Do you want to buy cryptocurrency but don’t know where to start? Well, this is the right place as we talk all about crypto for beginners. To get your crypto trading journey started, first you open a trading account with an exchange and select the buy option to make your first purchase. Voila! You’re a crypto investor.
Well, if only things were this simple. Crypto investing is much more layered and as you progress, you will know how it works. Before you start investing, arm yourself with proper knowledge, understand how to buy crypto, what are the best ways to store it, and keep your investments safe. Read on to know the answers to all of these pertinent questions.
Steps to buying crypto
Choose an exchange
When you want to invest in cryptocurrency, it is wise to start by picking a cryptocurrency exchange with a good reputation. An exchange gives investors a platform to buy, sell and store crypto tokens safely. Given how long crypto has been around, some of the most prominent exchanges have become user-friendly over time.
Choose a crypto
Bitcoin is by no means the only cryptocurrency that you can invest in. There are more than 19,000 cryptocurrencies in the market. However, typically exchanges list only a few cryptocurrencies on their platforms. These are usually the ones that are deemed to be profitable at large and have a good market cap.
How do you choose the right cryptocurrency? Given how speculative and volatile cryptocurrencies are, it is difficult to select the right set of cryptocurrencies for your portfolio. This majorly depends on how much you could believe in a cryptocurrency. For instance, maybe you think Ethereum is a better investment than Bitcoin since it has more technical plus points. What is 10-Ks for stock traders is the white paper for crypto traders where all relevant information about a particular cryptocurrency can be found.
Decide how much to invest
What is the right amount of crypto that you should be in your portfolio? Here’s what the experts say:
- Around 10% to keep your investments safe in case the crypto value falls.
- Build up $100,000 in safe investments till you are 35. Keep adding $100 monthly and you could end up retiring as a millionaire.
It does not come as a surprise that most experienced wealth managers have not yet warmed up to crypto as it is not in sync with an asymmetric risk profile. There are a lot of risks involved so you cannot guarantee a magnanimous wealth creation in the future. The best thing to do here is to start small.
Make sure your wallet is safe
After buying crypto, comes the pressing question of storing the private keys. Let’s brush up on what hot and cold wallets are here: a hot wallet allows you to access and trade your cryptos conveniently and security measures are getting tighter with each passing day. However, as hackers are also getting savvier day by day, a cold wallet such as a USB or a hard drive is your best bet to keep your tokens safe in the long term.
Assess your trading strategy and then decide which wallet works for you. For small amounts that are traded frequently, hot wallets are perfect. You may even want to explore a crypto savings account so you can earn an interest on your digital assets.
Maintain Your Investment
This is the final step: maintaining your crypto assets. The worst thing you could do here is to buy your crypto and then ignore it or shut it away until it is forgotten. Here’s how you can prevent rookie mistakes:
- Monitor your crypto investment by adding it to your investment dashboard.
- Keep a close eye on the news and headlines to see how regulatory changes may affect your chosen exchange.
- Crypto communities are your friends! Join a virtual community through a social media channel or perhaps even go for an in-crypto conference.
Ways to Invest in Cryptocurrency
You don’t always have to buy crypto to invest in it. There are several low-risk ways of crypto investments:
Cryptocurrency Stocks and ETFs
Investing in Bitcoin without actually buying it can be done through Bitcoin futures ETF. You could invest in the crypto market by buying stocks or shares of a company that focuses on the future of cryptocurrency.
Invest in the Blockchain
You can invest in crypto by investing your money on the blockchain technology that backs crypto. Back in 2014, two of the world’s top publicly-traded firms had shown interest in blockchain projects by investing in them. You may even check out some blockchain ETFs that have a good offering of blue chips and upcoming cryptos.
Taxes on Cryptocurrency
Just like any other investment, crypto profits are also taxed regularly at a rate of 10 to 37% in the short term and roughly 20% for long-term gains.
However, as per the IRS, the following are not taxable and need not be reported:
- Buying crypto with cash and holding it ( HODLing)
- Crypto donations made to a qualified tax-exempt charity or non-profit
- Transferring crypto between wallets
The below scenarios have to be reported as they are taxable:
- Selling crypto for cash (even if you lose all your initial investment)
- Using crypto in exchange for goods or services
- Exchanging one crypto for another
- Mined crypto.
- Being paid in crypto or by airdrop.
- Receiving crypto as a bonus
It is important to declare these holdings to avoid being penalized. The penalties are the same as unpaid taxes that can add up fast like these:
- A late filing fee
- A late payment fee
- Interest on top of both penalties
Even before you realize it, your penalties add up to 25% or more of your unpaid tax amount.
The Bottom Line
There has never been an easier time to buy or sell crypto. But one has to remember that the market remains at a very nascent stage and you may experience certain bouts of rapid, gold rush-like speed since there’s no oversight.
If you want to invest in crypto, you should educate yourself on the matter and learn as much as possible. You don’t need a minimum amount to start your journey, but do ensure that it is enough to make sure all your investment is not lost in fees and charges levied by the exchange.