What Is The Main Risk Associated With A Cryptocurrency Hot Wallet?
What Is The Main Risk Associated With A Cryptocurrency Hot Wallet?
Financial experts from South Korean believe that digital assets and cryptocurrencies do not provide a safe asset during the global Coronavirus pandemic at the same standard as gold and fiat.
Arguing that investors rushing to buy Bitcoin and store cryptocurrencies in response to financial uncertainty as a result of the COVID19 pandemic, South Korea’s Hongik University Professor Hong Ki-hoon could be a risky move.
Should Cryptocurrency Be Considered A Safe-Haven Asset?
As reported by The Scoop, Hong claimed that cryptocurrencies such as Bitcoin and Ethereum should not be classified as “safe-haven assets”. He explained that this thinking comes from certain conditions need to be met for an asset to be considered a safe investment during uncertain times, stating:
“To be a safe-haven, two conditions must be satisfied. First, the volatility of the asset’s value must be low, and second, when market volatility is expected to increase, the value should rise. Therefore, cryptos do not meet with the conditions.”
He added that cryptocurrency saw a surge of investment following the initial outbreak of the virus, suggesting:
“The reason for the increase in the volume after the markets crashed was that the spirit of investing in higher volatility worked to compensate for the depreciated asset value.”
South Korea’s Lack Of Regulation Adds To The Risk
Go Jun-young, reporter for The Scoop, also pointed out that there cryptocurrency and Bitcoin trading still remains outside of financial regulations and capital market law. This means that digital assets could face issues related to market manipulation whereby cryptocurrencies that have been traded well could become a resting place for investors. This lack of regulation does not help mitigate risk for investors and raises concerns and user protection.
However, an anonymous expert in the financial and investment sector offered a contrasting opinion, stating:
“Individual investors are often unable to manage the risks of stocks properly, but it is virtually impossible to gauge the risk factors of cryptocurrencies. You have to understand before investing fully.”