Is cryptocurrency a safe investment?

Is crypto safe? I'll review the latest research on its volatility, risks and safeguards.

Cryptocurrency is generally not considered a safe investment in the traditional sense, although safety has improved with recent regulation.

While the advances of 2024 have made crypto assets significantly safer for public investment than in past years, it remains an inherently high-risk class

Key reasons:

1. Extreme Volatility

•Cryptocurrencies continue to experience dramatic price swings that can result in substantial gains or losses, unlike many traditional investment classes.

•The U.S. Securities and Exchange Commission (SEC) has warned that "investments in crypto asset securities can be exceptionally risky, and are often volatile, with a number of major platforms and crypto assets becoming insolvent and/or losing value".

•Crypto is described as a notoriously volatile and speculative investment.

•Volatility is the defining risk, and it is severe. Prices can fall by double digits in hours.

In a FINRA study in 2024, 66% of respondents flagged crypto as a risky investment, up from 58% in 2021.

EU regulators have also warned that investors can “lose a large amount, or even all, of the money invested” and that virtual currencies are highly risky and unregulated products and are unsuitable as investment, savings or retirement planning products.

2. Regulatory and Protection Risks

•As regulations are still evolving, unexpected changes can affect certain assets or platforms adversely.

•Lack of regulation of crypto assets limits your protection.

•The SEC warns that cryptocurrency asset deposits aren't as safe as interest-bearing accounts with a bank because companies offering interest-bearing accounts for crypto assets do not provide investors with the same protections as do banks.

•The SEC also said that unregistered offerings in crypto asset securities might not provide investors key information for informed decision-making, including audited financial statements.

3. Security, Fraud and Scams

•Key crypto investment risks include fraud and scams: Fake platforms, phishing links, pump-and-dump groups, and misleading promotions are common.

•Risk #1: You could become a victim of hacking, fraud and scams.

•Fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams, often leading to devastating losses.

•Crypto transactions are often irreversible, so personal security habits matter as much as investment selection.

•There is no way to undo a transaction if you invest cryptocurrency with someone else and they run away with it.

Other risks cited include operational failures, network vulnerabilities, and behavioral pitfalls, with potential for outsized returns paired with equally high potential for steep losses.

4. Has crypto become safer?

2024 was considered a landmark year for regulation:

•SEC approval of Bitcoin and Ethereum ETFs legitimized crypto as a mainstream investment class.

•The EU’s MiCA regulation standardized protections and compliance rules across European markets.

•Enhanced transparency, stringent licensing, and decisive enforcement actions have dramatically improved market protections.

However, regulation does not make crypto risk-free: crypto remains volatile, with price swings, cybersecurity risks, and evolving laws still posing significant challenges. Investors must remain cognizant that the regulatory landscape will continue to evolve.

5. If you consider investing

Regulators and experts advise:

•The agency urged crypto investors to have an investing plan, as well as to understand their risk tolerance and time horizon.

•Prefer crypto assets and platforms operating under clear regulatory oversight.

•Use regulated exchanges or wallets with insurance and robust security protocols.

•Diversify investments rather than concentrating heavily in single tokens.

•Stay updated on regulatory developments and check licensure, transparency, and regulatory status.

•Do not make an investment decision just because someone famous says it is a good investment.

Bottom line: For most retail investors, cryptocurrency is viewed as a high-risk, speculative asset class, not a safe investment like insured savings accounts or diversified stock/bond portfolios. It may be suitable only as a small portion of a diversified portfolio for investors who have a longer-term outlook and tolerance for price variability, can afford to lose their entire investment, and take strong security and due-diligence precautions.

This is not financial advice. Consider speaking with a licensed financial advisor and only invest what you can afford to lose.

Citations (2)

1financefeeds.comNews and media
Is Crypto Safe for Public Investment? Lessons from the 2024 Regulation Era
Backs: “While the advances of 2024 have made crypto assets significantly safer for public investment than in past years, it remains an inherently high-risk class. Key reasons: 1. Extreme Volatility. Cryptocurrencies continue to experience dramatic price swings that can result in substantial gains or losses, unlike many…”
2financialcontent.comNot yet classified
About Us | Oil & Gas Journal - SEC cautions investors about crypto investments
Backs: “Cryptocurrencies continue to experience dramatic price swings that can result in substantial gains or losses, unlike many traditional investment classes. The U.S. Securities and Exchange Commission (SEC) has warned that "investments in crypto asset securities can be exceptionally risky, and are often volatile, with a…”