It has never been easier to get on the cryptocurrency bandwagon, and the industry is only growing in popularity. Buying cryptocurrency for the first time is as easy as signing up for an online exchange. Having said that, there is a little more information you should have before you put your money into these digital currencies with confidence. From the basics of cryptocurrency to advanced strategies for monitoring and controlling your holdings, this article has you covered. All set?
An Overview of Cryptocurrency Investments
Prior to beginning your investment journey, it is essential that you have a firm grasp of the following fundamentals: One of the most important things is to prepare yourself to take on more risk when investing in these types of assets.
One notable example of the normal swings that a crypto coin goes through is Bitcoin, the most famous and widely used cryptocurrency in the world. Bitcoin, experiencing daily variations of 10% or more, is a very volatile investment. This means that its value does not remain constant or predictable over time. For this reason, you should start by committing a relatively small portion of your portfolio to it. By doing this, you may prepare yourself for the inevitable ups and downs in your cryptocurrency’s value.
The FDIC does not protect bitcoin, unlike most banks. Due to the inherent anonymity of cryptocurrency transactions, you risk losing your funds in the event of an exchange closure, hacking (we’ll discuss wallets later), or the exchange’s bankruptcy.
Gains from cryptocurrency, if any, are subject to taxation. Crypto traders and investors are required to report all of their earnings to the Internal Revenue Service (IRS), just like any other type of income.
Tips for Investing in Cryptocurrencies
You have a thorough understanding of the cryptocurrency market and are prepared to make the investment. Buying cryptocurrency through a controlled exchange is the most secure method. Businesses have set up these websites for financial gain to facilitate the purchase of cryptocurrency. Some popular cryptocurrency exchanges to begin with include Coinbase, Crypto.com, and Gemini. Keep in mind that these exchanges have fees that can reduce your earnings.
Most cryptocurrency exchanges accept a variety of payment methods, including debit and credit cards, bank transfers, and wire transfers. In addition to buying and storing cryptocurrency, you may create a crypto wallet to keep all of your digital assets safe. Wallets facilitate interaction with many platforms, including decentralized exchanges, which may provide access to coins not found on centralized exchanges. Always be aware that there is a chance you might be investing in a fraud, so be cautious.
Naturally, where you plan to purchase the cryptocurrency will play a role, but your investing objectives and personal preferences should also be considered. If you’re interested in or committed to a certain cryptocurrency, it’s best to investigate it on your own. There are thousands of coins to choose from, each with its own set of pros and cons; however, Bitcoin, Ethereum, Dogecoin, and Binance Coin are among the most well-known.
Save up for your investments
You shouldn’t put your savings for a down payment on a home or your child’s college fund into cryptocurrency because of the high degree of risk involved. Instead of viewing high-risk investments as a means to an end—the rapid accumulation of wealth—you should see them as a means to diversify your portfolio. When it comes to cryptocurrency, it’s wise to only invest funds that you are willing to lose.
As an example, a sensible amount to invest for diversity is 5–10% of your total portfolio. The entire value of your portfolio won’t experience daily swings due to fluctuations in the crypto market. You should know that going all-in on the crypto market or a specific crypto currency is akin to gambling, so although it’s okay to believe in it, you should also be prepared to lose money. To have a better understanding of the market and different coins, as well as potential techniques to increase your profits, I highly recommend listening to cryptocurrency podcasts.
Cryptocurrency Purchasing Strategy
As previously stated, you must choose a cryptocurrency exchange from which to purchase your cryptocurrency. This affects both the coins you can buy and the method of buying them. In the same vein as before, centralized platforms provide a more secure environment in which to purchase cryptocurrency, but first-time investors will have to pay a premium for this convenience. When you’re ready, go ahead and open an account with the trading platform. In order to meet federal regulatory standards, you will likely be required to verify your identity before you may purchase or trade cryptocurrency.
The next step in buying cryptocurrency is funding your exchange account with fiat currency. You can accomplish this in a number of ways, including using a bank or wire transfer, a debit or credit card, or another platform entirely. Before you can begin purchasing, the money must clear, which could take a few days. Avoid using your credit card to acquire cryptocurrency, since many financial institutions treat such transactions as cash advances and impose hefty fees.
Once your account balance is sufficient, you can place your first cryptocurrency order. After everything is complete, you will need to decide how you will keep your new digital money. You can do one of two things here: either keep it in the exchange account (the easier choice) or move it to a cold or hot wallet.
The distinction between a hot wallet and a cold wallet lies in the online storage of the former and the offline storage of the latter on a device like a USB drive. There are perks to both options; choose the one that best suits your needs.
Making sense of your cryptocurrency holdings
Over time, monitor your cryptocurrency investments. There’s no assurance that they’ll value it. One simple approach would be to add all of your cryptocurrency holdings to a central investing dashboard, such as Personal Capital. Keep yourself informed about the latest happenings in the cryptocurrency market by keeping tabs on your currencies and reading up on market news.
Unlike traditional investments, the value of cryptocurrency fluctuates daily, making it difficult to “set and forget.” For this reason, it is prudent to keep checking your portfolio and learning as much as you can about cryptocurrency.
