About two months back, the crypto market revived to approximately $1 trillion market capitalization. It was a first considering the way the market was performing lately. However, while this market appears healthier than it was sometime back, it hasn’t reached the November peak last year, which is $3 trillion. Therefore, it’s natural to land up at this question – In today’s economy that shows signs of recession risks and high inflation, can crypto prove to be a wise investment?
Right after its incredible highs back in 2021, the crypto market declined drastically. It has reached a stage where the investors are calling it the “crypto winter.” Also, the massive $2 trillion crypto market crash completely wiped-out investor gains. It had obliterated the staple online currencies and made several people lose out on their jobs.
And even though the crypto is showing rising trends, the volatile lows and highs aren’t something new for the crypto market. Even the skeptics have defined crypto as one empty bubble that might just burst anytime. According to the critics, the NFTs, stablecoins and the bitcoin are nothing but an online version of the earlier con that is destined to be a scam. However, it’s the investors who look at the realm of online coinage as one step forward. They consider it to be a sort of “Money 2.O”, which can power the metaverse and democratize finance. And right after seesawing the costs and teetering the sentiments, there’s been a single change – The cryptocurrency remains controversial, volatile and risky.
Understanding the worldview of crypto
To explain simply, cryptocurrency can get best defined as the online token. Its ownership gets recorded on the blockchain, a disseminated software ledger that no person controls. It gets designed for making it better and more secure. Ethereum and Bitcoin are two popular cryptocurrencies. There are almost 18000 tokens that get traded under various names.
In spite of the rotating costs and a reasonably relative absence of regulation, cryptocurrency is viewed as the upcoming financial frontier. The recent developments, such as Biden’s wish for exploring the online US dollar for the multi-million-dollar Super Bowl ads, often underscore an increasing desire from the corporate institutions and potent government for legitimizing the crypto similar to bonds and stocks.
However, agreeing that cryptocurrency is a wise investment option is necessary. It is more so when you look at the present downturn and the probability of a crucial crash, both in the United States economy and in crypto. When you decide to buy cryptocurrency, it is necessary to check out a leading crypto shop to make a smart purchase.
It is necessary to remember that cryptocurrency is an essential category of investing which doesn’t include conventional investor securities. It is usually outside the zone of securities trading. Considering the regulations, it is one place in total flux.
Even the professionals warn that no investor should place an increased amount of money than what they can possibly afford in crypto. It is because this domain comes with very few safeguards, spotty track records and several pitfalls.
Investing in crypto – Make a wise choice in 2022
Are you planning to invest in crypto this year? In that case, you need to think about a few questions to arrive at the best decision that works in your favour. They are:
- Are there any risks when you invest in crypto?
Prior to making an investment, it is essential to know you have zero security in this domain. Considering the fact that virtual currency is highly volatile and gets driven by the hype, there might be a problem. You may get caught up in the YouTube videos, TikToks and tweets touting for the recent coins. However, the sudden spike in the market might decline if there is an abrupt crash.
It is essential to search for crypto scams. One such scam is the pump and dump, where scammers urge individuals to purchase a specific token, telling them that the value will rise. As that happens, the scammers completely sell out, thereby making the cost down for all. Such scams have been visible, and it captured over $2.8 billion in crypto back in 2021.
When you look at the market from the perspective of the US government, you should be on your own. Hereon, the government offers zero deposit security for crypto-like bank accounts. It can change considering Biden’s order, which directed the government agencies to investigate the online assets’ risks and benefits.
There are very less companies that provide crypto insurance. Various other companies also offer the theft protection, which will alert you as and when there is any suspicious activity on the account. Usually, such companies keep the insurance-backed guarantee, that when the technology fails, it can pay you back the amount for which you qualify, that in turn is based on the security level of the wallet used in the offers.
And despite every hype, periodic crashes and scams in the market, the experts think that there can be a viable future. They feel that crypto has the solution for a few of the issues related to the conventional financial sector. It is a known fact that the traditional, current financial system is completely non-inclusive. It is costly and slow and has incumbents that comprises of the financial institutions and big banks, which exercise ample control. The experts think that crypto is one domain using which one can break the system.
How can you start to invest in cryptocurrency?
When you want to purchase crypto now, the costs have declined. It feels that the market might not recover. However, the easiest way to attain your feet back with the crypto investments is to use the US dollars for purchasing the cryptocurrency using the famous exchange, such as Coinbase. Today, several payment apps will enable you to sell and buy cryptocurrency, even though it usually has very restricted features and increased fees.
Irrespective of your use of Coinbase or any other tool, you need to offer critical financial and personal data, which also comprises of the official identification form. The moment you set up the account, it is easy to transfer the cost in the bank. That aside, the barrier for entry is very low.
What is the percentage of the portfolio you should put in crypto?
Crypto is very new. Hence, there isn’t ample data for deciding the amount of portfolio that you need to place in the cryptocurrency. It is essential to have returns for several decades to understand whether a certain asset is suitable for the portfolio. The experts also believe that most average stock has a return of about 6% more compared to the bonds. It’s mostly because they had 60 and 100 years to check the average returns on the bonds and stocks.
Similar to every investment decision, the amount you place in the crypto will be based on risk tolerance. However, the investment professionals are of the opinion that the investors must have a low exposure. It is applicable even for the ones who are aware of all the technology. According to a few financial planners, most of their clients tend to allocate only about 3% of the entire portfolio to cryptocurrency.
Do you have to pay your taxes when you make cash through the crypto trades?
The answer is yes. And it is irrespective of whether you are exchanging, selling or are buying crypto. That aside, even the IRS wishes to know about this. The tax liability also depends on a specific situation. However, the crypto investments are generally treated similarly to various other investments, comprising of bonds and stocks.
There is no need to report to crypto on the tax return just in case you don’t exchange or sell it for any other crypto type. That aside, the holding and buying don’t require to get reported. When you happen to exchange or sell the crypto, it is necessary to report any losses or gains you realized, similar to what you must have done for bonds and stocks.
When you add the crypto trades, it will not make the tax return simpler. However, today you can make use of the advanced tax software that can connect with the exchanges and wallets for automatically tracking the cryptocurrency transfers, sales and holdings.
Can you learn about the cryptocurrency domain without making an investment?
It is a common question that most people have. Purchasing tokens is one of the best approaches to take when you start experimenting with cryptocurrencies. However, there are other scopes for navigating through the entire crypto domain while securing your cash from fluctuating market trends. One of them is purchasing the shares from crypto companies. Don’t go ahead and jump into it just because you have heard about it. Take sometime to do your research and find out all that works in your favor before to purchase crypto shares.
Now that you are aware of the market trends and a few tactics, you can invest in crypto without putting yourself at risk.