In recent years, cryptocurrency investing has grown in popularity among both experienced investors and newcomers. If you’re thinking about getting into it, though, you should be aware that it’s a very complex space. Before you invest in the cryptocurrency market, we’ll go over some of the key things you need to consider.
Do Your Research Thoroughly
If you’re planning to invest a significant amount of money in any digital currency, you should spend some time researching it, so you understand its value proposition and the risks associated with it.
Note: “someone else will buy it from you for a higher price” is not a value proposition.
Plan Your Investment Strategy
A successful investor devises a strategy for their cryptocurrency assets. This can include placing a limit order, which means their Bitcoin will be sold automatically if prices reach a certain level. Additionally, some crypto exchanges allow you to copy the moves of experienced traders in the crypto market.
Beware of Scammers
There may be a lot of buzz on social media about an investment strategy that promises huge returns from obscure crypto assets. Some people often make exaggerated predictions about Bitcoin’s price rise. Unfortunately, there are some deceitful actors in the cryptocurrency world, and billions of dollars have been lost to Ponzi schemes and exit scams.
It’s All About Timing
After conducting extensive research, you’ve most likely developed an understanding of the cryptocurrency industry and may have identified one or more projects in which to invest. The next step is to determine the best time to make your investment. The world of digital currencies moves quickly and is extremely volatile.
Cryptocurrencies, such as Bitcoin and Ethereum, are dynamic—and they fluctuate wildly without notice. Investors often “buy the dip,” meaning they purchase more of an altcoin when its value declines.
Don’t Forget Income Taxes
When investing in cryptocurrency, keep in mind that it is considered property for income tax purposes. It is a taxable transaction if you sell it or exchange it for something else.
If you own the cryptocurrency, you will need to determine if you are making a capital gain or loss for income tax purposes. For more information on how that determination is made and the implications, see CRA’s guide for cryptocurrency users and tax professionals.
Don’t Risk More than You Can Afford to Lose
Cryptocurrency is riskier than many other types of investments. Except for uncertainty, nothing is guaranteed. Furthermore, in most cases, it is unregulated. Cryptocurrency prices fluctuate wildly from minute to minute. Even though the market is basking in the glow of its bull run, it has endured painful and prolonged corrections in the past and almost certainly will do so again.
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