Whether you’re buying property or putting money into the stock market, nothing is risk-free when it comes to investing. This is especially true for cryptocurrency, which is a volatile form of investment by its nature.
Tax Day is almost here. Have you received, sold or exchanged any virtual currency in 2021? If so, you’ll have to report it on your taxes. Tap or click here for more information and tips in our report.
Bitcoin hit an all-time high last year and has come down considerably since. The concern over the market leader affects thousands of cryptocurrencies below it. Everyone has their strategy for investing in crypto, but a few basic tips can help anyone do better in the long run.
Before we dive in, this is not financial advice. Cryptocurrency is inherently risky, and you should never invest money you are not willing to lose.
Leave your feelings at the door
In May last year, Elon Musk tweeted that Tesla was suspending vehicle purchases made with Bitcoin because of the effect of its mining on the environment. He also said that Tesla would not be selling any Bitcoin itself. This caused Bitcoin prices to tumble, and panic sellers unloaded their digital assets in response.
This is an example of emotional investing — attempting to take advantage of a moment to see fast gains or minimize losses. We see these trends all the time, even outside of digital currency. The GameStop stock craze wasn’t very long ago.
Keep your emotions out of it. Don’t jump onto any trends without doing your research first. If you let anxiety and fear of missing out sway your choices, your future in crypto will be a short one.
When the market is on a downward trend, it’s an excellent time to evaluate your long-term goals. Do you have an exit plan to take out some or all of your profits? Do you have a number in mind that you want to reach? Or do you consider your investment untouchable for the foreseeable future?
Reflect on your investment and why you started it to help make the right decisions during a downturn. Again, don’t panic!
Dollar-cost averaging can lower your risk
Break your investment down into smaller increments rather than putting a large sum into crypto all at once. This is dollar-cost averaging. Many crypto exchanges let you set up your account to invest smaller sums at regular intervals automatically.
Dollar-cost averaging will lower your exposure to market swings and take out the guesswork of constantly trying to gauge the market’s mood. It also removes the temptation to invest based on emotion. Tap or click here for more information on dollar-cost averaging.
Know your limits
As we say in our disclaimer, never invest more than you can afford to lose. You shouldn’t miss a house or car payment because your crypto investment isn’t doing well.
What is your risk capacity? This can change over time, depending on your financial situation and goals.
Want to know more?
If you want crypto advice you can trust, check out Kim’s eBook CryptoCurrency 101, which includes everything you need to know to start buying, using and making money. For more details, head to Komando.com/crypto.
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