Key points:
- Crypto investments can be affected by price volatility, liquidity constraints, custody risks and cybersecurity threats.
- Investors can manage volatility through disciplined asset allocation and dollar-cost averaging.
- Secure custody arrangements and proper safeguarding of private keys are critical when investing in digital assets.
- Fraud, theft and cybersecurity threats highlight the importance of due diligence and platform selection.
Cryptocurrencies have evolved from a niche asset class into an increasingly institutionalised market, supported by growing adoption, deepening liquidity and improved regulatory oversight.
The introduction of Spot Bitcoin and Ethereum ETFs alongside the development of clearer regulatory frameworks like the GENIUS Act and the CLARITY Act, signifies a maturing market.
Understanding these risks can help investors make more informed decisions about portfolio allocation, risk management and the safeguarding of their digital assets.
Risk 1: What Is Crypto Volatility Risk and How Can Investors Manage It?
Volatility remains one of the defining characteristics of cryptocurrency investing. Unlike traditional financial markets, cryptocurrency markets operate 24 hours a day, seven days a week, meaning price discovery never stops. Major geopolitical developments, central bank policy changes and disruptions to crypto exchanges can all contribute to sharp market movements.
A good example of crypto market volatility was the 10 October 2025 liquidation event. Reports of potential tariffs on Chinese imports triggered a panic sell-off across cryptocurrency markets, resulting in approximately US$19 billion in liquidations. Over the same weekend, Bitcoin and Ethereum each fell by almost 15%, highlighting how rapidly sentiment-driven events can impact digital asset prices.
How to Manage Crypto Volatility
Investors may consider:
- Avoiding excessive concentration in digital assets within an overall portfolio.
- Establishing a risk-budgeted allocation limit for cryptocurrencies.
- Using dollar-cost averaging (DCA) to reduce timing risk.
Risk 2: What Is Liquidity Risk in Cryptocurrency Investing?
An investment is considered illiquid when an investor faces difficulty buying, selling, or exiting a position at a fair price. While overall market liquidity is deepening as compared to previous years, the risk of illiquidity still exists in cryptocurrencies with smaller market capitalisations. Due to their limited trading activity, these currencies could be more volatile, posing difficulties for investors seeking to liquidate their holdings without incurring unfavourable prices due to wide bid-ask spreads.
Investors may also face a systematic form of liquidity risk, where they might temporarily lose access to their crypto investments due to unexplained or prolonged trading platform downtime, or when exchanges temporarily halt crypto deposits or withdrawals for platform maintenance. Such events directly impact one’s ability to buy, sell, or access their crypto assets.
As such, investors must remain aware of the persistent and multifaceted nature of illiquidity risks. These risks stem not only from the inherent characteristics of smaller market cap assets (limited trading, volatility, wide spreads), but also from the operational vulnerabilities and discretionary actions of the platforms on which these assets are traded.
How to manage liquidity risk
Investors may consider:
- Trade high market capitalisation crypto assets.
- Using multiple reputable exchanges to access liquidity which could prevent one from being locked out of a trading activity by a single exchange’s downtime.
- Monitoring trading conditions and liquidity before entering or exiting positions.
Risk 3: What Is Crypto Custody Risk and Why Does It Matter?
Custody is one of the most important considerations when investing in cryptocurrencies.
Unlike traditional assets, ownership of digital assets is fundamentally linked to possessing a cryptographic private key — a unique code that proves ownership and authorises transactions.
One unique feature of cryptocurrency is that investors can self-custody their assets by holding their private keys directly. This provides full control over their digital assets. However, self-custody also comes with significant responsibility and risks.
Common risks include sending assets to the wrong deposit address, losing access to a wallet, or having a private key compromised.
If access to a self-custodied private key is lost, the associated cryptocurrencies are typically unrecoverable.
Alternatively, investors may choose a third-party custodian to safeguard their private keys. While this may reduce certain operational risks and provide recovery mechanisms for lost credentials, investors must rely on the provider's controls and security measures to protect their assets.
The good news is that third-party custody has improved significantly in recent years. Many institutional custodians are regulated and insured, offering institutional-grade storage solutions designed to protect against loss and theft. When evaluating a custodian, investors may consider factors such as regulatory oversight, System and Organisation Controls (SOC) certifications and insurance coverage.
Ultimately, the choice between self-custody and a regulated custodian depends on individual circumstances, as both options have distinct merits and risks, making it important to understand the implications of the chosen custody method.
Risk management options:
- For self-custody, invest the time to understand how it works and use a reputable hardware wallet and store your seed phrase securely offline.
- Do your due diligence by verifying that the platform or exchange you are using has regulated, audited custodians for client assets.
Risk 4: How Can Investors Protect Against Crypto Fraud, Theft and Cybersecurity Risks?
A crypto hack occurs when cybercriminals gain unauthorised access to digital wallets and steal your cryptocurrency assets. Hot wallets, which remain connected to the internet, are particularly vulnerable to such attacks. Cryptocurrency exchanges are also popular targets for cybercriminals due to the value and transferability of digital assets.
As the market has grown, so have the sophistication of cyber threats. An example was the February 2025 breach of crypto exchange Bybit, the largest cryptocurrency hack on record. Hackers compromised a third-party wallet provider, manipulated the approval process and drained US$1.5 billion worth of assets from the exchange’s cold wallet. Beyond hacking, investors also face fraud-related risks. The infamous collapse of the widely known crypto exchange FTX, highlighted how customer assets can be misused when governance and controls fail, with its founders accused of using customer deposits to fund unrelated business and political activities.
These incidents underscore the importance of conducting due diligence, diversifying platform exposure, and choosing providers with robust security, governance, and safeguarding measures.
How to Manage Cybersecurity Risks
Investors may consider:
- Using secure storage arrangements for digital assets.
- Trading through reputable and established platforms.
- Verifying contract addresses before transferring funds.
- Remaining cautious of unsolicited investment opportunities or offers that seem unusually attractive.
A More Informed Approach to Crypto Investing
The areas covered in this guide are not obstacles to investing in digital assets, but rather a landscape to help you navigate as an informed and prepared investor.
What makes the current moment genuinely encouraging is that the tools, infrastructure, and regulatory frameworks available to investors today are far stronger than they were a few years ago. Regulated custodians, licensed platforms, clearer legal frameworks have collectively raised the bar for responsible crypto investing.
Hence, do your due diligence and be aware of the risks.
For DBS Treasures Accredited Investors, DBS Digital Exchange (DDEx) offers a secure platform for seamless cryptocurrency trading directly through the digibank app.
Keen to gain access to DDEx? Consider becoming a DBS Treasures customer today.
