Cryptocurrencies as a New Investment Tool

In recent years, cryptocurrencies have attracted increasing attention from investors as a potential new asset class. The growing capitalization of the crypto market, the emergence of new digital money and tokens, and significant fluctuations in the exchange rates of many cryptocurrencies provide ample opportunities for speculative profits.

Risks of investing in crypto assets

At the same time, investing in crypto assets carries high risks. Among the main ones are the following:

• High volatility of rates — cryptocurrencies are characterized by sharp fluctuations in one day when the cost can change by tens of percent. It makes predicting the rate difficult.
• Lack of collateral — unlike fiat money, cryptocurrencies are not backed by the assets and property of the issuer. Their value is determined only by supply and demand.
• Insufficient regulation — in many countries, the crypto market is almost unregulated. It creates a ground for manipulation, hacking of exchanges, and theft of user funds.
• Fraud risks — various schemes to defraud investors are common, such as fake ICOs, hacking of crypto exchanges with subsequent disappearance of funds, etc.
• Vulnerability to hacker attacks — there are known significant hacks of platforms such as Mt.Gox, Bitfinex, and Coincheck, resulting in hundreds of millions of dollars being stolen.
• Storage complexity — if an investor loses the access keys to a cryptocurrency wallet or the wallet is hacked, it is often impossible to restore access to funds.

There are also legal risks, reputational risks, the risk of mistakenly transferring funds to the wrong address, and many others.

Realizing these risks can lead to losing all funds invested in cryptocurrencies. You should not underestimate these threats.

Thus, investments in cryptocurrencies are associated with increased risks but, at the same time, have a significant potential for profitability. It makes them an attractive instrument for speculative operations and medium- and long-term investment.

To reduce risks, it is necessary to regulate crypto assets thoughtfully. Currently, in most countries, cryptocurrencies are outside the legal framework. Only some countries are taking steps to develop legislative norms for the crypto industry.

Lithuania’s experience in regulating cryptocurrencies

Lithuania was one of the first countries to introduce rules for regulating the crypto market. A law that legalized crypto-assets established the basis for regulating this market, including crypto licensing in Lithuania.

Thanks to this, Lithuania attracted significant investments in the crypto industry and took one of the leading positions in Europe regarding the volume of transactions with cryptocurrencies. This experience demonstrates the importance of competent regulation for the development of cryptoassets.

Thus, despite the risks, cryptocurrencies open new opportunities for investors. With a reasonable approach to regulating this market, crypto assets can occupy their niche in the modern financial system.