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Top 3 Cryptocurrency Risks of 2021

Celebrity Risk

One of the biggest risks to price movement in the cryptocurrency markets can be succinctly titled "Celebrity risk." As was recently seen with Elon Musk tweets about Doge coin and Bitcoin, leaders in the private sector, both entrepreneurial businessmen and in the financial services or investment space, can seemingly make comments that move the markets at any given time. This risk basically reflects the underlying liquidity risks in the products and exchanges. Large orders have the ability to distort market activity, and comments made by Celebs can change market sentiment to be one-sided over the short term in either direction, leading to outsized moves and volatility.

Reputation Risk

Product reputation risk is an emerging risk as cryptocurrencies gain momentum in the public sector. There are several ways an assets' value proposition can be damaged: lack of developer support, functional performance (utility) degradation, and public perception of utility, among others. It is also possible for reputation damage to occur if the asset does not perform as it was previously expected. For instance, many claim that Bitcoin is a hedge against rising inflation and a falling US Dollar. If BTC fails to protect against inflation, and instead trades and acts more as a risk asset, it could suffer.

Regulatory Risk

Regulatory risk in the sector is not new, but government awareness has certainly increased over the last few years; and oversight bodies are becoming more involved. The SEC has been pursuing cases against unregistered securities offerings. The IRS is receiving increased funding under the Biden administration, and it seems highly likely that more tax scrutiny of cryptocurrency trading and investment is forthcoming.




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