7 Factors to Consider Before Becoming a Cryptocurrency Investor

If you’re thinking of becoming a cryptocurrency investor, you’re certainly not alone. 55% of Bitcoin investors only got involved in the past year up to April 2022.

Some boasted measured strategies. Others might have just seen the potential profits and decided it was better to get in late than never. There’s significant support for the idea that cryptocurrencies might change the global financial system. If that becomes the case, certain coins will become far more desirable.

Of course, that’s not the only factor behind rising prices, but a great return is all but essential for any investment. There’s as much risk involved as with any other investment but with potentially massive returns.
Here’s how to keep the risk low and become an educated crypto investor, not just a speculator.

1. Every Cryptocurrency Investor Needs a Strategy

A cryptocurrency investing strategy could mean many different things, but at the very least, you shouldn’t part with your hard-earned cash on a coin because you like the name. The more you can plan, the more likely you’ll achieve success. That means understanding entry prices, exit strategies, and diversification.

Essentially, you want to know the second and third steps around your investments before taking the first.

2. Research Every Investment Ahead of Time

There’s plenty of information out there on every cryptocurrency you might be tempted to invest in. They generally have whitepapers and roadmaps, indicating what sets them apart from the competition and where the future will take them. Of course, they don’t always meet their targets, but you can get an idea of a coin’s future and how that might affect the price.

3. Always Consider a Diversified Portfolio

It’s rare for a cryptocurrency to disappear completely, but it does happen. Like stocks and shares, you can protect yourself somewhat from issues with a single investment by spreading your cash out.

Once you’ve done your research, you’ll find several attractive options, and it’s often better to diversify into several appealing coins than risk it all on the back of one.

4. Consider Your Wallet Needs

You can keep your cryptocurrency on the exchanges where you buy and sell or store tokens in hot and cold wallets.

A hot wallet is common when buying Bitcoin with plans to spend or sell in the short term. It’s always connected and ready to use without delay.

Meanwhile, a cold wallet trades convenience for security. It’s usually a piece of hardware where you store your investment, and the only way to get funds out of it is through having the wallet itself.

5. Not All Crypto Exchanges are Created Equal

Crypto exchanges are online sites that facilitate crypto transactions and take care of buying and selling. While not strictly accurate, a new cryptocurrency investor can think of them as a bank or PayPal, but for Bitcoin, Ethereum, and other tokens.

There are plenty of big names, and it’s always worth considering the reputation. However, keep in mind that online exchanges aren’t the only way to buy. You could just as quickly do so at a kiosk in the street – find out more about how they work at Byte Federal.

6. Prepare Yourself for Volatility

Crypto investment and gambling have more in common than some investors like to admit. For example, if you were a Bitcoin investor in April 2021, you’d have witnessed an 11% drop on a Sunday of all days! That wiped around $7,000 off every coin’s value, and they’re the risks you must be prepared for before you make your first investment.

7. The Tax Inspector Still Wants a Cut

When you make money, the tax inspector makes money, and crypto investments are no different. In the US, crypto holdings are treated similarly to property holdings for tax purposes. Legally, a cryptocurrency investor must report all crypto transactions, and you’ll pay capital gains taxes on any profit.

Taxation is nothing new, but it’s worth keeping in mind when you do your research and establish your exit strategy. After all, a sale price won’t be quite as attractive when a percentage goes to the IRS!

Start Your Crypto Investing Journey Today

If you want to become a cryptocurrency investor, there’s no need to leave it to luck. The cryptocurrency investing market is firmly established, but there’s still plenty of time to get in early. With the correct strategy and sufficient research, you can make wise investments and enjoy potentially fantastic returns.

You can learn much more about business and financial strategies and discover how to apply them to investing in cryptocurrencies and anything else across our blog.