Investing is more than just buying a cryptocurrency. If you are an experienced investor, you may have many questions regarding cryptocurrency, including what you need to know before investing, how to buy it, and how to safely store (and protect) your investments.
The 3 Things You Should Know Before Investing in Cryptocurrencies.
Cryptocurrencies remain volatile, high-risk investments. It is important to note that cryptocurrencies are very volatile. One example of this is Bitcoin, which can drop 30% one week and then soar to record highs the following week.
Bitcoin may be doing well in comparison to when it first gained popularity, however, the returns are neither stable nor guaranteed. A loss was suffered by anyone who purchased Bitcoin USD in late 2017 and sold it before October 2020.
From October, 2017 through October, 2020 (Source: Coindesk)
To begin with, we recommend only allocating a small portion of your portfolio to crypto.
Cryptocurrency holdings are not insured by the FDIC. If your bank fails, your checking and savings accounts will be insured for up to $250,000. However, if your crypto exchange goes bankrupt, is hacked or closes down without warning, you will be out of luck.
There is a tax on cryptocurrency gains. In 2014, the IRS began taxing crypto gains as capital gains, issuing at least 24,000 warnings to the crypto community since then.
Purchasing cryptocurrency is the process. Make a decision regarding which exchange to use. Selecting a reputable exchange is the first step in investing in crypto. The purpose of a cryptocurrency exchange is to enable you to buy, sell, and, most likely, store your cryptocurrencies.
Due to the long history of crypto, the largest exchanges have become quite robust and user-friendly in recent years. In general, we recommend the following exchanges for beginners:
Coinbase is an excellent place to begin for most beginners. Coinbase is a publicly-traded company with over 73 million users known for its highly intuitive user interface and its ability to earn free cryptocurrency through Coinbase Learn.
You can invest in stocks, ETFs, and over 30 popular cryptocurrencies with eToro. For buying or selling cryptocurrencies, eToro charges a simple 1% fee. Overall, eToro makes it easy to add cryptocurrency to your portfolio. While the Binance US platform is subject to intense regulatory scrutiny, this is not a deal-breaker as it is common among crypto platforms.
Investors can obtain crypto-backed loans through BlockFi. With the BlockFi Rewards Visa® Signature Credit Card, you can earn bitcoin back on all purchases made.
Select the cryptos you wish to invest in. Digital currencies are not limited to Bitcoin. There are a huge number of crypto coins available in the market.
There are only a few dozen cryptocurrencies offered by most exchanges. It is typically these coins that have a respectable market capitalization that are considered the most legitimate and viable.
Here are some examples of the top-traded cryptos today:
On every popular exchange, you can purchase Bitcoin (BTC USD), the king of cryptocurrencies.
With its ability to record smart contracts to the blockchain, Ethereum (ETH) has achieved success as the second most popular crypto by market cap.
The Dogecoin (DOGE) cryptocurrency was created in under two hours as a satirical satire on cryptocurrencies. The DOGE has nevertheless reached a market cap of $85 billion, a testament to the power of speculation and internet chatter.
BNB stands for Binance Coin (BNB) and it is the proprietary coin of Binance, the world’s largest exchange (Binance.US is the US-only version). As a result of its wide acceptance and its ability to reduce Binance’s trade fees, it has become very popular.
Which ones should you purchase? It may come down to which cryptos you believe in when deciding which cryptos to add to your portfolio since cryptocurrency is so volatile and speculative. Is Ethereum, for example, more technically advanced and has more applications in the real world than Bitcoin?
A stock trader may read the 10-K when vetting companies, while a crypto investor may consider reading the original Bitcoin whitepaper.
This is a gauge on how much you should invest in crypto
Maybe 10%, so that if crypto tanks, you can still retire. However, I would not recommend doing so. If you have $100,000 in safe investments, and continue to deposit an additional $100 a month, you will retire a millionaire.
The bottom line? Take a small step. Ideally, you should limit your portfolio to 10%, or even 5%.
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