This post is originally published in Data Driven Investor.
Cryptocurrencies, especially bitcoins, have shown tremendous growth so far when compared to gold and the U.S.Dollar. In June 2020, the price of bitcoin has increased by 27.8% year-on-year, while gold and the U.S.dollar have grown by 16% and 5.4%respectively. Investors’ interest in cryptocurrencies continues to grow with every passing day. A large number of investors are increasingly trading in crypto and its derivatives. Sadly, it is not just the investors who have vested their interest in the crypto market, but also the hackers and the fraudsters. Recent scams include the DeFi protocol Balancer hack and the Wirecard scandal. The sheer volume of trade makes crypto exchanges very lucrative to swindlers. At times, these abused exchanges end up filing for insolvency or bankruptcy.
Hence it is for the benefit of both the investor and the crypto firms to understand the risks involved in crypto trades before investing. Why are the crypto exchanges vulnerable? What happens when the crypto exchange becomes insolvent? Finally, how to choose the right exchange?
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