What Are The Risks Involved In Cryptocurrency Investing
As with any investment, crypto could potentially help investors build extraordinary wealth, though one big turn could mean losing an entire investment in a short period of time. But crypto has other risks, too: its still relatively new , and with governments still debating regulations, theres no telling what will happen in the future.
So, before jumping on the crypto bandwagon, we generally recommend investors consider these risks :
How Is Cryptocurrency Taxed
The Canada Revenue Agency taxes crypto transactions as either business income or capital gains.
The difference between the two is immense. If crypto mining or trading is done as a business, then 100% of the capital gains are taxable. If, on the other hand, if an investor is crypto trading or mining that as a hobby, only 50% of the capital gains are taxable.
If youre not sure if your crypto transactions are a business or a hobby, reach out to a tax professional. Its better to pay a professional to help you understand the tax liabilities of crypto than to pay penalties for filing incorrectly later.
Please note, this information is provided for educational use only, and is not tax advice. For tax information that is personalized to your situation, please consult a tax advisor.
How Can I Get Involved In Trading
Firstly, its important to make sure you only invest money you can afford to lose trading cryptocurrencies, or any other stock or commodity, carries a risk.
My advice is simple purchase ten of the top coins and hold them for a year.
To get started, simply buy Bitcoin on Coinbase or elsewhere, send the Bitcoin to an exchange and then use the Bitcoin to buy the other coins you want to hold.
Something you need to understand is you dont have to buy a whole coin, you can buy 0.000001 of a BTC if you want to.
Which coins you should invest in changes daily but here are some of the best coins in my opinion
Bitcoin, Ethereum, Monero, Litecoin, Ripple, Dash, Civic, Iota, Siacoin, Golem, Neo, Maid, OMG, Steem, Potcoin, Zcash, Hempcoin.
If you want to dip your toes into trading cryptocurrency, then my top tip for cryptocurrency trading beginners is to simply split your investment across Bitcoin, Litecoin and Ethereum.
Ethereum is widely considered to be the biggest contender to Bitcoin and after trading Bitcoin, Ethereum has the largest chunk of the cryptocurrency market it is, in my opinion, a relatively safe bet.
Ethereum broke the $1000 mark in the last bull market and I predict it will hit $5000 a coin by the end of 20202 .
Since January 2017, the value of Eth has skyrocketed from $6 to $1000 You can buy Ethereum here if you use this link we will both get $10 of free Bitcoin.
Also Check: How Do You Cash In Your Bitcoins
Good Reasons To Invest In Cryptocurrency
Best Cryptocurrencies To Invest In For 2021
Cryptocurrency is digital money that isnt managed by a central system like a government. Instead, its based on blockchain technology, with Bitcoin being the most popular one. As digital money continues to gain traction on Wall Street, more and more options become available. There are currently more than 5,000 cryptocurrencies on the market.
While you can use cryptocurrency to make purchases, most people treat it as a long-term investment. However, volatility makes investing in cryptocurrency risky, so its important to know what youre getting into before you buy in. These are the top eight cryptocurrencies that are most worthy of investment in 2021.
Recommended Reading: How Do I Sell My Cryptocurrency For Cash
How Much Does It Cost To Buy Cryptocurrency At Exchanges
What does it cost to trade bitcoin? Apart from the price of bitcoin itself, each cryptocurrency exchange adds a fee for trading, when customers purchase and sell coins. These fees include Maker and Taker fees. In some cases, cryptocurrency traders can incur maker as well as trader fees, if the limit order is already present in the order book.
Cryptocurrency exchanges mainly calculate fees in two ways: as a flat fee per trade or as a percentage of the 30-day trading volume for an account. In both cases, theyve adopted a tiered structure that depends on the amount being traded.
Do You Have To Pay Taxes On Cryptocurrency
If you buy and sell coins, its important to pay attention to cryptocurrency tax rules. Cryptocurrency is treated as a capital asset, like stocks, rather than cash. That means if you sell cryptocurrency at a profit, youll have to pay capital gains taxes. This is the case even if you use your crypto to pay for a purchase. If you receive a greater value for it than you paid, youll owe taxes on the difference.
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How Much Crypto Should Be In Your Investment Portfolio
Cryptocurrency adoption is increasing. As a result, many are wondering whether they should include crypto in their portfolios. Figuring out exactly how much is the next challenge.
The increase in adoption by companies like PayPal, the investment by institutions like Rothschild Investments and the recent Coinbase listing are making it harder to deny that cryptocurrencies are becoming a common feature not only in the world but in a well-rounded portfolio.
There are several who suggest different allocations based on the typical 60/40 stock/bonds portfolio. However, by using the Black-Litterman Model, investors can allocate the amount of crypto they hold according to their confidence in its growth potential.
Valuing Cryptocurrencies Either As Capital Property Or Inventory
To file your income tax return, you need to know how to value your cryptocurrencies. This depends on whether they are considered capital property or inventory. When cryptocurrencies are held as capital property, you must record and track the adjusted cost base so that you can accurately report any capital gains.
If the cryptocurrencies are considered to be inventory, use one of the following two methods of valuing inventory consistently from year to year:
- value each item in the inventory at its cost when it was acquired or its fair market value at the end of the year, whichever is lower
- value the entire inventory at its fair market value at the end of the year
You might have to use other methods of valuing inventory, depending on the type of business you have. For example, property described in the inventory of a business that is an adventure or concern in the nature of trade must be valued at the cost you acquired the property for.
You will have to compare the cost and the fair market value of each item to figure out which is lower. You then use the lower figure for each item to calculate the total value of your inventory at the end of the year.
“Cost” as used in the phrase “cost at which the taxpayer acquired the property,” means the original cost of the particular item of inventory , plus all reasonable costs incurred to buy that particular block of cryptocurrency.
Use the same inventory method from year to year. Please review our archived page on inventory .
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What Bitcoin Options Are Available In Canada
With the following options you will not have to own or create your own wallet, and becoming a bitcoin investor is as easy as opening an account and pressing a few buttons to buy or sell bitcoin. These companies will hold and store your keys on your behalf. As with buying mutual funds or ETFs there are fees for these services.
You can buy bitcoin, as well as sell it, with Wealthsimple the setup process is very quick and simple.
The same level of ease goes with the all-in-one solution at bitbuy.
You can also purchase closed end mutual funds from 3iQ and from CI Galaxy. These bitcoin funds are available in U.S. or Canadian dollars. An added bonus with these funds is that you can hold them in registered accounts such as an RRSP, RRIF, or even a TFSA.
If youre wondering how to invest in bitcoin outside of your TFSA, you might also consider Grayscale, which is a U.S.-dollar fund.
Are You Looking For More Great Cryptocurrencies To Buy
You made it to the end of my list! I hope you enjoyed my top 11 cryptocurrencies to buy for 2021, and that you found the information I provided useful.
If youre looking for more great cryptocurrencies to invest in, or to find out which coin is going to be the next big cryptocurrency, here is what you can do:
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So How Much Should You Devote To Crypto Investing
Orman also provided some advice to listeners about exactly how much they should spend on Bitcoin as they use dollar-cost averaging to acquire it, suggesting an investment of $100 per month.
There was a caveat: Orman said, “Do $100 per month and dollar-cost average into it — as long as you know you can lose that $100 a month and wont care.”
Her warning that you should only invest as much as you can afford to lose was prompted by her concern about cryptocurrency’s volatility. While she personally has invested in Bitcoin, and says she loves the cryptocurrency and believes it is a solid long-term investment, she’s also described investing in it as “seriously risky.”
She believes Bitcoin’s price is likely to fluctuate, perhaps widely, but she sees it as a legitimate investment worth buying into. That said, she doesn’t believe in its future as a currency that people will use to purchase goods and services — paying with it is likely to remain impractical. Instead, Orman thinks of it more like gold: an asset that is a store of value rather than money you shop with.
While Orman’s advice is helpful, ultimately only you can decide how much risk to take on — and how much money you can afford to lose. Her $100 suggestion may be right for you, but you could buy more or less, depending on how much spare cash you have to invest in a relatively untested kind of asset.
Four Things To Consider While Trading On Cryptocurrency Exchanges
There are four important things that traders must consider while purchasing cryptocurrencies.
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Should I Invest In Cryptocurrency
Plain and simpleinvesting in cryptocurrency is not a good way to build wealth for your future. If you really want a solid investment, dont mess around with adding some crypto coins to your digital wallet. Heres the better plan: If youre out of debt, have an emergency fund that will cover three to six months of expenses, and youre ready to invest, then focus on investing 15% of your income in growth stock mutual fundswhich are way more secure than crypto.
Dont give in to stupid just because theres a lot of hype. Weve talked to people who have taken out a mortgage or cashed out their entire 401 early to invest in cryptocurrencyheck no! Dont put it all on the line and risk your financial future, your retirement dreams and your familys well-being. If you cant afford to lose the money, dont invest it in something as unstable as crypto.
Example : Capital Gain Or Loss
Tim found a deal on a living room set at an online vendor that accepts Bitcoin. Tim acquired $3,500 worth of Bitcoin to buy the furniture with. By the time he bought the furniture and converted his remaining Bitcoin back into dollars, the value of Tims Bitcoin had increased by $500. The gain realized by Tim was on account of capital, so Tim has to report a $500 capital gain on his income tax return. However, only 50% of that capital gain is taxable.
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Take Notes Of How Much Money You Put Into Each Coin At The Beginning
When you wake up each morning the plus or minus percentage sign which tells you how each currency is tracking relates to the last 24 hours only not to when you first bought the coin. This is less important if you invest on the likes of CoinSpot, where you can easily check how much you paid in the first place at any time, but crucial if you are buying super speculative coins on TrustWallet, where all you see is the current value of your coin. If youre buying a lot, like I did, its easy to lose track and not even know if youve made a profit or loss at any given moment, thus missing opportunities to sell.
Its Almost Like A Sport
I see how people get into it: despite the stress, everyone enjoys the dopamine rush of facing a challenge and becoming more competent. Even though there is a huge element of luck involved, and putting money into speculative coins is essentially gambling , there is a certain thrill involved in learning the ropes of something new.
Also Check: How To Create Your Own Crypto
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How Can I Buy More Coins
Buying more coins to expand your cryptocurrency portfolio is a smart idea the more you diversify, the better your chance of hitting a coin that goes to the moon. I do however recommend keeping at least 60% of your portfolio in relatively safe coins like Bitcoin, Ethereum, Litecoin and Monero.
Most cryptocurrencies can only be bought on trading exchanges and not on Coinbase and some cryptocurrencies are only available on one or two exchanges. Because of this, I personally am active on multiple exchanges.
The majority of cryptocurrencies can only be bought with Ethereum or Bitcoin so you have to buy one of those before you can purchase the smaller coins.
To properly expand your portfolio, you will need to join a trading platform is the largest and most trusted trading platform out there and it lists a wide selection of decent coins.
You will need to first buy your Bitcoin , you will then send your BTC to a cryptocurrency trading exchange. My favourite trading platform is Binance, but due to overwhelming demand, their doors are not always open. If you simply want to get onto the Cryptocurrency ladder as fast as possible, Terrexa offer extremely fast verification and you can buy Ethereum or Bitcoin using a bank transfer or credit card.
Check out my ultimate guide to trading Crypto on Binance to get your head round how to send Bitcoin from Coinbase to an exchange.
Note: Binance is the best trading exchange that still takes on new users.
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