Today, cryptocurrency has become a buzzword. Everyone is talking about the Bitcoin market, emerging blockchain technology, and upcoming tax regulations. One could say crypto is the hottest investment asset in the modern markets of 2022. Besides the high value of coins, acceptability by leading brands has made crypto immensely popular.
While cryptocurrency might seem like a promising investment option, you must do your due diligence before putting your money into it. Even though crypto is widely available on different exchange forums, you must find a creditable medium to avoid scams. Likewise, understand how the markets work by apprehending the element of uncertainty. As cryptocurrency operates on a decentralized ledger, the currency is unregulated, making it volatile.
Moreover, you can learn about different types of cryptocurrencies to make more apt investment decisions. Some coins might look lucrative, but you must give more weightage to their credibility. So, is it viable to invest in crypto? If you are uncertain about this, keep reading. Here we have highlighted six things you should consider before investing in cryptocurrency.
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Understand the mechanism of buying and selling
The first question that hits the mind is, how to buy cryptocurrency? You will come across many forums offering to trade in crypto, but it is crucial to understand the trading mechanism first. First, you must locate platforms enabling users to deposit and withdraw local currency. It will ensure you can move funds out of the ecosystem without hassle.
Next up, you must ensure conversions are possible. For instance, the forum should allow conversions if you want to exchange Bitcoins (BTC) or Philippine pesos (PHP). Hence, look for exchange forms with BTC to PHP converter to escape exchange rate fluctuations. Besides this, understand how to buy and sell cryptocurrency online while ensuring you are not exceeding your budget.
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Portfolio diversification
Most people invest in one particular coin to gain maximum returns. It might seem wise, but what if that coin crashes? Well, you might lose your entire investment, leading to substantial losses. Therefore, it is best to diversify your portfolio by investing in different coins. Besides Bitcoin and Ethereum, you can invest in other cryptocurrencies.
Further, you can also include top projects in your portfolio. That includes DeFi, NFTs, and one-layer protocols. Having a variety of coins will save you from the risks of losses in case the market crashes. Once your portfolio is ready, you can also make bets on moonshots. However, ensuring your monitoring position is vital to avoid overhead costs.
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Track developer activity
As crypto runs on open-source technology, investors can always stay one step ahead. You can track the latest developer activity and get a fair idea of the progress of a project. Taking a deeper dive into the project will help you understand whether it has an earning potential or not. For example, if a new coin is developing, you can look into its founders. A coin being generated by renowned personalities will always outshine in the market.
On the contrary, if the crypto coin doesn’t have any traces of the owner, you can raise a red flag. The project will likely be a scam, saving you from losses beforehand. Besides this, keep up with the regulations being imposed on crypto. A few countries have entirely banned cryptocurrency, whereas others have imposed taxation laws.
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Timing is key
Once you know how cryptocurrency works, you must keep a few things in mind before investing money. First, you must time your investment as the cryptocurrency world moves rapidly and is known for being volatile. One minute you will witness a new currency breaking the internet, and the other second, the market might crash. These dynamics prompt investors to move quickly in the market. Hence, whether you have to buy or sell, see market trends and take action.
Furthermore, apprehend the price patterns. Any exchange hack or price manipulation news would send shock waves through the cryptocurrency sphere. Thus, the minute you notice the market fluctuating, conduct all trading decisions to minimize losses. Investing in crypto markets means taking the risk; therefore, do your homework to maximize your chances of success.
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Oversee tax & regulatory concerns
With crypto markets reaching new heights, governments have started imposing taxes and regulations. Depending on where you reside, you must keep up with regulatory concerns to trade freely in the cryptocurrency markets. Let us explain how taxes work.
Investors’ earnings are subject to capital gains tax. However, you will have to pay income tax if you earn crypto by selling goods and services. Most states have given leverage to beginners by not charging tax on the first $12,300 they make. All tax is charged on the amount earned above $12,300. Initially, investors have to pay 10% GST, but the tax rate can shoot up to 20% as their income increases. For investors paying income tax, you have to pay the usual rates after deducting personal allowance.
Similarly, the legal perspective and jurisdictions also play a crucial role in cryptocurrency markets. Some regions charge fees, whereas others have limited trading. Therefore, ensure you have a clear view of regulations before investing money.
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Avoid unit bias
As cryptocurrency is a highly volatile market, people hold a lot of perceptions. Usually, there is an assumption that crypto trading at $25,000 per unit is better than coin trading at $1. Investors refer to this as unit bias as it hinders decision-making. To indulge in trading, you must shed all such assumptions and explore functionalities from various currencies. Instead of checking the per unit rate, you can give weightage to other factors.
For instance, opt for a crypto coin with enhanced decentralization as it will offer better developer support. Likewise, check for how long the coin has been in the market. After all, the older the coin, the more viable. A deep dive into the technological mechanisms will make trading easier and more profitable for investors.
Conclusion
Even though cryptocurrency has become immensely popular, there are many things investors should consider. Besides keeping tabs on crypto markets, you must understand how trading happens. Likewise, dig into the technicalities to learn about different coins and how they yield massive returns. Remember, strategically planned investments can help you make your way to success.