Amid the happenings of Dogecoin on American television and the growing acceptance of bitcoin by Wall Street, cryptocurrencies are gaining ground. The jumping prices are definitely attractive for beginners; however, they should be aware of the dangers before entering the crypto world.
Once you’ve started showing interest in cryptocurrencies and wondering if you should invest, here are 10 things you need to know before you precede with your purchase.
Never invest more than you can afford to lose
There are risks and dangers. Even Bitcoin, which has been around for more than a decade and is probably here to stay in line with most cryptocurrencies, is not risk-free. So, in any case, do not invest the savings of a lifetime in any currency.
Make a thorough research
Before you spend any amount, thoroughly research the cryptocurrencies and how they work. Read, subscribe to communities and mailing lists, go to meetings. Do not buy anything before acknowledging thoroughly.
Resist the FOMO
FOMO (fear of missing out) is a sure way to lose money. Resist the urge to get involved in something because others do, without researching to take careful steps.
If it sounds “too good to be true” then it probably is
The cryptocurrency space is full of scammers. Some trading platforms offer over 100x leverage, which means you can borrow up to 99% of the cost of an investment. This will boost your profits if the price goes up, but if it goes down then you will have a problem.
Do not trust easily
Again, the cryptocurrency space is full of scammers. Just last weekend, some Twitter scammers took advantage of Elon Musk’s appearance on Saturday Night Live to defraud people of up to $100.000 with a fake “offer.” Imitating the show’s Twitter account, they called on their victims to send small amounts of cryptocurrencies to confirm their accounts, promising to take them back tenfold.
Pay attention to “units”
Just because a coin sells for about $1 does not mean it is “cheaper” than bitcoin selling for about $58.000. Not all currencies are created equal. Determining the value of a coin means taking into account a number of factors, how big is the community that supports it, what is its usability, what is the security model, the risk you take, etc. If you do not know these, better do not invest.
You do not own coins if you do not own keys
As with cash or coins, the owner must be in control of his assets. The platforms that manage the encrypted keys for your “wallets” are often not subject to scrutiny, and it is not uncommon for you to fall into scams. Keeping the keys in your possession, whether on hardware or even on paper, is an appropriate move, according to the most experienced users.
You can buy subdivisions of cryptos
You do not need to buy a whole coin. You can even buy a $10 subdivision for starters. As billionaire Mark Cuban recently said about buying small amounts of dogecoin “is better than buying a lottery ticket“.
Understand the tax implications
Even in cryptocurrencies, you are required, in most countries, to declare your profits to the tax authorities. Regulated exchanges in the US, for example, are required to send information to the IRS. As much as the legislation is looser than other assets, no tax authority will hesitate to look for you if it notices “gaps” in your returns.
Buy according to the value of money
Markets change day by day, hour by hour, minute by minute. Like any investment, cryptocurrency has long-term value. Invest according to your budget and do not get obsessed with the daily changes of cryptocurrencies.