Cryptocurrency currency has garnered massive popularity due to its high profitability and convenience.
Trading by nature is risky, but when it’s crypto, the risks go up a notch where the asset’s value fluctuates wildly from record-breaking highs to soul-crushing lows.
Despite its volatility, the asset’s demand continues to grow. Many traders find the ever-changing value dynamics attractive since anyone can hit a home run by making the right moves.
However, doing your homework before getting down to business is imperative, especially when the stakes are extraordinarily high.
Investing in crypto for beginners
As a newbie trader, it’s paramount to understand that every move in crypto trading comes with an associated risk.
It’s your job to assess whether you are willing to take that risk or not. A sound investment strategy is to start small and only invest what you can bear to lose. Go for currencies with high market cap and liquidity.
Long-term or Short-term investments
Before you get your foot in the door, you should also know whether you want to go for a short-term or a long-term investment.
Currencies such as Bitcoin, Tether, or Ethereum are known for their high volatility, making them excellent for short-term investment.
On the other hand, currencies with strong staying power, a long track record, significant market cap, and the ability to withstand extreme volatilities are smart investment options.
If you are in the market for long-term investment, then Litecoin is the best choice for you. As a beginner, it’s obvious you might not know how to buy Litecoin, but the process is relatively easy.
You can buy Litecoin at a reliable investment platform like currency.com, where you can instantly get your desired crypto with your credit card.
Furthermore, they also track real-time value changes to provide you with the best possible trading experience.
But that’s not all; to make informed trading decisions, you must get to know the industry before diving in head first.
Today, we have gathered six must-know facts about cryptocurrency that everyone must know. Continue reading to learn more.
Six must-know facts to make smarter trading decisions.
- The scarcity of crypto drives demand
Crypto is a scarce asset, which means crypto is only available for mining in limited quantity. For example, the total bitcoins ready to be mined equals 21 million, of which almost 19 million have already been mined.
The value of crypto is directly associated with its demand; as the supply decreases, the seasoned traders expect its value to skyrocket.
Investors know that the supply of bitcoins and other currencies will be exhausted at some point in the future. And when that happens, experts believe that the value of crypto will rise in the long run.
- Research is pivotal before investing
Doing prior research to make the most out of your crypto investment is crucial. Create a due diligence checklist and make sure that the team behind a crypto project is trustworthy and competent before considering it for investment.
Also, check whether the investment initiative is a rip-off of an existing project or has identified a new market opportunity.
You can also make colossal investment returns if the project has a proof of concept, implying a greater possibility of attracting investors.
- Knowing the market cap means knowing the risk
Various exchange platforms have listed over five thousand cryptocurrencies, with new coins popping up now and then.
Most of these new coins aren’t worth a second thought; however, it’s important to note that not all alt currencies are useless, which is why it’s important to understand market capitalization.
Market cap is a metric to estimate a project’s scope and size – calculated by multiplying the total supply of the asset by the asset price.
Checking the asset’s market value is vital since it might indicate the amount of risk associated with the project.
Larger circulating supplies of currencies with large market caps are less susceptible to extreme volatility and exploitation than smaller coins with a low market cap.
- Trading volumes indicate asset liquidity
If you plan to buy a digital asset, it’s crucial to examine its trade volume beforehand. You shouldn’t be concerned about the tokens that are in the highest demand.
However, looking at esoteric currencies with a lower market value, you need to know how many tokens get traded and purchased daily.
Digital assets with more volume are easier to trade. In contrast, a digital asset with a low trading volume could be challenging to sell, indicating a lack of asset liquidity.
It’s best to avoid cryptocurrencies with a low trading volume since they carry nothing but risk.
- Trading strategy can help you avoid pitfalls
A game plan for trading isn’t essential, but it can help you make informed decisions and avoid pitfalls.
There’s no worse strategy in trading than making decisions on a whim without solid research. There’s no harm in devising a plan to buy and sell assets as it helps you make better decisions.
A stop-loss order can safeguard you as an investor by allowing you to sell an item at a lower price than you paid.
A stop-loss method can prevent you from significant losses since the cost of cryptocurrencies can fluctuate rapidly.
It saves you from intensive losses by allowing you to sell an asset for a price slightly lower than what you paid.
Experts recommend stop-loss levels ranging from 2 percent to 4 percent of the purchase price by the most seasoned traders.
When an item loses value repeatedly, it is preferable to accept a minor loss than to cling to it. It’s something that many traders have had to learn the hard way.
- Double-check tax laws in your country
Now that cryptocurrencies have made it into the mainstream, tax authorities throughout the globe are scrambling to grab their share.
Cryptocurrency gains are taxable in many countries, including the United States and the United Kingdom. In the United States, the Internal Revenue Service (IRS) considers Bitcoin a property rather than cash.
In a lawsuit against Coinbase, the IRS prevailed and ordered Coinbase to share details on more than 14,000 individuals who made yearly transactions of more than $20,000 between 2013 and 2015.
Knowing the tax laws in your country will help you avoid any unnecessary legal trouble.
If you’re considering adding cryptocurrency to your financial portfolio, do it cautiously. Crypto markets work similarly to the stock market, and protecting your capital is just as important as maximizing your returns.
However, if you know what you’re doing, you can still capitalize on crypto, such as bitcoin, when the price drops. If you keep an eye on safety, fees, and taxes, you’ll be able to reap all the benefits associated with crypto trading!