Investments in cryptocurrencies are constantly on the rise, thanks to the booming prices, growing stability, and wider audience associated with them these days. With every passing day, more and more investors are leaping crypto assets. However, it is equally important to steer clear of any hypes and get into more well-informed aspects of what to consider when buying cryptocurrency.
The first step to understanding such nuisances is to get enough clarity on what cryptocurrencies are. These digital currencies have quickly grown to prominence over the last half-a-decade, while also being criticized for their volatile nature and unpredictability by several experts. If you have decided to buy cryptocurrencies, you must first grasp its basics – the underlying technology of blockchain, nature, and types of cryptocurrencies, differences between an exchange and an OTC cryptocurrency broker, and so on.
Once you are thorough with the basics, try delving deeper and conduct your own research. We have put together a list of things to explore before you start investing in cryptos.
The Guaranteed Volatility of Cryptos
When it comes to cryptos, it is best to follow the adage – don’t put in more than you can afford to lose. The crypto market is known for its volatility and uncertainty, which stems as a result of widespread deregulation of the sector. Past records have shown how cryptos can rise to record heights and then plunge to the lowest levels of all time within the span of a few months.
Therefore, it is best to assume that any money you spend buying cryptocurrencies is likely to never come back to you, and this is something you must always keep in mind before deciding upon the investment amount.
The Business Proposition
At the end of the day, the cryptocurrencies you buy are coming from a business, a company or a project. Take some time to look into the principles and prospects of this underlying business or project as well, to understand their relevance and potential. Pick out the ones that seem to be offering real value, while steering clear of those that seem questionable or not up to the mark.
It is also important to understand whether you are purchasing a security token, where you also get to own a piece of the company like a stock or a utility token that is redeemed for services on the blockchain. The idea is to understand the business proposition and the token properly, instead of falling prey to some trends or hypes.
The Purchase Method
There are several options to choose from when it comes to purchasing cryptocurrencies, all of which provide varying levels of safety and charge varying fees. Exchanges such as Coinbase, Kraken, or Binance allow smaller transactions but are not risk-free because they are prone to attacks. An OTC cryptocurrency broker, on the other hand, ensures complete privacy and greater security, besides offering room for larger transactions without the involvement of any intermediary.
There are also options of finding suitable sellers on thematic forums for buying cryptocurrency, but there is no guarantee of how safe they would be. At the end of the day, it is advisable to look into the aspects of security, transaction amounts, transaction fees, privacy, and transparency when choosing the right purchase method.
Don’t Ignore the Tax
Are cryptocurrencies taxable? How much tax do I pay on crypto gains, and why? Even though cryptocurrencies may not be specifically mentioned in the income tax regulations of your country, they are still a source of income, which is taxable unless specifically exempted. Often, cryptos are considered capital assets with different tax rates for the short and long terms. Therefore, the common question of how long should you hold cryptocurrency depends on the volume and frequency of trading, which impacts the total income from cryptos and hence the tax rates. If you are going to deal in large amounts, be prepared to pay proportionate taxes as well.
High Risks, High Rewards. Are You In?
Cryptocurrencies are the new-age investment class. No wonder, they are creating more buzz than any other form of investment instruments, thanks to social media hypes and participation from some of the biggest names in various industries. This might prompt enthusiasts like you to delve right into the crypto maze based on what you hear from others.
However, the smartest and the only way to win big with cryptos is to understand the domain and its highs & lows yourself through solid research. Cryptos indeed come with high risks, but they also offer high rewards. Reaping these benefits, however, does not come easy to most investors due to their ignorance, negligence, and inexperience.
All in all, Bitcoin is a huge potential opportunity for the present and the future. At Secure Digital Markets, we’ll help you with our low-latency software and white glove customer service to get you the best execution prices on your Bitcoin purchases.