Cryptocurrency is an extremely accessible, decentralized investment opportunity that has attracted widespread attention over the years. However, this availability has led to many investing in crypto without doing their due diligence, which can result in financial issues in the future. Has cryptocurrency attracted your attention? If so, here are the top things to consider when getting into crypto.
The type of exchange that you choose will define your experience as a trader.
If you’re going to purchase any cryptocurrency, whether it’s Dogecoin, Ethereum, or Litecoin, you’re going to rely on an existing crypto exchange. The type of exchange that you choose will depend on how easy it is to engage in crypto trades, the fees that they may charge, and whether or not their trading platform is built for you.
For example, if you’re justing getting started, you may come across different platforms like Coinbase (Coinbase Pro for non-beginners) and Robinhood. Making sure to do your research to dive deeper into Robinhood vs Coinbase will help you understand the pros and cons for each platform before you fully commit to one. The last thing you want to see is plenty of your cryptocurrency trades be subject to high trade fees or the loss of your funds in your wallet because they lack the necessary security.
Crypto tax law is complex, and you need to know what trading your digital assets entail.
A lot of crypto traders will set up shop at their favorite cryptocurrency exchange, start trading, and think nothing else of it. However, like many other tradeable assets, all crypto is subject to taxes. Such taxable events include receiving cryptocurrency as income, mining it or staking it and earning interest, and making any trades or purchases with your virtual currency.
Beyond knowing how the IRS and other agencies classify crypto assets, you will also need support to help you file your tax return when the next tax year rolls around. All traders should have a cryptocurrency tax calculator that helps them identify and categorize crypto transactions, compile all of their necessary trading activity into one place, and utilize existing accounting methods to report capital gains taxes. Preparation is key to trading and holding cryptocurrency without encountering severe financial obstacles in the future.
Diversification is key, even when you’re investing in crypto.
Much like stock trading, you aren’t going to put all of your eggs in one basket. There are thousands of different cryptocurrencies out there, with a wide variety of altcoins and blockchains being produced regularly. Look around to learn more about coins that are in development or those that have been recently released to see if these are a better choice for your money.
It’s even better if you can find projects that you are truly passionate about so that you can invest with intent. The only thing to remember is that you should only invest what you’re willing to lose. Some projects may not yield the potential and scalability that they claim, while others can be outright scams. Do your research and only invest in what you’re sure is secure and may hold some promise.
New investors may not be aware of the many risks associated with crypto, which can result in a major loss of funds if you’re not prepared ahead of time. If you’re interested in developing an investment strategy that involves crypto, use the points above as starting points to dive deeper into the industry, its risks and rewards, and other important pieces of information you should know before you purchase your first crypto. Then, when you’re ready, you can invest your money more confidently.