23 Risks Of Investing In CryptoCurrencies And Tokens

Dipping your toes into cryptocurrency and tokens will expose you to a number of risks, here I mention some of them. The listed risks are not the only risks encountered in the cryptoverse. Do you own due diligence and research.

Risks coming from outside of the cryptoverse

1. Regulation

Regulators are still catching up with cryptocurrencies, but make no mistake they are circling, observing learning and preparing to act. Legislators tend to lag between 12 to 24 months behind markets.

Some are adopting a wait and see approach others are outright banning them.

Regulators have many cards in their hands and if they wanted to they could take away 99% of the crypto market value in one news conference. The next G20 meeting was promising on this front.

2. Taxation

Tax is part of life, and trying to avoid it is a short term benefit at a huge cost of to your future self.

There’s is too much attention on Cryptos, so investors should be extra cautious on their tax liability when it comes to crypto capital gains and income. Windfall taxes are a possibility in the future.

Keeping detailed records of your transactions will make presenting all your crypto records in the future easy.

Using default anonymous cryptos such as Monero, could place you in the bag of crypto investors and users  which will be investigated with more tenacity by the tax dept.

3. Peer to peer crypto transactions

When using sites like localbitcoins or decentralized exchanges without observing all the local rules and regulations, you could be unknowingly be breaking (many) locals laws (such as: money transfer regulations, kyc, aml etc etc etc). Ignorance will not hold in front of a judge as an excuse.

4. National CryptoCurrencies

Why try to compete with something when you have the power to outlaw it?

The inner workings of a national currency, will be different from that of a private blockchains. Part of a Government’s power stems from being able to issue currency, and most likely they will not let go of this power just because someone invented a system to easily create an alternative currency. Tokens which are not crypto currencies might have a higher chance of survival in such a context.

5. Corporate CryptoCurrencies

They are coming, and when they do corporations will have a fiduciary responsibility to their shareholders to promote their own token rather than allowing others to be promoted on their platforms. This could lead to a blanket censorship of cryptos from Internet giants as they look for ways to create their own tokens.

6. Value Drop

Tomorrow bitcoin or any crypto could become worthless because of any of the risks mentioned here and others.

Ecosystem Risks

7. Exchange Risk

Exchanges are computer programmes which facilitate the exchange of cryptocurrencies  and tokens between different accounts. Software is prone to bugs, being hacked and of not being used as intended. These three can cause financial loss. In addition exchanges hold personal information and trading records which can be leaked and stolen. Exchanges can be easily targeted by regulators and the funds held within frozen.

8. Pump n Dump Groups

Cryptocurrencies are unregulated. Malevolent groups are colluding together to pump n dump specific cryptos. Individuals pay a fee to join the group, the higher the fee the quicker the information about the pump n dump scheme. Individuals within the groups are frequently scammed by the organizers of the groups themselves, because these guys sell out the target crypto before the target price is reached. Eventually these individuals can be tracked down, especially if they are using KYC exchanges.

9. Scams

The crypto space is frequently compared to the wild west; many scams abound within. These scammers are getting better and better at it. Some are outright scams and others are quasi scams masquerading as the real deal. Many masternodes projects unfortunately, have become scams and only a handful offer any real value beside just being another cryptocurrency. ICOs are the in the same bag. Interestingly these projects never disclose the salaries or the expense accounts of the founder or advisors…

10. Crypto Mining

Proof of Work cryptocurrencies depend on miners. Mining needs to be located in a mining friendly jurisdiction and to be profitable and equitable. Not all jurisdictions allow cryptocurrency mining, some ban it because it drives electricity prices higher others for political reasons.

Mining needs to be profitable as it is energy and equipment intensive. There might be sudden shock to the mining economy if the demand or the prices of the inputs change quickly.

Mining should be equal to all. A crypto currency which has a flaw that allows a group of miners advantages over other miners is not equitable.

Portfolio Risks

11. Too Diversified

What will the cryptoverse look like in 5,10,15,20 years? No one knows. Bitcoin Maximalists and Bitcoin Maximalish philosophies advocate that all altcoins are a testbed for technologies which will eventually be incorporated into Bitcoin. If this is correct Crypto Portfolios which do not have any Bitcoin in them will retain less value in time than ones that have.

12. Lack of diversification / Non Diversified

(The inverse of the above) In a universe where Bitcoin loses its value significantly or becomes semi-irrelevant, portfolios with a high concentration of Bitcoin will suffer,

There have been 1000s of ICOs and maybe there will be 1000s more to come. How can one compare the merits of each project, the team, the technical viability and their roadmap? The risk of the missing out on the next Crypto Behemoth is high.

There is a risk of attachment to old projects because of familiarity, while they are dying a slow death (boiling frog). Dismissing all ICOs as being scams is also a risk. Using up limited funds to invest in one project while missing out on another one, is an opportunity cost risk.

Specific Coin Risks

13. Not keeping up with the news

Each coin has a news stream of updates; good and bad. Some come from official channels other from partners, disgruntled developers and users. There is no one source of information for any crypto project. One piece of information could turn the tide to or against. Sifting through the news stream of only a handful of crypto projects, is akin to outrunning a tsunami. The fracas of facts, hype and misinformation could make you easily lose crucial information such as wallet upgrades, forks or air drops.

14. Roadmap breakdowns

ICOs start off with a grandiose vision of their project, when rubber hits the road and are faced with hiring issues, technical limitations and regulators scrutiny they tend to shrink the road map or stretch it out multiple years. Leading to a revaluation of the potential of the project.

15. Reputation Risks

Crypto teams are human, they make human errors and have hidden skeletons in their closet. Individual team members can also lock up funds (Tezos) or bring ruin to a whole project single handedly.

16. Out maneuvered by competing projects

Competition between crypto projects is very high. In 2018 we are still at the very early stages and although there are some projects which have a leg up over others, there is no clear winners in any sector. Open source projects have their code used in other projects. Advisors cross between projects and, the open source code is copied by another team but marketed better

Individual Risks

17. Theft of the coins and Kidnapping

Each KYC check increases this risk of your crypto address being released into the open, when this happens it is like a bounty placed on the investors head. Even if you live in a country where law rules, what happens if you are travelling to Guyana and your plane is diverted to Venezuela in an airport in the middle of nowhere. Hacked wallets, Viruses and the like can also make you a no-coiner.

18. Human emotion: FOMO and FUD the troublesome twins.

Fear and Greed controlling a portfolio. Any of these actions and emotions can lead to sub optimal decisions

  • FOMO: Fear of missing out
  • FUD: Falling for Fear uncertainty and doubt
  • Panic Selling
  • Following youtubers blindly, without doing your own due diligence and research and not consulting your financial advisor.
  • Following blogger blindly
  • Too Many trades
  • Too many Lambo dreams, greed.
  • Believing Crypto terminology blindly: ex hodl (hold long term) Without asking yourself why is it a good strategy?

19. Lost passwords / Keys

  • No backups
  • Corrupted disks
  • Holding everything in one geographical location
  • Stolen passwords through key loggers

20. Loosing access to your computer, email or exchange account.

  • Email providers such as gmail can close access to your account
  • 2FA without a backup could take a very long time to retrieve in some cases.

21. Not taking out profits

  • The way to the moon (if the market is even going there) will not be in a straight line. Hoping for the rest without banking profits is a risk.
  • One strategy is taking out your initial investment and not reinvesting any profits at least until your initial investment is recovered. How do you define profit going to to FIAT or leaving it in BTC. What are the risks of each fallback position?

22. Getting sucked into the rabbit hole of the cryptoverse.

Investing in the cryptoverse has a cost in time, energy and health. In time those who get sucked in start speaking a language few of their cohorts understand. There is a risk of investing more than you afford to lose by dreaming big and looking only at the potential and not the downsides. I hope this article can help pop you own personal bubble about the cryptoverse.

23. Unknown Risks

Unknowns risks are out there building momentum and none or very few have even contemplated them. Black Swan events can turn a whole industry, upside down just like Satoshi’s white paper did to the financial industry.


There are five main cryptocurrency risks

  • Individual Risks
  • Specific Coin Risks
  • Portfolio Risks
  • Ecosystem Risks
  • Outside Risks
  • Unknown Risks

Mitigating each of these risks, is a delicate balance as each action to do so will create other risks. Awareness of these risks, should at least keep you on your toes and dedicate a % of your investing time to think and find ways that will reduce your exposure to them according to your situation.