What should I know before investing in cryptocurrencies?
How to invest in cryptocurrencies? Will my investment be safe from hacker attack or inflation? What happens if the value of the tokens drops? Do I have to pay taxes? Is it a safe investment? These are some of the questions you are probably asking yourself. When investing in cryptocurrencies, you have to be prepared to take risks. Some financial advisors even recommend them for those with a low or moderate level of diversification. However, before investing your savings, you must know the reality of this market. We will therefore see together the essential points that you must know before investing in crypto-currencies in order to protect your money and maximize your gains.
Contents
How do cryptocurrencies work?
Before you start investing in cryptocurrencies, you need to know how they work in order to better understand their behavior in the market. Cryptocurrencies are digital financial assets. They are exchanged through a web-based ledger where all participants must agree for the transaction to occur. This technology, called blockchain, is the basis of their operation. These currencies are characterized by the fact that they work in a decentralized way and therefore do not depend on any government or central bank. They are immune to inflation, just as if they were real assets (such as gold or real estate). For this reason, it is difficult to establish what the intrinsic value of cryptocurrencies is. Their price is determined on the market according to supply and demand and their price constantly evolves like that of Bitcoin.
Know the volatility of cryptocurrencies
Before you can define yourself as a successful investor, you need to understand cryptocurrencies as well as you can and take nothing for granted, as the markets are very volatile and change overnight. It is true that there is an open world of possibilities within the cryptocurrency market. On the other hand, you must invest safely so as not to put your money at risk, otherwise all the profits will be lost. We all expect the market to have long term linear growth which we can enjoy if we maintain our digital portfolio. Many examples have proven to us over the years of multiple cryptocurrency investors, greatly taking advantage of market uncertainty and volatility to buy more during periods in which assets are low. However, keep in mind that this is not always the case and nothing is predictable.
Choosing Wisely Where to Invest Cryptocurrencies
There are many platforms where you can invest to buy cryptocurrencies. The supply has exploded recently, but again, beware not to fall into the trap of unscrupulous companies. Do your homework, read the opinions of other people who are interested in cryptocurrencies and choose from the most reliable platforms. Think, for example, of KuCoin. You will be able to trade cryptocurrencies, access decentralized marketplaces and of course buy cryptocurrency with one click. If you’re just starting out, it’s best to choose a platform that’s easy to use and intuitive.
The tax challenges posed by cryptocurrencies
How do cryptocurrency transactions work? Who determines the price of a cryptocurrency? Do I have to pay taxes on the profits of my investment? If I have losses, do I have to report them? While many people have profited from investing in cryptocurrencies, it is clear that this financial activity also raises many tax challenges. The subjection of crypto-currencies to tax is complex because governments have not always implemented regulations. However, while cryptocurrencies may seem like a shield against long-term taxation, the important thing is to know the legislation that applies in the country where you live.
Regulation and investor protection
Regulation and adequate investor protection are two aspects that need to be kept in mind by those investing in cryptocurrencies. Many people are eager to invest in cryptocurrencies regardless of their budget. If the benefits are immense, you must put all the means in place to protect your savings. For now, decentralized currencies are not controlled by banks, securities agencies, international regulators or governments, and in this sense they do not offer the traditional protection of investors. However, the authorities strive to guarantee the protection of investors.
Conclusion
Cryptocurrencies have grown tremendously in recent years despite the risk associated with investing. There is no general regulation for cryptocurrencies and therefore no traditional protection for large losses or gains. Investors should take risks seriously, learn about the markets and be aware of movements, be aware of tax laws and act on their own responsibility.