Bitcoin and Ethereum went up in value by more than 1,000% and 6,000% respectively in 2017. However, compared to traditional asset classes, cryptocurrencies are high-risk instruments. Understand the risks before you invest:
Over a 24-hour period in late November 2017, Bitcoin rallied to an all-time high of nearly $11,500 before falling 20% to around $9,000. It only touched $2,000 for the first time earlier in 2017.
The majority of Bitcoins are held by relatively few investors, and many platforms and exchanges trade cryptocurrencies on their own books. In a sales rush, liquidity issues could leave investors sidelined with rapidly falling prices.
The parabolic price increase of cryptocurrencies is largely driven by speculation rather than by intrinsic value. This raises concerns among analysts that it’s a bubble waiting to burst.
Crypto markets are still largely unregulated, making them more prone to market manipulation, and hackers have also managed to gain unauthorised access to digital wallets and cryptocurrency exchanges. Potential flaws in cryptocurrency code could also lead to an instant price crash.