The historic breakout of Covid-19 has slammed the breaks on the economies of all the countries. As uncertainties continue surrounding the investment scenario, Bitcoin, the leader of digital currencies, is still going strong. Though other alternatives such as gold or silver have suffered a downturn in this pandemic, Bitcoin has witnessed stability in value. know more details about how to Crypto Asset Trading is gamechanger.
Some benefits of Cryptocurrency assets are
- This is protected against inflation as there are a fixed number of coins to preserve its value.
- Through a peer-to-peer mechanism, intermediaries are eliminated, making the process more efficient.
- It offers speedier settlement of transactions throughout the globe at affordable rates benefitting traders who bypass the banking system.
- Record-keeping becomes more decentralized through a distributed ledger.
- There will not be any problems in accessing information as investors can experience the benefits of faster trade execution at low fees.
- Transparency is ensured as all the data is recorded in a public ledger. Each computer on the network will have a copy of all the transactions.
- Access to high leverage helps traders to earn huge profits from the bullish market.
- Traders are provided technical charts on a real-time basis showing the changes in prices and trends in market movements. It improves their future decision making.
- Unlike financial institutions which operate only for a limited number of hours, cryptocurrency assets can be traded 24/7.
- Cryptocurrency assets are an ideal investment tool amidst restrictions on the movement of capital and the confiscation of assets.
- It gives a sense of ownership as the user is in control of his funds through the possession of public and private keys.
The crucial role played by Crypto Asset Management companies
- They simplify the process of keeping track of multiple accounts and wallets through portfolio management.
- No third party or a manager handles the user’s investment, ensuring anonymity.
- Traders can establish their asset groups and sort out their preferred combinations according to their risk level.
- It not just creates a single location to keep check of investments but acts as a hub to understand the market behaviour better.
- It will ultimately boost investor’s participation in the long run as barriers to entry will be reduced significantly.
Important factors to keep in mind before opting for a Cryptocurrency asset trading platform
- Security measures implemented for safekeeping of assets of participants, including custodian arrangements. It includes the provision of adequate compensation due to incidents such as loss, theft or bankruptcy of the Cryptocurrency asset trading platform. Regulators must verify if prudential mechanisms are in place for supporting the operations.
- Level of access provided to investors. If non-intermediated access is provided, regulators should be provided information about how the onboarding process is performed and who is responsible for it.
- Management of conflict of interest that may arise due to exposure to a large number of investments. Regulators must also check the internal structure and organisation of a Cryptocurrency asset trading platform.
- Transparency in operations by disclosing the terms and conditions to its users.
- Enforcement of the rules related to trading, monitoring of regulations and action taken in case of market abuse.
- Facilities established for ensuring efficient price discovery.
- Level of technology used to execute the operations and priority to cybersecurity. The existing system should be reliable and resilient.
Discovering some risks related to Crypto Asset Trading
- Lack of an underlying claim – Their value can suffer a dip since they do not have the right to a future cash flow or obligation to complete payment. Hence, extreme price movements are common in cryptocurrencies. This can lead to huge losses for investors if there is a huge price crash.
- Certain aspects are not regulated – Holders of crypto assets may not receive legal protection in case of incidents such as hacking or bankruptcy. They will not benefit from any attempts in safeguarding or segregation of their investments by public authorities.
- Absence of a formal governance structure – Risk management becomes complicated, which increases the chances of cryptos being used for money laundering or terrorism financing. Suspicious activities need to be reported quickly. Since it is a decentralized system that eliminates most of the intermediaries, holding accountability would be tough.
- Volatility – According to the movement of prices, Cryptocurrency assets may witness a massive upswing or a sudden downswing. Investors will either get huge gains or incur heavy losses.
- Lack of an international framework – Since not all countries are on the same level regarding the acceptance of cryptocurrency assets, the different stakeholders such as investors, asset managers, and financial institutions need to be safeguarded. There might be a huge loss of reputation by investing in cryptocurrency assets if a downturn occurs.
- Security threats – Though the industry has grown to monumental heights, scams like crypto jacking, fake token sales, and hacking are frequently occuring .
- Poor liquidation facilities – In events such as market crash, halting of trades, or changes in the underlying asset system, investors will find it tough to recover a reasonable price from the liquidation of their investments.
Despite some limitations, Crypto asset trading is still a viable investment opportunity and can uplift the economic standards leading to a stronger future.