Besides the likelihood of being caught unawares by regulatory moves, investors are susceptible to hackers who may gain access to the money.
At the turn of the New Year, the Government issued a warning against investing in cryptocurrency. The RBI had issued a similar warning earlier advising Indian investors to stay away from the rising digital currency craze.
Investment experts feel that the RBI and government’s decision to warn investors could be indication of stricter policy and regulatory moves that could catch cryptocurrency investors on the wrong foot.
“The biggest risk to cryptocurrencies is the lack of regulatory supervision. It may be possible that the Government bans all crypto exchange markets in the near future. In that case, all your hard-earned money invested in digital currencies would become inaccessible,” Jagmal Singh, CTO, Paisabazaar.com told Moneycontrol. Thus, a regulatory crackdown can lead to investor lose access to all the money invested.
Singh says investors should not dabble in something they do not understand. “One of the basics of investment is to understand what you are investing in. Unfortunately, most people, including many seasoned investors, do not yet understand cryptocurrencies and the underlying blockchain technology. Most people investing in cryptocurrencies are doing it to make quick money. We strongly advise against speculative investment. When everyone is greedy, you should be fearful,” he said.
Amar Pandit, Founder & Chief Happiness Officer, HappynessFactory.in says money invested in digital currencies may become worthless. “They answer to whether one should invest in digital currency is most certainly ‘No”. Those who invest in Bitcoins will get two rewards: a lot of heartburn as Bitcoin values bounces around like a kangaroo on steroids, and then heartbreak when the music stops, and their investment isn’t worth the pixels and bytes they’re printed on” he said.
On volatility, Pandit pointed out Bitcoins moved 150% to $19,511 in less than a month and then fell 30% to $13,703 (as on Dec 25, 2017).
Pandit also pointed out the threat of hackers getting hold of your investment in Cryptocurrencies. “Digital currencies are always prone to Hacking. Recently, South Korean cryptocurrency exchange filed for bankruptcy after it was hacked for the second time, resulting in loss of over USD 70 million,” he said.
Paisabazaar’s Singh also believes hackers could be a big threat to investor’s money. “Investors are susceptible to smart hackers who may create social hacks to gain access to your money. And if someone takes your money by illegal means, it will be very difficult for any authority to track the culprits,” Singh said.
Moreover, he pointed out that investors can also lose all the investment if they forget their access details. “A major risks comes from the fact that your whole identity is saved in a cryptogprahic signature/key. You can lose access to your account if you lose access to the machine where you stored it. And unlike with internet banking credentials, there is no authority who can get these keys back. Also, if somebody else gets access to your signature/key, they can gain access to your money. So, you have to have a very sophisticated system of keeping backups safe and secure, which most people don’t,” Jagmal Singh said.