Cryptocurrency has been one of the most trending topics in business and finance recently. Its popularity comes with a mix of hype, positive buzz, and bad news. As such, it can be quite confusing for you as a prospective investor, and you may feel unsure if it’s still a good investment option.
For instance, Bitcoin has seen its prices shift rapidly up and down over the past year. This trend can be quite stressful if you’ve invested a lot of money in the industry. Cryptocurrency is a risky and volatile investment—but that’s not to say you cannot join the rest of the investors.
If you’re considering to start investing in cryptocurrency, it’s essential to first understand not just its benefits but the risks as well, so you can make an informed decision right from the start. From the fundamentals of the type of cryptocurrency you want to buy to cryptocurrency tax laws, there’s a lot to consider—whether you want to jump in headfirst or just dip your toes into this new territory.
What Is Cryptocurrency?
Cryptocurrency or crypto is a decentralized digital currency that does not depend on banks or any other third parties to work. It’s also an open-source and peer-to-peer network that anyone can use. All transactions are recorded on a public ledger called the blockchain. Once a transaction is made, it’s irreversible and cannot be undone.
What Investors Should Know Before Diving Into Crypto
Financial freedom is what many people want. For those who have had their success in crypto investments, it seems to be the key to finally becoming rich. However, this isn’t the case for many. Aside from learning everything about crypto before investing, you should also consider educating yourself about financial management before diving into any investment like crypto. You might want to visit informative websites like https://digitalhoney.money/ that publish blogs about financial matters and digital finance.
But if you’ve already made up your mind to invest in crypto, here are the most important things you should know more about:
- Cryptocurrency Profits Are Taxable
As a new or prospective crypto investor, there are a lot of myths you’ll come across regarding the crypto taxation system. The truth is all cryptocurrency profits are taxable, but the laws may vary from one country to another.
If you’re a Canadian crypto investor, you’ll fall under the trading category. This typically means you’re considered a trader, and the profits you make will be taxed as a capital gain. You can visit https://netcoins.ca/blog/is-crypto-taxed-in-canada/ to learn more about cryptocurrency taxation in Canada.
Of course, some laws may be similar across the board, but it’d be wise to research specific legal measures put in place by your country. Having this information in mind will help you avoid unnecessary legal problems.
- Crypto Is A Volatile Investment
There’s a saying in investing that you should never invest money if you can’t afford to lose it. The highly volatile nature of cryptocurrencies means that they’re not appropriate for every investor. Thus, new technologies like zignaly copy trading emerge over time. When trading in cryptos, you must be prepared to lose your entire investment, no matter how much value you’ve gained before.
- The Crypto Market Is Largely Driven By Speculations
Speculations, not fundamentals, have primarily driven the crypto market. In the past few years, there have been several factors that have led to this trend, including:
- Bitcoin’s introduction in 2009 and its sudden rise in popularity;
- A sharp increase in trading volume after some countries announced they were considering legalizing Bitcoin as legal tender;
- Increased media coverage of Bitcoin, which has sparked the general public interest in cryptocurrency.
These factors have led investors to speculate on future price increases and gamble with their investments. This trend is evidenced by the volatility that you see day-to-day in the crypto market.
It’s crucial to know the fundamentals of whatever coin or token you want to invest in to be a successful crypto investor. Remember that every cryptocurrency has its purpose. Thus, you need to find a reliable source about how the coin works and what it is for. For instance, if you’re interested in PKT crypto, find out what it stands for and how it started, verify the company’s reliability, and see if it comes with any tradeoffs.
- Not All Government Authorities Regulate Crypto Markets
Government regulations don’t tie down cryptocurrency. It means that investors need to be more cautious when deciding what they buy or invest in, as there are no guaranteed safeguards against fraud when it comes to cryptocurrencies.
Some companies also launch an ICO (Initial coin offering) where investors can buy tokens from the crypto company, which work like stocks. This is like a fundraising method, offered with hopes that the new crypto’s value will increase once it launches in exchanges. However, many of these companies are scams and will dump all of the remaining coins they have that wasn’t bought on the ICO. Selling too many coins at a time will cause the coins’ price to drop until it loses all of its value.
This is not the case for all ICOs, but it’s important to be aware of this possibility before making any investments. It’s also recommended for investors to look for a coin that’s already on the market with a reputable company behind it.
- There Are Many Risks In The Digital World
One of the most important things for investors to consider is that there are many risks in the digital world, and cryptocurrencies are often a target. This includes, but is not limited to:
- Risks stemming from malicious hacking or frauds, like phishing and scams;
- Loss of digital assets and risks related to lack of security and legal protections;
- Government crackdowns on the use, trade, distribution, exchange, and holding of digital currencies.
Investors should be aware that this has been a significant problem for crypto investors in other countries where the government is cracking down hard on bitcoin. This can happen in any country, and that’s why it’s so crucial for investors to understand these risks.
While investing can be very profitable, there are many potential risks involved with digital currencies. Investors should learn more about these risks before making an initial investment.
The digital world has many risks that are not easily evident in the real world. Investors who want to take advantage of cryptocurrency should be aware of these potential risks before diving headfirst into this new and exciting investment opportunity.
There are ways to mitigate some of the risks and protect your assets. However, you should always do your due diligence to research any investment you make, and only invest what you can afford to lose.