Cryptocurrency is a new and exciting market that has grown exponentially in recent years. Many find it easy to get involved with cryptocurrency, which is why even those who don’t know much about it are taking the leap and making investments.
Because crypto is a decentralized digital asset, some governments see possibilities for investors to avoid taxes by shifting their taxable assets into the crypto economy. It’s the reason why cryptocurrency is taxed in some countries. So, if you reside in any of these countries and are looking for ways to lower your crypto tax rate, you must first understand how the crypto tax rate is calculated. Failing to figure out how it works leads to the common mistakes most investors make.
Mistakes You Should Avoid As A First Time Cryptocurrency Investor
Investing in cryptocurrency is an excellent option to diversify your portfolio and earn a reasonable return, but only if you have an intimate understanding of the market, its risks, and the mistakes that can make or break your journey.
Here are a few common things most beginners fail to understand, and some ways to avoid them:
- Assuming Cryptocurrency Is A ‘Get Rich Quick’ Scheme
Cryptocurrency is a newly emerging market, and as such, it can be challenging to determine the value of different coins. However, many people focus too much on those who have made millions in cryptocurrency investing and think they could easily do the same if they had invested early enough.
This type of thinking leads to bad decisions about choosing where to invest your money. Remember, there are risks associated with any investment, and cryptocurrency is no exception.
- Buying Cryptocurrency Without Understanding Its Fundamentals
One reason most average cryptocurrency investors fail is that they enter the market without understanding the fundamentals of the coin or token. Cryptocurrency is volatile and can lose its value quickly. This suggests that you could either end up with nothing in the blink of an eye or make huge profits.
Each crypto coin or token has its purpose. Therefore, if you’re going to invest long term, you must ensure that you understand the fundamentals of whatever cryptocurrency you want to invest in. Keep in mind that there are tokens created only to get funding from people, and founders will dump (sell all of their cryptocurrency on the market) the coin, as soon as it goes on exchanges. This act can result in the coin’s value dropping.
To avoid investing in these types of coins, know how the currency is made, the people behind it, and what it’s used for. If there are no details about any of these things, make sure that you do more research before investing.
- Putting Too Much Trust In Crypto Exchanges
It can be hard to find a reliable crypto exchange. Even popular and big crypto exchanges can be a victim of cyberattacks. It’s been reported that millions worth of cryptocurrency has been stolen from exchanges. To avoid these situations, always be sure to store your cryptocurrencies in a wallet that you control the private key for—not on an exchange where you don’t have exclusive access.
If you plan to be a crypto trader and frequent withdrawal isn’t practical for you, it would be best to store your funds at a reputable exchange. Look for one with a large cryptocurrency stash to cover customer’s losses in the event of theft. The most reputable exchanges will also have many security features such as two-factor authentication and withdrawal limits. If you’re not sure if an exchange is safe, always do some research before committing any money or signing up for their services.
- Trading Too Often
Because the cryptocurrency market is volatile, many tend to trade as much as possible, thinking that it can help them make more money. However, the truth is trading too much can quickly eat away any gains you make and cause a significant amount of anxiety in the process.
Whether you plan to be a day trader or a long-term investor, remember to only enter a position if you see enough market confirmations using different chart indicators. It would be best if you also consider potential losses, so only trade what you can afford to lose.
The cryptocurrency market is volatile. It means that while it can be a great option to invest in, it’s also recommended to consider the common mistakes beginners make and avoid them so that your hard-earned money doesn’t go to waste.
You can indeed get rich through cryptocurrency, but it doesn’t mean that it can happen overnight. Those who earn a lot from crypto took a considerable risk and gained relevant knowledge. Remember to only buy coins that you understand and believe in. Additionally, try to keep your crypto investment out of exchanges as much as possible, as exchanges are prone to cyberattacks. Lastly, trading too often can only make you lose more, so be wise about your investments and not invest more than you can afford to lose.