allure of rewards within the cryptocurrency space offers participants a compelling incentive to explore the opportunities it presents.

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Glossary

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