How to Debunk Crypto Volatility Myths in 2023?
What is a Crypto Volatility?
A Cryptocurrency is an encrypted data string that denotes a unit of currency. It is monitored and organized by a peer-to-peer network called blockchain.
Which also serves as a secure ledger of transactions. For example, buying, selling, and transferring. Unlike physical money, cryptocurrencies are decentralized.
Which means they are not issued by governments or other financial institutions.
Did you know there are thousands of digital currencies, with more being added every month? Curious new crypto investors need to start by making decisions about how to invest, including how to store their digital assets.
Investors will need to evaluate where and how to transact in cryptos and whether staking tokens—a way of earning rewards or interest for holding certain cryptocurrencies—is worth it.
Crypto Volatility – Reasons for Mistrust?
So far, 2022 has been as unkind to digital coins as it has been to stocks. Bitcoin is down more than 37% of the year.
Ethereum is down more than 41% and crypto.. In general, has been in the news for all the wrong reasons lately.
For many crypto naysayers, the events confirm their long-held suspicions.
In a new GoBankingRates study, a combined 40% of respondents said that they avoid crypto because they don’t feel that it’s regulated enough.
Or because they don’t trust the security that protects it. Another 60% don’t trade crypto simply because they don’t understand it.
That widespread lack of knowledge and trust is a perfect breeding ground for misinformation.
And there’s no shortage of that where crypto is concerned, especially now that things are so bad.
Myth: # 1 Your Investments Are Safe With Coinbase
Coinbase validated the industry and brought cryptocurrency into the mainstream. When it went public and began trading on the Nasdaq.
Publicly traded companies, after all, are regulated by the SEC. Which is exactly the kind of federal oversight. That leery mainstream investors had been holding out all along.
On May 11, however, Coinbase first-quarter earnings report revealed stunning losses approaching half-billion dollars. And a 19% drop in monthly users. A selloff ensued, battering Coinbase even further.
If the exchange goes bankrupt, Coinbase explained, the cryptocurrencies stored in its user accounts could be subject to bankruptcy proceedings.
Their owners would be treated as general unsecured creditors. And unlike cash, crypto is not FDIC-insured.
They could, in other words, lose all of their cryptocurrencies. No matter how well those cryptocurrencies performed. Simply because the exchange that held them went bankrupt.
Myth: # 2 Crypto Transactions Are Anonymous
Another early turnoff for mainstream investors was Bitcoin’s association with criminality and the dark corners of the internet.
The reason that crypto was always so popular with seedy elements of society, the myth goes, is because it’s anonymous.
Users can conduct secret transactions that banks, governments, and law enforcement agencies are helpless to trace.
Cryptocurrency – CNet
As the authorities proved when they recouped ransom payments after the Colonial Pipeline hack. That’s simply not true. Crypto is converted into fiat currency.
At least briefly at the moment of exchange in almost all transactions, according to CNET. That leaves a paper trail, despite the fact that crypto trades aren’t directly linked to identities.
Also, transactions are permanently recorded on a public blockchain.
And law enforcement has become much more sophisticated in the technology and techniques it uses to track illicit crypto movements.
Myth: # 3 Cryptocurrency Is Clean and Green
The process of making paper involves harvested trees and a whole lot of toxic chemicals, inks, and dyes.
The metal in coins – like the gold and silver that preceded modern currency.
Must be mined from the ground. Cryptocurrency, on the other hand, exists only in a digital blockchain. And is therefore environmentally sustainable, right?
Lack of Sustainability
That would be nice. Unfortunately, the computer power required for proof-of-work mining consumes “amounts of electricity capable of powering countries,” according to Business Insider.
The New Yorker reports that the world’s crypto mines consume enough energy annually to power Sweden for one year and that crypto mining can be as environmentally destructive as actual mining.
Read More Bitcoin Price-What’s Fueling Its Rise?
Myth: # 4 Bitcoin Is Not Just an Investment, It’s a Viable Currency
From the beginning of Bitcoin, volatility was the name of the game. Investors endured crushing lows in pursuit of soaring highs with exciting climbs and terrifying drops in between.
Enough people got rich along the way to prove that crypto can be a wise investment.
But anything that can make you rich or broke in a few weeks or months makes for a lousy purchasing medium, according to NextAdvisor. I
f you use Bitcoin to pay for a $3 coffee, for example, but that same share of Bitcoin is worth $30 a week later, you would have lost $27 on a $3 transaction.
Myth: # 5 Crypto Gains Aren’t Taxed
Finally, there’s a common misconception that since crypto transactions are anonymous. Again, they aren’t.
That there’s no way for the IRS to track gains and losses and therefore can’t tax cryptocurrency investments.
Here, too, that would be nice. The reality is that the IRS treats crypto as property. The agency taxes it just as it taxes other assets like gold and stocks.
When you sell, trade, or otherwise dispose of crypto holdings, you pay taxes on the gains.
And you can deduct the losses, just like shares of Amazon or your favorite ETF.
Similarly, tax rates depend on your income, your filing status, and the length of time you held the asset.
To conclude, cryptocurrency is still in its infancy stage. Many people are scared to take the first step toward understanding this technology.
However, a little information and awareness on this topic can go a long way. In helping newbie investors to take that first step into the virtual currency store.
Before investing in cryptos, always understand the pros and cons of investing. Learn the myths and facts, and be aware of the tax and other regulations implemented on it.
Cryptocurrencies are subject to high fluctuations in value. A decline in value or a complete loss is possible at any time.
The loss of access to data and passwords can also lead to complete loss.
That’s what it’s like to exchange cryptocurrencies. They are decentralized which means no government or bank controls how they are made.
What their value is, or how they are exchanged. Because of that, cryptocurrencies are worth whatever people are willing to pay or exchange for them.
The survey found that more than half of Americans (53%) agree that “cryptocurrencies are the future of finance”. Including 59% of Democrats and 51% of Republicans.
While unlikely, there is also a possibility that Bitcoin could go to zero following a massive sell-off. The fallout from the FTX is ongoing, Crypto exchange BlockFi.
Which had received a line of credit from FTX US and was set to be acquired by it later this year, filed for bankruptcy.
Nolan Bauerie, research director at CoinDesk, says 90% of cryptocurrencies today will not survive a crash in the markets. Those that survive will dominate the game and boost returns for early investors.