Binance risks: how to manage the biggest risks?
Cryptos are risky investments: it is therefore advisable to take the necessary precautions. In this article, we will discuss how to deal with the biggest risks of Binance.
Risk of a falling crypto price
Cryptos are extremely volatile: you can make a big hit, but it can just as easily end differently. When investing in cryptos, there is a big risk of price loss.
In the long run, the price of Bitcoin has so far only moved up. However, if you bought at a top, you can quickly lose tens of percent. In such a case, it is important to stay cool and not to sell your cryptos at an unfavourable moment.
How do you limit this risk?
You can reduce the risk of volatility by spreading your investments. For example, you can buy several cryptos: this prevents you from investing all your money in a failed crypto.
It can also be smart to apply dollar cost averaging: you then buy crypto at different times, thus profiting from an average return. Timing the market is very difficult and in numerous instances amounts to gambling. In this article, you can read more tips for your crypto investments on Binance.
Risk of hacks
Another risk you face when investing in crypto on Binance is hacks. Hackers are constantly trying to hack users’ accounts. When they manage to gain access to your account, they can steal the cryptos that are stored there.
Sometimes an entire exchange is hacked. As for Binance, this happened in 2019: over 7,000 Bitcoins where stolen. Binance compensated all users for this loss.
How do you reduce the risk of hacks?
You can reduce the risks of a hack on Binance. Make sure you use 2FA and choose a strong password. When investing large amounts of money, it is wise to spread your crypto assets over several wallets.
Do you need help securing your Binance account? In this article, we will show you how to secure your Binance account.
Risk of worthless cryptos
You can trade hundreds of different cryptos on Binance: this gives you a lot of flexibility. At the same time, this increases the chance that you will encounter a so-called shitcoin. A shitcoin is a crypto with no real value, which was only created for speculation. Under the influence of good news, the price of a shitcoin can reach a new high and then plummet.
How do you limit the risk of worthless cryptos?
Always do sufficient research on the underlying crypto. For example, check whether the team behind the crypto is reliable and whether they have written a good white paper. In addition, always research the following two things:
- Does the new crypto add anything to the existing cryptocurrencies?
- Does the crypto network really need a token?
Only when the crypto has a right to exist, it can be an interesting long-term investment. If you mainly speculate on small price movements, it is less important whether the crypto has a right to exist.
Risk of negative legislation
Many governments do not yet know what to do with crypto and crypto exchanges. For example, some governments prohibit crypto entirely (China) while others give citizens Bitcoin for free (El Salvador).
Binance is also controversial as a crypto exchange in many countries. This is because they do not always properly follow local laws. This can have awkward consequences: some countries, for example, blocked various payment methods.
How do you reduce the risk of negative legislation?
Of course, you cannot influence the policy of your government. At the same time, the decentralized nature of cryptocurrencies means that governments will never have complete control over them. Therefore, they cannot prohibit a cryptocurrency like Bitcoin.
When governments prohibit access to certain payment options, you can often still withdraw the crypto and send it to a crypto exchange that does have a legal status within your country. In our article about Binance wallets, we discuss in more detail how this works.
Risk of human error
Many people see the decentralized nature of cryptocurrencies as a strength. It is certainly unique and advantageous that governments and other parties can exert less influence on transactions. At the same time, it also places a lot of responsibility on you as a user.
The fact that there is no third-party means that you are fully responsible for every transaction. If you make a mistake and enter the wrong Bitcoin address, you will lose the crypto permanently. There is no third party to help you if you make a mistake. In addition, you are 100% responsible for securing your wallets and Binance account.
Reduce risk of human error
Only invest in crypto at a quiet moment. Check everything several times and take your time. In addition, educate yourself to understand how bitcoin and blockchain work. A wise investor only invests in things he fully understands.