What Is the Biggest Risk in Crypto?
Jan 30, 2025New to crypto and wondering where the biggest risks lie? Here we'll dive into the main crypto risk you need to be aware of as well as notable crypto flops and present-day challenges. As you deepen your crypto education, be sure to get a comprehensive overview on crypto risk and security and further explore cryptocurrency risks and benefits.
What is the biggest risk in crypto?
Volatility is often cited as the primary concern, but this narrative is overblown because every market in the world has volatility. The bigger and more significant risks are cybersecurity threats, hacks and scams. With billions of dollars at stake, hackers are increasingly targeting exchanges and end users to exploit vulnerabilities.
Ultimately, however, YOU are the biggest risk of all, because failure to be prepared and get educated is the number one risk in crypto today.
Key Takeaway
Volatility risk is relative to your time horizon. If you are 25 years “long” on Bitcoin then volatility becomes a moot point. On the other hand, if you are trying to make a quick buck, then you’ll experience the high volatility, high-risk narrative that most news focuses on.
What is the biggest flop in crypto?
The top flop is hard to pick so let’s take a look at three contenders.
In 2018, BitConnect, founded by Satish Kumbhani, was marketed as a “trading bot” and “volatility software.” It turned out to be a multi-billion dollar Ponzi scheme that defrauded thousands of investors.
FTX, a centralized crypto exchange, wiped out billions of dollars in investor funds from Sam Bankman-Fried's fraudulent practices, leading to its 2022 bankruptcy and a massive loss of trust in the industry.
Another notable collapse was the downfall of OneCoin, a fraudulent cryptocurrency scheme that duped investors out of billions of dollars. Ruja Ignatova, a top ten FBI most wanted fugative, hailed OneCoin as superior to Bitcoin.
A lot of people ask, who controls the value of cryptocurrency? Traditional fiat currencies are regulated by central banks, but crypto markets exist in both centralized and decentralized exchanges. Markets dictate the value of crypto just like any other market for stocks, bonds, gold, collectibles and so on.
Key Takeaway
Crypto "whales" (large holders, including project insiders) can move market prices significantly, so be aware market risk is a big factor in crypto value.
What is the biggest crypto coin collapse?
The Terra (LUNA) crash in 2022 stands out as one of the most devastating. At its peak, LUNA was among the top 10 crypto by market cap. However, the algorithmic stablecoin, UST, tied to LUNA led to a death spiral that wiped out nearly $40 billion in market value within days in both the LUNA and UST tokens.
Source: CoinGecko
What is the biggest problem with Bitcoin?
The biggest problem facing Bitcoin today revolves around its scalability and the limited number of transactions processed per second. However, this could be seen as a feature and not a bug as Bitcoin stands out a digital store of value and not a high-speed transaction network.
Key Takeaway
Bitcoin’s proof of work mining is extremely energy-intensive, drawing criticism for its environmental impact. Bitcoin is the greatest fraud proof mechanism invented in human history and if global fraud were a country, it would be top 10 in GDP. Electricity consumption can’t be looked at in isolation when evaluating Bitcoin.
The brutal truth about Bitcoin
Bitcoin is becoming a global reserve currency adopted by central banks, governments, financial institutions and publicly traded companies. These players see Bitcoin as a hedge against inflation and melting fiat currencies; however, it’s not insulated from the following factors:
- Macroeconomics
- Monetary policy
- Regulatory uncertainties
- Traditional financial markets
- Geopolitical events
Bitcoin is rapidly gaining adoption with US Bitcoin ETF approvals in 2024 and publicly traded companies like MicroStrategy adding massive Bitcoin holdings to their treasuries.
Key Takeaway
Crypto is simply another asset class within the entire global financial ecosystem subject to the same risks of every other asset class. As Stephen Covey says, “You can’t pick up one end of the stick without picking up the other end of the stick.” Crypto is not a magic wand to escape and be isolated from the rest of the financial markets.
Related: Is Crypto a Safe Investment?
Bitcoin problems today
Bitcoin is not without its problems. Current issues include:
- Transaction delays during peak times
- High fees associated with network congestion
- Conservative protocol upgrades
These issues can also be viewed as advantages especially considering upgrades take longer than most other blockchains, so conservatism has value. Many believe the reason why Bitcoin will succeed lies in its first-mover advantage and growing institutional adoption. Analysts remain optimistic about Bitcoin's potential for long-term growth because of its decentralized network value and scarcity driving future demand.
