In financial investment, risk and return are two important factors that must be considered in order to make a profit. Risk is the probability of losing money on an investment, while return is the amount of money earned on an investment.
There is a direct relationship between risk and return: the higher the risk, the higher the potential return. However, there is also a chance of losing money if the investment goes bad. That’s why it’s important to understand both risk and return before investing any money in any field, especially in cryptocurrency because it has no official backing from any country. This is mostly true in the present climate, when fraud is on the rise. Furthermore, investments in cryptocurrencies are a prime target for fraudsters who take advantage of their unregulated position and growing popularity.
Investors must weigh their options carefully and decide which investments are worth the risk. Some people are willing to take on more risk in order to earn a higher return, while others prefer to play it safe and only invest in low-risk ventures. That completely depends on the investment taste of each person.
What Is the Relationship Between Risk and Return in Cryptocurrency?
In general, taking on more investment risk is the only way to achieve larger investment returns.
The risk-return trade-off is a key tenet of successful investing. There are numerous different asset classes and investment kinds, including, but not limited to, money market securities, bonds, public equities, private equity, private debt.
The investment risk associated with each of these asset classes varies except for crypto-assets. It can be said that the risk in this industry is much higher than in other industries due to the fact that it is very difficult to identify a profitable project and which ones are outright scams.
In fact, fraudulent investment opportunities accounted for $575 million of all crypto fraud losses reported to the FTC since 2021 – far more than any other fraud type.
That’s the reason why investors must ensure that they fully comprehend the investment they are making and conduct the necessary due diligence on the scheme/end investment. Without any legal safeguards in place in case they make a wrong gamble, the risk is solely on the investors. That means investors are entirely responsible for protecting themselves against the fraudulent schemes that are rife in the industry.
Managing risk
You cannot eliminate investment risk!
However, don’t be so pessimistic, investors totally realize a legitimate project through the description about the team behind the project.
Obviously, the project’s team is crucial to its success because of the technological sophistication of the work required. Therefore, if the project documentation whether in the white paper or on its website does not provide a description of the team, an investor should be concerned.
Moreover, the seriousness of the project is shown by how users can get in touch with them easily to ask about the project, or whenever the project had any issues.
As in the case of Chocodoge, an NFT game project created for Dogechain, which faced a recent incident with their collaborator – DoggyTomb. Their users were unable to withdraw or deposit money due to problems in the DoggyTomb smart contract.
Following the discovery of an abnormality, ChocoDoge temporarily recommends for their users on social media to remove 2 pools with validated smart contracts which are KIB, and USCD from exployer. ChocoDoge promotes developing UI for users to withdraw as soon as feasible because users have trouble taking money out of unconfirmed smart contracts. And they swiftly got in touch with DoggyTomb to reimburse their user for the money that was trapped in the smart contract.
For any trouble, a scam project will disconnect from users (close all contacts accounts, websites and also the projects), this also one of the signs of a crypto rug pull scam. Corgi Finance ($COG) is the latest project that has these signs. The twitter account of Corgi Finance (@Corgifinance_) was deleted and the website is now returning an invalid certificate.
There is cause to doubt the project’s seriousness if a potential investor is unable to contact the team. With ChocoDoge, it is typically very simple to get in touch with the team behind in order to ask questions or obtain additional information about the project.
Since the very beginning days, just about 4 days after launching, Dogechain has had more than 600 smart contracts of Dapp deployed on it. After that, Dogechain again showed more hints to show its influence on the community, when it announced the airdrop for early users of its native DC token. It is evident that Dogechain is moving in the correct direction and growing quickly. With the current large number of users and great media support of the founders of the top tier Dapp in Defi, DogeChain has the ability to become a potential playground, a project worth investing in.
Finding any of the aforementioned indicators of fraud does not prove that a project is fraudulent. An investor will, however, be better able to handle the fraud-related investment risks that are particularly common in the crypto-asset ecosystem if they are aware of these indications.
– Advertisement –
Source: https://thecryptobasic.com/2022/09/15/risk-and-return-the-interplay-of-two-essential-components-of-financial-investment/?utm_source=rss&utm_medium=rss&utm_campaign=risk-and-return-the-interplay-of-two-essential-components-of-financial-investment