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7 Potential Risks and Challenges When Investing in Ethereum 

If you are considering investing in ETH, you are not alone! As the second largest cryptocurrency, Ethereum sparks lots of interest in the crypto space. However, like any financial investment, it has its imperfections. To ensure you make an informed decision, here are seven potential challenges you might face when investing in ETH:

  1. High volatility 
  2. Competition from other blockchains
  3. Security threats
  4. High gas fees 
  5. Regulatory concerns  
  6. Market Sentiment 
  7. Liquidity risk

What Are the Challenges of Investing in Ethereum?  

1. High Volatility 

Volatility is to cryptocurrency as toppings are to pizza—inseparable. And Ethereum is no exception. Cryptocurrency values often fluctuate widely in a short period. As an investor, you can accrue significant losses from price swings. While Ethereum’s volatile nature also gives room for massive rewards, it can swing the other way. Hence, you must weigh the risk well before you enter a trade. 

2. Competition from other blockchains

Competition also poses a threat to your ETH investment. A popular example is the Solana Blockchain. The rival chain handles similar ETH transactions per second and with lesser fees. If big chains like Solana and Binance Smart Chain draw developers away from ETH, it can lower interest in the asset. The demand for Ether will ultimately reduce, and so will the price. 

3. Security Threats

Crypto security threats

Before you opt for ETH investment, you must be aware of the potential security threats. While largely considered “secure,” smart contract vulnerability can lead to massive losses. High-profile hacks and exploits have compromised several wallets and applications. 

Although ETH has specific measures to combat these security threats, it helps to know they exist. From your end, you can take necessary steps like stronger passwords and better wallets to curb the threats. 

4. High Gas fees 

Network congestion on the Ethereum Blockchain leads to higher gas fees—a significant factor influencing investing in gas fees. Since the Ethereum gas fee is high, many investors often consider other cheaper options. The outflow of investors can drive down the price of ETH, which might harm your investment. Moreso, when other options offer better fees for the same services.

5. Regulatory Concerns  

The price movement of Ethereum relies largely on regulations and its legal status. Cryptocurrency regulations are relatively new, and these uncertainties breed a lot of “maybes.” If more countries ban Ether, it might affect ETH prices. 

However, you can save your investment by acting proactively. You can closely monitor developments on regulations and make decisions using the news. An example is when the Nigerian government gave regulatory restrictions to crypto trading, and traders now use platforms like the Breet app to sell their ETH for a seamless experience with competitive rates and low fees.  

6. Market Sentiment 

When researching whether ETH prices will rise or fall, market sentiment is a critical aspect to consider. Like other cryptocurrencies, the price of ETH relies significantly on market sentiment.

If the market buzz is positive, many investors hop on the train and buy ETH, which pushes its price up. However, bad news like a breach in security can lead investors to jump out of their investments, driving the price down. As an altcoin, the price movements are also tied to Bitcoin. A price drop in Bitcoin might also affect ETH.  

7. Liquidity Risk

Liquidity reduces the risk of a crypto investment. A coin’s liquidity is how easily it can be converted to fiat money. Investors can’t readily convert their investment to fiat currency when a cryptocurrency has low liquidity. While Ethereum has better liquidity than others, it also comes with risk. If Ethereum’s market participation lowers, it reduces liquidity and can affect your investment. 

Risk Mitigation Steps to Take When Investing in Ethereum

Here are risk mitigation steps you can take when investing in ETH: 

1. Use Secure and Reliable Crypto Wallets: When you put your Ethereum investment in secure and reliable wallets, you safeguard your investment against security threats. 

2. Gauge Your Risk Tolerance: Ethereum, like any crypto investment, has an inherent volatility risk. With that in mind, only invest what you can afford to lose. 

3. Keep an Eye on the Market: The market often swings wide. To ensure you are one step ahead, create investment strategies matching the trends and risk tolerance.

4. Monitor Regulations: You need to pay attention to regulations since global factors often drive ETH’s price—this way, you know when to exit and enter the market.

5. Try the Long-Term Investment Strategy: HODLing your ETH investment protects it from short-term volatility. You stand to gain much more by HODLing your investment and only liquidating it when the market is favorable.

Frequently Asked Questions (FAQs) About Challenges and Risks Surrounding ETH Investments

Is ETH Good As A Short or Long-Term Investment? 

Ethereum is suitable for both. However, going for long or short-term investment depends on your risk tolerance. If you have a low-risk tolerance, go long-term. If you have a  high-risk appetite, you can trade short-term.  

Where Can I Sell My Ethereum for Cash In This Bull Run? 

To get the cash equivalent of your Ethereum, sell it on Breet. Breet is an over-the-counter platform focused on creating quick and seamless trades. In minutes, you get your ETH equivalent in Naira or Cedis. Sell your ETH at Breet for the best rates on the market and automatic trading. 

What’s Ethereum Price At the Moment? 

The price of ETH is unpredictable as the crypto market is highly volatile. However, investors can get the equivalent of ETH in Naira or Cedis using the Breet in-app rate calculator. It is your sure bet at finding Ethereum’s real-time price. 

What Crypto is a Better Alternative to Ethereum? 

Whether ETH is an excellent choice depends on what you are looking for. If you want low gas fees and similar Blockchain functions, you can opt for Solana and Binance Smart Chain. However, the ETH Blockchain offers more opportunities for building dApps and smart contracts. 

BTC or Ethereum, which should you buy?

Bitcoin and Ethereum are the biggest cryptocurrencies with varying use cases. However, the former is more established and recognized, making ETH riskier. However, both coins show excellent prospects. Your choice should be based on your investment goals, risk tolerance, and portfolio diversification strategy.

Conclusion

ETH has risks and challenges you need to know, like any other financial investment. However, it remains a profitable crypto asset to invest in. Want to invest in ETH? You can buy ETH on platforms like Binance, BYBIT, and OKX. When it is time to cash out your profits, use Breet to sell your ETH. With the Breet app, ETH traders and investors can seamlessly trade their ETH for Naira or Cedis at the best rates in the market. I wish you the best as you start trading! 

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