Investing in cryptocurrency has never been as simple as buying, holding, and watching your profits soar.
Now that Bitcoin, Ether, and other major cryptocurrencies have undergone several booms and busts, it’s become clearer than ever that cryptocurrencies work like many other assets, and they can be highly volatile.
It’s a lesson worth learning. There is no such thing as a guaranteed investment, and the early adopters who profited from earlier crypto booms got lucky with their timing. No one could ever count on cryptocurrency’s infinite rise, but now that everyone can see it, it doesn’t mean that cryptocurrency is dead.
The recovery of cryptocurrency prices after the last crash is evidence that there is still plenty of room for this asset to grow. That said, for investors to make crypto a worthwhile investment, they need smarter investment strategies than may have been necessary for the past.
One important aspect is choosing the right platform to trade cryptocurrencies, and exploring the top crypto exchanges can help investors find reliable and secure platforms for their investments.
Know What You Can Afford to Lose
The first rule of any investment strategy is knowing what you can afford to lose. If you can’t afford to lose the principal of your investment, you should stick with low-risk investments like term deposits or a savings account.
Unfortunately, these assets tend to produce lower returns. If you want the potential for larger returns, you have to invest in riskier assets, such as stocks and commodities. Cryptocurrencies also fall in this category and are, in fact, some of the most volatile investments you can make right now.
Learn How Crypto Taxes Work
A significant part of investing in crypto is understanding how taxes work on cryptocurrency. Paying your taxes is not part of the advertising in the crypto industry, and many people get into the game without understanding what that will mean for their taxes.
Many investors use tax-sheltered savings accounts (like an IRA or RRSP) to invest, which protects them from having to pay taxes on their investments right away. Cryptocurrency cannot be held in accounts like those right now, which means that whenever you sell or trade crypto, you will have to pay taxes.
If you have already been trading cryptocurrency without understanding your tax obligations, professional crypto tax services can help you deal with unfiled cryptocurrency taxes and set up a tax strategy for your crypto investments.
Diversify Your Portfolio
Keeping all of your money in a single asset is a very risky way to invest. You’re betting on one horse winning it all, and if it doesn’t pan out, you can wind up putting your retirement and your financial security at risk.
Diversifying your portfolio is a smart investment strategy that exposes your portfolio to a variety of assets. It spreads out your risks while opening up opportunities to benefit from growth in other sectors.
Diversification can improve and stabilize your potential returns. Buying into stocks, bonds, and term deposits can help you diversify your portfolio, rather than speculating entirely on cryptocurrency. It helps to put your money into a range of industries and products.
Cryptocurrency still has tons of potential as an investment, but it can’t give you any guarantees. If you use smart investing strategies and incorporate cryptocurrency into a broader portfolio, and you understand your crypto tax obligations, it can be a very useful asset.