What you Need to Know Before Buying Crypto
Are you considering buying crypto but aren’t sure where to start? It can be confusing to invest in cryptocurrencies, especially if you’re green.
The following guide will provide you with some basics and help get your started with a grounding. This piece of content alongside utilizing the insight of a community such as Bitcode AI can be a great help if you’re looking to enter the world of cryptocurrencies successfully.
- Cryptocurrency Is A Volatile High-Risk Investment
Cryptocurrencies are a volatile investment. Take Bitcoin, for example, it is not uncommon for this cryptocurrency to drop by as much as 30% during one week and then jump to record highs within the next week.
Bitcoin may still be doing very well compared to when it had first begun, but there are no guarantees for the returns available. For example, anyone who bought and sold BTCUSD between 2017 and October 2020 has probably seen a considerable loss.
See this in the CoinDesk Bitcoin Price Index records from October 2017 through October 2020. If you are planning on investing in crypto, we strongly recommend that you do so with a small segment of your investment portfolio.
- Cryptocurrency Holdings Are Not Insured by the FDIC
If your bank fails, you can rest assured that all your accounts are insured for up to $250,000 each. But cryptocurrencies do not enjoy this privilege. If your crypto exchange gets hacked, goes bankrupt, or closes down for any other reason, your investments are gone.
- Cryptocurrency Is Taxable
It has been decided that Cryptocurrency gains are taxable. The IRS has decided that cryptocurrencies will be considered capital gains and over 24,000 warnings have been issued to the crypto community from the IRS.
How to Buy Cryptocurrency
Choose an Exchange
The first step in the process is to choose a reputable exchange where you will make your investments. This is where all the buying, selling, and storing takes place.
The good news is that crypto exchange has been around for a while and all the best exchanges have evolved intuitively and are easy to use and understand. There are many that are recommended and here are some of the best exchanges for beginners to use.
An excellent choice for the beginner. Coinbase is best known for a clear and intuitive UI and the opportunity to learn more about the process through their Coinbase Learn program. Some of the biggest drawbacks will be the above-average fees. This platform also doesn’t allow you the capacity to extract your private key. Learn more about Coinbase here.
The US offers lower fees and a better selection of cryptocurrencies and more advanced features with many opportunities to expand. This platform is under intense scrutiny by regulatory authorities. This is certainly not a deal-breaker, but it can make some investors uneasy.
BlockFi offers the considerable advantage of taking out crypto-backed loans. If you are interested in earning even more crypto, this also allows you to earn bitcoin back on all purchases you make with BlockFi Rewards Visa® Signature Credit Card. Learn more about BlockFi here.
Choose Which Cryptos You’d Like to Invest In
Bitcoin is not the only crypto currency either. There are over 75,000 options to invest in.
Luckily, you will not have to sort through each option. Most exchanges only deal with a dozen or more of the most viable options.
Here are some of the more popular cryptos today:
Bitcoin (BTCUSD) — it’s good to be king. Bitcoin is ubiquitously available on every exchange and still growing strong.
Ethereum (ETH) — Second only to Bitcoin, the success of Ethereum lies with innovation. Ethereum allows for the record of contracts within its block chain.
Dogecoin (DOGE) — this highly successful crypto currency was created within two hours as a joke. But the simplicity and efficacy of the design soon became apparent when DOGE reached a market cap of $85 Billion.
Binance Coin (BNB) — proprietary of Binance, the largest coin exchange in the world, Binance.US being the US version of the site. It has become popular because of the very low trade fees it offers.
Which ones should you buy?
This is still a largely speculative decision for an especially volatile currency and sometimes the best thing you can do is follow your heart. If you believe that Ethereum will surpass Bitcoin on technical merit alone, more power to you. Your gut instinct may be right on the money.
Stock traders will go through 10-K forms when vetting companies, crypto investors on the other hand may consider studying the original whitepapers.
Determine How Much Crypto to Buy
How much crypto currency should you have in your account? I’ve gone into this subject in depth in other places. Nevertheless, this is the basic rundown:
I asked two veteran wealth advisors for a figure, and here is what they had to say:
“Maybe 10% at most, this way you will still have enough to retire if crypto tanks. But I wouldn’t recommend it.”
“Collect a cool $100,000 in safe investments first,” — if you secure $100,000 in safe investments, before 35, you only need to add $100 monthly, to retire a millionaire.
Bottom line? Start with a small amount, no more than 10% and even a moderate 5% if you feel so inclined.
Safely Store Your Private Keys in a Wallet
Once you have bought some crypto, the next big question is where to store your private keys.
So, you understand, your hot wallet exists online and a cold wallet in offline forms. A hot wallet will allow you to access and trade your crypto currencies with ease, and the measures you apply to protect your wallet are better than ever.
But as security measures improve, so does the tenacity of hackers. This is why many investors, especially those with very larger investments, will choose to save their private key in a cold wallet. This could be in a USB or a hard drive.
If you are only beginning and will be trying your hand with smaller amounts, a hot wallet should do fine for now.
Maintain Your Investment
Finally, you will need to carefully manage and maintain your investment. The only way this can be done is by buying crypto and then forgetting about it completely. You can avoidn making big mistakes with your crypto by”
Monitor its performance over time.
Check headlines and keep a close eye on the performance of the crypto you have chosen.
Plug yourself into crypto communities. The crypto subreddit has extensive tips and advice organized into topics. You can also join a crypto community that provides you with extensive support and introduction to this investment method.
Monitor which governments and banning which cryptos or inducting them into their financial system as legal tender.