Question

Identify and briefly discuss the market risks attached to cryptocurrencies and their effect on the value of financial securities and bonds?

Answer 1

Crypto-currencies have the following risks:

1. The crypto-currencies have no underlying asset and therefore can fluctuate wildly and creates high volatility

2. Physical currency is backed by gold standard whereas the same is not the case with Bitcoins

3. Bitcoins and other crypto currencies are being used for underworld and black activities and hence are banned by many nations across the world.

3. In Crypto-currencies there is a possibility of you account being hacked and your currency being easily stolen by hackers.

4. In most countries these crypto-currencies have no legal binding as they are not backed by law.

5. Crypto-currencies are stored on digital wallets and the same can be lost in case your mobile or computer crashes.

6. These also can be accessed by a digital key and if you lose the digital key (like a password), you may risk losing the money and you cannot recover the same.