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Is Cryptocurrency Legal? What’s the Crypto Risk for Investors?

date May 4, 2022 time 6 min read 275 views

In recent years, cryptocurrency investments have grown in popularity. However, cryptocurrency regulation is a contentious issue. Is cryptocurrency legal? Let’s look at some of the types of crypto risk you can encounter so you can make the best investment selections possible in the cryptocurrency market.

The cryptocurrency market is at the forefront of financial technology, and it has generated a lot of interest from both amateur and professional investors. With the rise in popularity of cryptocurrencies, there is a rising demand for clarity on the legal consequences of these new currencies and the technologies that power them. 

Despite crypto risks, cryptocurrency is an investment product that has grown in popularity over the last decade.
Despite crypto risks, cryptocurrency is an investment product that has grown in popularity over the last decade. (Source: Pixabay)

Regulatory agencies all over the world are working to comprehend the nature and significance of digital currencies. However, investing in cryptocurrencies carries significant risks, which all investors should be informed of before investing.Is crypto safe?

Several factors combine to make cryptocurrency a risky investment. However, if you recognize and avoid the warning signs, you can still profit from these investments. Investors must conduct themselves thoroughly because it is their responsibility to verify the nature of all investments.

If you want to know the answer to the question is crypto safe, it isn’t entirely obvious; but, you can make your investment more secure. First, let’s see if crypto is legal.

Cryptocurrencies are not considered legal tender in the United States. While finding a consistent legal approach at the state level is difficult, the United States is making headway in drafting federal cryptocurrency legislation. Cryptocurrencies are not considered legal tender by the Financial Crimes Enforcement Network (FinCEN), but cryptocurrency exchanges are considered money transmitters since cryptocurrency tokens are “other value that substitutes for cash.”

Canada is similar. Although cryptocurrency is not legal tender in Canada, it can be used to purchase goods and services online or in stores that accept it. Canada has taken a fairly proactive approach to cryptocurrency regulation, primarily regulating them under provincial securities laws. Since 2013, the Canada Revenue Agency has taxed cryptocurrencies, and cryptocurrency transactions are subject to Canadian tax laws.

Crypto laws vary around the world

Cryptocurrencies are generally considered legal throughout the European Union, but cryptocurrency exchange regulations vary by member state. Cryptocurrency taxation varies as well, but many member-states charge capital gains tax on cryptocurrency-derived profits at rates ranging from 0% to 50%. The European Union’s Court of Justice ruled in 2015 that exchanges of traditional currency for cryptocurrency should be exempt from VAT.

In Australia, cryptocurrency and exchanges are legal, and the country has been progressive in its implementation of cryptocurrency regulations. In 2017, the Australian government declared cryptocurrencies to be legal, specifically stating that Bitcoin (and cryptocurrencies with similar characteristics) should be treated as property and subject to Capital Gains Tax (CGT).

Japan currently has the world’s most progressive regulatory climate for cryptocurrencies, and the Payment Services Act recognizes Bitcoin and other digital currencies as legal property (PSA).

Some other countries see cryptocurrencies as not legal tender, such as Singapore, South Korea, China, India, Malta, Estonia,… Whether they are nationally recognized or not, the value of digital currencies is entirely dependent on the value that other owners and investors place on them. If a digital currency’s value is not backed by a central authority, investors may be left in the lurch if transaction or ownership issues develop. So, there are still crypto risks to be aware of.

If you identify crypto risks early on, you can take precautions to protect your investments.
If you identify crypto risks early on, you can take precautions to protect your investments.(Source: Pixabay)

Types of Crypto Risk for Investors

While the blockchain may help with crypto security, the decentralized nature of cryptocurrency, along with the anonymity it provides, carries risks. Let’s look at the potential risks of investing in cryptocurrency.

Volatility

One of the most basic indications of an asset’s financial health is volatility. Because of its volatility, cryptocurrency is one of the most speculative items available today.

The cryptocurrency market is fueled by speculation, with some investors quickly buying and selling their holdings as soon as there is a sign of a price drop. A single piece of sensitive news about a cryptocurrency can cause its price to fluctuate dramatically.

This is one of the biggest crypto risks, and you could lose your investment. So, before investing in any cryptocurrency, you should conduct research and determine the best time to do so.

Decentralization

One of the appeals of cryptocurrencies is the lack of a central authority. However, this imposes constraints on cryptocurrency investors.

In most online financial transactions, electronic money transfer is typically backed and mediated by a financial institution. As a result, if a problem arises during the transaction, you can easily contact them and resolve it. This is not possible with a cryptocurrency transaction. Because of its decentralized nature, it is difficult to identify the proper entity with which to file a transaction dispute. As a result, most cryptocurrency investors are advised to use reputable digital currency exchanges when trading.

The majority of reputable exchanges have excellent customer service that can help with almost any issue. Nonetheless, due to the decentralized nature of most cryptocurrencies, settling legal problems is practically impossible. This is the most concerning crypto risk.

Loss of private keys

Cryptocurrencies are based on a cryptographic system that authenticates transactions using pairs of keys. The first is a publicly accessible public key, and the second is a private key that is kept secret and is used for identification and authentication. When you open a crypto wallet, a private key is automatically generated, granting the user ownership of the funds in that wallet.

If you misplace your key or forget your password, you will lose access to that cryptocurrency. This is a crypto risk that many people are exposed to. In reality, the loss or destruction of private keys accounts for roughly 20% of all Bitcoin losses. As a result, it’s critical that you backup your private keys regularly, preferably on a secure and isolated computer. Also, never put your private key on the internet, especially if it isn’t encrypted.

Hacks and Cybertheft

Because of their online dependency and anonymity, cryptocurrencies are extremely tempting to cybercriminals. Criminals utilize a variety of phishing tactics to obtain access to crypto wallets and trading sites.

To protect your money, investors and corporations interested in investing in cryptocurrencies must follow tight internet security measures. Understanding how to safeguard your crypto assets and crypto-wallets, as well as being aware of the latest crypto risks, is also beneficial.

Regional Regulation

One of the most important dangers to cryptocurrency’s future growth is regulation. Governments all across the world have passed laws restricting the usage of cryptocurrencies in their jurisdictions. Cryptocurrencies are seen by many governments as a tool to circumvent financial rules and facilitate money laundering.

Most countries are currently investigating how to combine cryptocurrencies with their existing fiat currencies. Others, such as El Salvador, have completely accepted cryptocurrencies, with some even proposing forming or launching a national coin. Nonetheless, regional regulation is a significant crypto risk for investors.

Taxation laws

Cryptocurrencies are categorized as capital assets, which means they are taxed the same way stocks are. When you use cryptocurrencies to buy goods and services or to swap them for other currencies, you are subject to capital gains tax, according to the IRS. Furthermore, any crypto obtained from mining is subject to taxation.

Cryptocurrency investors must report their earnings on their tax returns as income. Not all cryptocurrency transactions, however, are taxable. Cryptocurrency laws can be complex, but you can learn more by reading the IRS’s virtual currency guidelines.

Given crypto risks, you should only invest what you can afford to lose without serious consequences.
Given crypto risks, you should only invest what you can afford to lose without serious consequences. (Source: Pixabay)

With the above information, do you have your answer to the question is crypto safe? Don’t worry, cryptocurrencies have seen tremendous growth in both price and quantity, despite the crypto risks. Having some cryptocurrency can help diversify your portfolio. You should make sure you have an investment thesis for each cryptocurrency you buy. You should be able to manage investment risk if you do your study and learn as much as possible about how to invest in cryptocurrencies.

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George Schooling

George Schooling

Invite friends and you both earn 10 USDT when they first lend stablecoins or make a crypto-backed loan

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