5 things to watch out for when dabbling in cryptocurrency investments

SINGAPORE – Cryptocurrency investments have received a lot of negative attention in recent times.

It started in May with the turmoil caused by the sudden collapse of a major US dollar-pegged stablecoin, the TerraUSD which is linked to another cryptocurrency Luna. This was followed by fluctuations in the value of Bitcoin, which touched US$19,000 recently, a far cry from its peak value of US$68,000 in November 2021.

Amid talk of a crypto winter, cryptocurrency exchanges from Bybit to Crypto.com have announced significant workforce reductions of up to 20 per cent.

Despite the negative press and restrictions imposed by the Monetary Authority of Singapore (MAS) on selling to retail investors, Singapore cryptocurrency investors remained active, ranking among the top 20 countries for crypto exchange visitor traffic, according to SimilarWeb.

Last month, the MAS signalled that it would further tighten restrictions through measures such as customer suitability tests. The authority also reiterated that cryptocurrencies are unsuitable for use as money and are “highly hazardous” for retail investors.

What can investors watch out for when dabbling in cryptocurrency investments?

1. Assess your risk appetite

Talk to a reputable financial adviser and assess your risk appetite. Be familiar with the product that you want to invest in and what protections, if any, you may have.

Note that only a few cryptocurrency platforms are licensed by the MAS under the Payment Services Act 2019. They include Australia-based Independent Reserve. Even then, investors have the flexibility of buying cryptocurrency from offshore platforms not licensed by MAS. There are risks in using unlicensed platforms as they would not have undergone the strict licensing process meant to safeguard local investors.

2. Choose the right crypto-wallet

Investors need to create a crypto-wallet to store cryptocurrency and trade on platforms. Users can even spend cryptocurrency in the physical world, including with Singapore dinnerware seller &glazed and pet food supplier Kibbles.

Some investors keep their cryptocurrencies in a crypto-wallet within their trading platform, while others store them outside the platform in what is known as “hot wallets” or “cold wallets”.

Hot wallets are always connected to the Internet, and can be accessed via a mobile phone, tablet or computer. They are easily accessible and convenient to use, but they are also vulnerable to cyber-security threats being always connected. Popular wallets include MetaMask and Electrum.

Cold wallets, on the other hand, are not connected to the Internet. Typically, they take the form of offline external devices such as a smart card or a USB drive. But you need to keep the security keycode associated with the device safe. If you lose the keycode or the device, or if the device malfunctions, you may lose your cryptocurrencies.