Cryptocurrency investing is speculative, and investing in inopportune times can lead to rapid, extreme losses. Considering how volatile the cryptocurrency market is, assets that quickly rise can equally severely decline. Unlike other regulated markets, cryptocurrency’s future regulation is uncertain, making it a risky venture. As an investor, you should acknowledge that cryptocurrency can be here today and gone the next day. This is why you should create a cryptocurrency investing strategy and come up with a risk management plan.
To increase your assets’ value and secure profits with crypto investment, consider staking. Staking allows you to earn an income by letting your crypto participate in the asset’s network. You can also lend your assets into decentralized finance to generate yields. Below are the things you need to know before investing in cryptocurrency.
1. Beware of transaction charges and other associated charges
The value of cryptocurrencies depends on supply, demand, and market dynamics. It involves certain transaction costs, including trading or exchange fees, which are charged by crypto exchanges for executing a sell or buy transaction. Network fees are the amount paid to cryptocurrency miners for verifying and validating the transactions to be included in the blockchain. Cryptocurrencies are usually stored in digital wallets, making it easy for you to spend or send.
Although most wallets hold cryptocurrencies for free, you’re charged wallet fees for sending or withdrawing them. Depending on how you trade, mine, stake, or exchange, you’ll be taxed. If you only buy and sell cryptocurrencies, you’re taxed a capital gain. For example, make $60,000 profit, 50% of that is taxed in Canada. Depending on the country you’re trading in, find out what percentage of your capital gain is taxable.
2. You should have a financial plan
In the cryptocurrency market, things don’t always go as anticipated. The market is volatile. This is why you should have a financial safeguard in place to keep you afloat when things don’t go as planned. You may also consider diversifying your investment by looking at other well-performing types of cryptocurrencies, so you don’t lose all of your investment at once.
3. Familiarize yourself with different strategies
Investing in cryptocurrencies isn’t about taking chances. There are strategies you should engage in to achieve the desired results. Before putting your money in cryptocurrency, invest in learning the available trading strategies, including day and night trading. Day trading strategies teach you how you can effectively trade your coins for others to make a profit. Night trading strategies teach you how to effectively beat the fluctuating cryptocurrency prizes during the night to prevent losses.
4. Learn to differentiate between bearish and bullish pattern
The bullish pattern is when you can predict an increase in prices depending on government regulations, traders’ activities, and trending news. A bearish pattern forecasts a fall in crypto prices. Paying attention to these patterns will help you know the coins to invest in. however, ensure the predictions you rely on come from trusted sources, most preferably, experts.
5. Invest an amount you aren’t scared to lose
Thanks to the cryptocurrency market’s volatility, it’s wise to invest an amount you’re comfortable losing so that no matter the outcome, you’ll be safe. Consider putting five percent of your investment in volatile markets and the other five percent in more stable assets even if they aren’t as profitable. This ensures that you don’t fall into a financial ditch and end up depressed.
6. Timing is everything
The digital currency world is fast-paced. This is why you need to research and monitor the market before investing. This will help you get more success with your investment. Cryptocurrencies tend to follow a particular price pattern, so observing it helps determine the right time to make a move. Be on the lookout for news of price manipulation, exchange hacks, and fraud as they may affect the crypto prizes.
7. Consider joining an online community for cryptocurrency enthusiasts
The digital currency space is highly volatile and trendy, so things change very fast. This is why you should join an active and robust community of crypto enthusiasts and investors for constant communication. Joining such communities will help you learn about what’s happening in the world of cryptocurrency.
Cryptocurrency is the future of money, which is why you should consider investing now. Familiarize yourself with trading strategies available, trade what you aren’t scared of losing, and have a backup plan in place. Diversify your investment plan to be on the safer side. Consider using these tips to learn all you need to know about cryptocurrencies.
Written by Adam Eaton