Things To Know Before Investing In Cryptocurrency (2020)

Hello! Welcome to my "Things To Know Before Investing In Cryptocurrency" article!

If you are planning to invest in cryptocurrencies, it is essential to understand what this investment entails. Applications like the Bitcoin Revolution can help you grasp some basics and do research when investing in cryptocurrency.

While cryptocurrencies continue to gain prominence in many portfolios, some investors still don’t know how this investment works. 

As quoted by Warren Buffet, you should never invest in something you don’t understand. Your hard-earned money is never worth risking into something you don’t comprehend. 

Significant cryptocurrency components like Bitcoin are gaining more traction as the world continues to rely on the internet. 

Most people have invested in Bitcoin since it is a secure, digital currency that is open for everyone. 

Whatever cryptocurrency you choose to invest in, it is vital to know a few critical things before diving into this business. 

Here are the five essential things to know before investing in cryptocurrency:

#1 You Are Actually Taking a Risk

Just like any other business, cryptocurrency investment is very speculative. 

Investors must understand that this investment is just like starting up a company. It may work successfully or fail. 

Non-professional investors are advised to invest only the amount they are willing to risk losing.

While there are many stories about successful cryptocurrency investors, you should keep in mind that investing at a mistimed time can lead to huge losses. 

Nonetheless, this should not scare you as there are millions of investors who have gained terrific benefits from investing in cryptocurrencies.

That being said, the chance of striking it rich through cryptocurrency investment can be enticing and can turn out as a reality if you invest wisely.  

#2 Cryptocurrency Investors Use Varied Strategies

While simple speculation is the primary approach to cryptocurrency investment, there are other specific strategies for this investment. 

Marcus Swanepoel, a CEO at a global cryptocurrency company, Luno, reveals that one can day-trade cryptos, buy, hold, and evaluate the assets with critical and technical analysis. 

Since it's challenging to predict lows and highs in digital currency, investors use specific methods to obtain market analysis. 

Some of these strategies include concepts like demand, supply, as well as the future uses of the asset. For example;

Bitcoin’s supply is fixed at 21 million units, which indicates that demand can initiate prices because of the fixed supply. 

It would help if you also kept in mind that global economic events can powerfully influence the cryptocurrency prices.

#3 Cryptocurrencies Have an Unproven Rate of Return

Cryptocurrencies are exchanged from peer to peer without any bond to specific regulatory standards, just like gambling. 

Therefore, there is no particular pattern to the rise and fall of its value. You may not be able to predict changes or calculate returns since there isn't sufficient data.  

But you can still create a long-term investment plan in cryptocurrency by doing market analysis before investing.

#4 The IRS Does Not Recognize Cryptos as Currency

In the United States, the Internal Revenue Service recognizes Cryptos as property and not currency.

Hence, the tax rules that regulate property investing apply to cryptocurrency investing. 

The Virtual Currency Tax Fairness Act of 2020 could favor such investment if enacted. It will encourage more usage of cryptocurrency because only more than $200 profits will be taxed.

#5 The Use of Cryptos Vary

Although legal businesses accept cryptos for transactions, these digital currencies are also used for funding illegal businesses. 

They offer quick, cheap money transfers for users worldwide. Since cryptos are government and authority immune, they cannot be frozen. 

Given the unpredictable nature of cryptocurrency investment, it is wise to do your homework well before making an investment of this kind. Timing is the crucial thing in cryptocurrency investing!

Conclusion

So before you dive into the world of cryptocurrencies, be sure to remember these 5 things to avoid any complications that will lead to you losing money.

Whether you are a beginner or already an expert at cryptocurrency investment, it is always better to be safe and sorry. Thank you so much for reading my "Things To Know Before Investing In Cryptocurrency". If you have any comments or questions, feel free to leave them in the comments section!