Are you intrigued by the emerging cryptocurrency market and want to invest but need help figuring out where to start? Don’t worry, you are not alone. Many individuals share the same curiosity and hesitation when it comes to entering the world of cryptocurrency. To assist you in commencing your cryptocurrency journey, I’ll share my recommendations for investors venturing into the cryptocurrency space.
Cryptocurrency, or “crypto,” is a decentralized digital currency that utilizes blockchain technology. It is not backed by or associated with any government and generally functions outside of traditional financial structures. It is relatively new and is considered a volatile asset class.
Given the considerable volatility in the market values of various cryptocurrencies, it is essential to understand the nature of your investment and the accompanying risks before committing your funds to crypto.
Do Your Research
There are numerous different cryptocurrencies available to purchase in the market. Some popular cryptocurrencies you may be familiar with include Bitcoin, Ethereum, or USDC.
However, it’s important to note that today’s market offers a plethora of coins beyond these, available for purchase or trade. As with any investment, it is essential that you know and understand what you are investing in before spending your money. It is also crucial that you consult more than one source of information as well.
You don’t want to spend thousands of dollars on a coin you heard of from a family member over the holidays. Take your time and review reputable sources before making any investment decisions.
Outline Your Budget
Another critical step is to decide how much you want to spend on your cryptocurrency investment. Like with other investment opportunities, there is always the risk that you could lose money, so you want to make sure you are comfortable with the amount you put into the investment.
For those new to cryptocurrency, a prudent approach could involve starting with a modest investment in a reputable or stablecoin. As you gain familiarity over time, consider gradually increasing your investment.
Use Reputable Exchanges or Wallets
You might have come across reports in the news about scams or hacks within the cryptocurrency realm. Even seemingly reputable sites have been tainted by scandals involving scams, resulting in investors losing their funds.
When investing in crypto, it is important to trust the platform you use. There are two main options to buy and trade your crypto. You can either use a centralized exchange like Coinbase or Kraken or a self-custodial digital wallet like Metamask or Ledger to hold your coins.
You may be familiar with the saying, “Not your keys, not your crypto.” If you use a centralized exchange, generally, the third party holds and manages your keys (similar to passwords) and crypto for you. You can still access and make decisions with your coins, but the third party is the one that owns them.
In the past, there have been cases where third-party exchanges have limited withdrawals or lost users’ cryptocurrency altogether. It is important to note that not all exchanges are the same and have varying terms, which you must understand before selecting a platform.
Conversely, with a self-custodial wallet, you maintain control and ownership of your coins at all times, with the platform only providing the interface. You decide when to trade or withdraw your coins, not any government or company. However, you may expose yourself to unnecessary risk if you interact with a malicious website or forget or misplace the keys to access your wallet, potentially rendering your coins unrecoverable.
Regardless of the route you choose, be sure to explore all your options and understand the risks associated with each.
Understand the Costs and Tax Implications
Like with most investments, there is always a cost associated with purchasing a cryptocurrency. If you are using a third-party exchange to buy crypto, the exchange will most likely charge a transaction fee.
Likewise, it costs money to execute a transaction outside of any exchange on the blockchain. If you purchase crypto from a decentralized source, you will be subject to blockchain transaction fees.
These fees vary throughout the day, influenced by the volume of transactions taking place at any given time. It may be more expensive to purchase a coin during the middle of the day rather than waiting until later at night when traffic has reduced. Before executing a transaction, always consider the cost of fees.
Many countries have recently issued guidance regarding cryptocurrency tax implications and disclosure requirements. It is crucial that you understand these regulations beforehand so you can adequately report transactions and pay any associated tax liabilities.
It’s also essential to recognize that, given the relatively new nature of the cryptocurrency market, tax regulations are emerging or continually evolving. Staying informed about any updates in tax regulations is crucial to ensure ongoing compliance.
Review your Investments
As previously stated, crypto can be volatile. A coin worth thousands one day can crash and be worthless another. It is crucial to stay on top of updates so you are aware of what is happening in the market and can take appropriate actions before it is too late.
For new crypto investors, it may be wise to stick with investing in coins that have a better reputation rather than venturing into new or unstable coins. Third-party exchanges will generally show you the value of your investments in their platform. If you are using a self-custody wallet, there are sites available that track the market price of various coins that you can periodically monitor.
Even though it may seem intimidating initially, cryptocurrency is an intriguing and enticing emerging market that can be a good option for diversifying your investment portfolio. However, it is imperative to research and understand the associated risks of investing in advance to mitigate unnecessary losses. You can utilize these recommendations to embark on a successful crypto journey with confidence.