One of the most significant hurdles for investors is avoiding being swept up in a frenzy surrounding cryptocurrencies. Digital currencies have quickly become an essential element of many investors’ individual and institutional portfolios. As for the stock’s high volatility, experts have been warning investors for the last several weeks already.
You should do a thorough study before making any financial commitments in the cryptocurrency industry, just as you would with any other kind of investment. If you’ve just recently begun to pay attention to cryptocurrencies and are considering whether or not to invest, here are seven things you should know before making any purchases.
1. Create a Smart Investment Strategy
An investment plan is critical to the success of successful Bitcoin investors. Setting a limit order, for example, may ensure that their Bitcoin is sold automatically when prices reach a specified level. A few cryptocurrency exchanges also enable you to mimic the trades made by more seasoned crypto traders.
2. Verify Every Bit Of Information You Get
Another result of the uncontrolled nature is a significant lack of truthful information in the crypto sphere. Investors rely heavily on unconfirmed information flowing on social media, and unfortunately, there is a lot of fake news on social media these days.
First, the analysts charge a fee for the suggestions, then use them in their pump-and-dump schemes. Before you invest, double-check the facts. Examine the coin’s market capitalization and trading volumes. A low market valuation and low daily volume are obvious warning flags.
3. Choose a Reliable Crypto Exchange
An exchange with high liquidity, a diverse crypto-asset offering, robust security, and dependability is ideal. For people looking to purchase Bitcoin for the first time, choose an exchange that evaluates exchanges based on how simple it is to buy cryptocurrency there and provide more details on their regulation and acceptable payment methods.
4. Be Ready For Anything
However, there is tremendous volatility in cryptocurrency markets, which should not be overlooked. Cryptocurrency investors are used to significant price fluctuations seldom seen in conventional markets. Crypto investors who have prepared themselves psychologically for the worst possible outcomes of their investments will be able to react sensibly rather than irrationally when price decreases occur.
5. Be Careful of Cyber Attacks
Although built on highly secure blockchain technology, Cryptocurrencies may be vulnerable to cyber-attacks. Cryptocurrency exchanges and digital wallets, for example, may not be impenetrable to cyber criminals since they are part of the ecosystem. For example, millions of dollars worth of Bitcoins were stolen from many internet exchanges when they were hacked.
6. Keep An Eye On What’s Going On In The World
Because the crypto market is worldwide, events in significant markets like the United States, Singapore, and Europe may influence pricing, regardless of where one is located. Because the crypto market is available 24 hours a day, seven days a week, traders may act quickly, unlike the stock market, which has set hours for opening and closing.
7. Keep Tax Implications In Mind
It is expected that cryptocurrency traders would pay taxes on their profits. Even though the Income Tax Act does not explicitly mention cryptocurrencies, experts point out that all income is subject to tax unless specifically exempted, regardless of its form or source.
The RBI does not recognize cryptos as money; hence they must be taxed as capital assets, which means short-term profits are taxed at standard rates, and long-term gains are taxed after indexation. Trading volume and frequency determine whether the money is considered as business income.
The risk-reward tolerance of each investor is different. Learn about yourself and figure out how much financial risk you’re comfortable with to obtain this return. Because this is a complicated field, it’s best to speak with a financial expert to determine your risk tolerance.