The process of buying cryptocurrency has never been simpler. Simply sign up with an exchange and select “buy” and Bob is your uncle. Now you’re an authentic crypto-investor.
However, investing is more than simply buying your preferred cryptocurrency. As an experienced investor you’re likely to have a lot of questions regarding cryptocurrency, including the things you should be aware of prior to investing, the best way to get it, and how you can secure (and ensure the security of) your investment.
We’ll tackle these important questions and more in this article on what you can do to get into cryptocurrency.
3 Things to Consider before investing in the Cryptocurrency Market
1. The Cryptocurrency Market is Still a Risky and High-Risk Investment
Cryptocurrencies can be extremely volatile. Bitcoin is an excellent instance, since it’s not common for it to plummet 30% over a period of time, only to then surge to record levels the following week.
Bitcoin could be doing well when compared to the time it first began to gain traction however, the gains aren’t guaranteed or stable. Anyone who purchased BTCUSD in the latter part of 2017 and then sold it prior to October 2020 was losses.
If you are planning to buy cryptocurrency, we suggest just allocating a small amount of your portfolio in the beginning.
2. Cryptocurrency Holdings Are Not FDIC Insured
If your bank is insolvent the checking and savings accounts will be covered with a maximum of $250,000. If your crypto exchange fails, is compromised or shuts without notice then you’re probably in the dark.
3. Cryptocurrency is Taxable
The gains from cryptocurrency are tax-deductible. The IRS has decided to tax cryptocurrency gains on capital gains starting in 2014 after which it has issued at most 24,000 notices to the crypto community.
Select an exchange
The first step in buying crypto to select an exchange that you trust. A exchange is where you’ll buy, sell and, most likely storage of your cryptocurrency.
The good news is that cryptocurrency has been around long enough that the most popular exchanges have grown quite reliable and user-friendly. There are many exchanges that we highly recommend and below are three of the most popular exchanges for beginners:
Coinbase is an ideal option for beginners to start with. It’s a publicly traded company with more than 73 million customers, and is known for their intuitive and stunning user interface, as well as the capability to earn crypto for free through Coinbase Learn. The drawbacks include higher-than-average fees as well as the inability to transfer your private keys to the cold account.
eToro allows you to invest in ETFs, stocks and more than 30 cryptocurrencies with an easy fee of 1% when purchasing or selling cryptocurrency. All in all, eToro provides a very easy method of adding crypto into your portfolio.
Binance.US is competing with Coinbase with lower costs and a wider choice of cryptocurrencies, as well as more sophisticated features that you can grow into. The platform is subject to rigorous regulatory scrutiny. Although this isn’t a major issue since it’s not uncommon for crypto-related platform, there are some things you should be aware of.
BlockFi provides investors with the option to take advantage of crypto-backed loans. If you’re looking to earn more crypto the possibility of earning bitcoin back on purchases you make using the BlockFi Rewards Visa(r) Signature Credit Card.
Pick Which Cryptos You’d like to invest in
Bitcoin does not mean that it’s the only cryptocurrency around. Actually, it’s the case that there’s more than 7,500 cryptos available.
The good news is that most exchanges provide a handful of dozen. These are usually the most authentic and reliable currencies with a reasonable market value.
Here are some of the most traded cryptos in the world in the present:
Bitcoin (BTC USD) The reigning king of cryptocurrency is still in existence and can be purchased at any popular exchange.
Ethereum (ETH) Ethereum (ETH) second-most popular cryptocurrency according to market cap has achieved success thanks to innovations, which allowed the creation of smart contracts on the blockchain.
Dogecoin (DOGE): Dogecoin was invented in less than two hours in a joking mannerit’s a witty satire of cryptocurrency. However, DOGE has reached an $185 billion market value that demonstrates how powerful speculation as well as online chatter.
Binance Coin (BNB): BNB is the official coin of Binance the world’s biggest cryptocurrency exchange (Binance.US is the version that is only available in the US). It’s gained popularity because of its widespread acceptance and capacity to lower the cost of trade at Binance.
What are the best ones to buy? It is true that cryptocurrency is unstable and speculative that selecting the most suitable cryptocurrency to invest in could boil down to which one you are convinced of. Consider, for instance, do think that Ethereum has more technical value and has more world-wide applications than Bitcoin?
Although stock traders can look up 10-Ks in the process of evaluating companies, crypto investors may be interested in reading whitepapers like the one used for Bitcoin.
Decide How Much Crypto to Purchase
What amount of crypto should you include in your portfolio? I’ve written an entire article on this subject But here’s the summary:
I asked two experienced wealth advisors for a specific number and the two responses were:
“Maybe 10% is the best – therefore in the event that crypto goes down you are still able to be retired – but I would not advise it.”
“Get at least $100,000 of safe investment before you start,” since if you can secure $100,000 in investments that are safe when you reach the age of 35, and you continue to put in another $100 per month and you’ll be a millionaire when you retire.
Unsurprisingly, experienced wealth managers don’t have a lot of fondness of crypto , mainly because it’s not a part of an Asymmetric risk profile. It’s too volatile — you cannot construct a 99% sure rich financial future around it.
The bottom line? Start with a small amount. Start to 10 percent, or better, 5percent from your investment portfolio.
Securely store your private keys in a wallet
When you purchase a cryptocurrency then the next thing to decide is where to keep those keys.
For quick recaps Hot and cold wallets function on and offline in the same way, and vice versa. Hot wallets let you access and trade your cryptocurrency easily, while security measures for their users are now more effective than ever.
However, hackers are becoming more nimble and more daring, which is the reason why many cryptocurrency traders, and particularly those who are long-term investors, opt the option of saving their confidential keys in a cold walletwhich is it’s a USB or HDD they store in an secure.
If you’re just playing around with small amountsand you think that you’ll buy a few more every now and then the hot wallet should suffice for now. There are also savings accounts for cryptocurrency that will pay you interest on your cryptocurrency to store it.
Make sure you are investing in your investment
When starting your crypto education, do your research.
Your final goal is to ensure that you keep your cryptocurrency investment. There is only one way to accomplish this wrong is to buy cryptocurrency and then completely ignore it. You avoid crypto investment missteps by:
Add your cryptocurrency to your main investment dashboard, to monitor the performance of your crypto over time.
Because crypto trading is in the Wild West, check headlines often to check the regulatory scrutiny of the particular exchange.
Engage in crypto communities. Go to the subreddit for crypto, then filter by the most recent and trending topics. You might also consider joining a crypto-related community on the social network of your choice site, or perhaps attending in-person crypto-related events or meetups.
Find out the governments that are banning cryptocurrency or, on the other hand, accepting it as legal tender , and developing the Bitcoin city on a volcanic.
Continue to learn about new blockchain technology and cryptos — and you could even be the money in cryptocurrency via Coinbase Learn.
Alternative Strategies to Invest in Cryptocurrency
The purchase of crypto isn’t the only method of “invest” into it. There are other options that are less risky to think about.
Earn Crypto “Free” Through learning and Mining
If you own a powerful PC with a gaming-capable graphic card, you are able to mine cryptocurrency at no cost. Mining involves lending your computer’s processing power to the blockchain, and then receiving an amount of cryptocurrency in return.
Make investments in Cryptocurrency ETFs and stocks
You can also invest in cryptocurrency industry by buying shares of companies highly focused on or invest into the development of crypto. For instance, you could buy parts of Coinbase (COIN) Mining companies like Hut 8 Mining (HUT) or chipmakers who indirectly support crypto through the production of chips that are used for mining for crypto, like Nvidia (NVDA).
Invest into the Blockchain
One last method of investing in crypto, without purchasing cryptocurrency is by investing in the tech that supports it, namely blockchain.
In 2014, only two of the 100 biggest publicly traded companies investing in blockchain-related projects. The current number is 81.
There are even ETFs that deal in blockchains including those that are called the Amplify Transformal Data Sharing ETF (BLOK) and the Amplify Transformational Data Sharing ETF (BLOK), which provide an attractive mixture of blue chips and new and exciting companies.
Pros and Pros and Cryptocurrency
pros
Potential for massive gains: Cryptocurrency particularly Bitcoin is the most profitable investment asset of the past decade. It could fall or keep its upward trend.
Be a part of the new technology that is emerging Blockchain technology has a profound impact on almost every industry — financial, public medical, and public. your cryptocurrency investment is helping these sectors.
You can earn some “free” It isn’t possible to “mine” stocks and you can’t make short videos and earn free real estate , but you can use either to earn crypto for free!
The purchase of crypto isn’t the only method of investing Blockchain ETFs and crypto can be a convenient way for investors in the stock market to include crypto into their portfolios without exposing themselves to the risk of actually holding crypto.
Cons
High risk and high volatility: Crypto is still too unpredictably to bet on, and that’s why traditional wealth advisors advise restricting your portfolio’s allotment to 10 percent — or less.
At risk of theft scams, fraud, and theft: Squid is just the latest scam in the cryptocurrency industry where its creators made off with $3.38 million of the investors’ funds. The majority of victims of 2014’s Mt. Gox hack, in which more than 850,000 Bitcoin have been stolen have not yet received any coins returned.
Do you have to pay the tax on cryptocurrencies?
Yes. The tax on crypto gains is according to a normal capital gains rate of 10-37 percent for gains in the short-term and zero to 20% on long-term profits.
As per the IRS the following three items aren’t tax-deductible and don’t require filing:
Cash-based crypto purchases and then holding it (affectionately called hodling)
Donating crypto to a tax-exempt charitable organization or non-profit
Transferring crypto from wallets
The following are not required to be reported, and will get taxed in the form of capital gains
Trading crypto for cash (even the possibility of losing the initial amount of money)
Paying with crypto for services or goods
Exchange of one cryptocurrency for another
Mining crypto.
Payments in cryptocurrency or via airdrop.
Being able to receive crypto as a reward or reward
If you fail to declare your assets, you could be fined. The same penalties apply to not paying taxes. And like the IRS themselves state, “they can add up quickly”:
Late filing charges
A late payment fee
In addition to the interest, both penalties
Your penalty total could amount up to 25% or more of the tax balance that is not paid.
Should you invest in Cryptocurrency?
You might consider investing in crypto if:
You’d like to include very high-risk assets to your portfolio. If you’ve assessed the risk you are willing to take and seeking to incorporate greater risk to your portfolio, then crypto definitely will fit the bill.
You are a believer in the purpose of blockchain and cryptography Perhaps you are convinced of the positive benefits of blockchain and crypto technology and consider it to be an element or ESG investing.
You might want to stay clear on cryptocurrency if:
If you’re averse to risk, cryptocurrency can be extremely unstable, volatile, and risky. If this causes you to feel more anxiety than excitement it might not be a good suitable investment to your portfolio.
It’s the first step in investing. To follow the advice of Varun Marneni who is a certified financial planner from the Atlanta-based CPC Advisors, it’s best to have $100,000 of safe investments before investing in crypto.
The Bottom Line
The world of cryptocurrency has never been more simple to invest and purchase. Crypto remains an unregulated Wild West in many ways. There’s a wild gold rush that’s void of regulation even though President Biden’s crypto executive orders might soon change the situation.
If you choose investing in cryptocurrency, make sure to educate yourself on the risks, best practices , and be aware of the business. Don’t forget to pay Uncle Sam his taxes!