Since The Crypto Market Is Still At A Nascent Stage There Is No Long
The cryptocurrency market is witnessing a turbulent time in 2021. On the one hand, El Salvador has adopted Bitcoin as a legal tender, whereas the US SEC is planning to sue Coinbase Global, a cryptocurrency exchange platform.
So, 2021 has been highly volatile so far for Bitcoin and other cryptos. Bitcoin was hovering around $28,000 in January and reached a peak of more than $63,000 in April. And since then, it has moved between $29000 and $48000 . The recent price correction has again echoed those magical words buy the dip. Should you really should buy the dip?
Hope versus reality
The crypto market is volatile. Now, the underlying assumption or the hope to buy the dip, whether in the stock or crypto market, is that prices would ultimately rise. And you tend to make more returns by investing at a lower entry point for a possible upside in prices. But that does not always apply to all cryptos. Remember that stock or crypto prices often fall for all the wrong reasons.
Since the crypto market is still at a nascent stage, there is no long-term historical data to decipher its price movements, and we cannot tell with certainty how far the prices can go up after every correction. Though short-term data suggests that crypto prices have gone up after previous crashes, there is no guarantee that it will keep on happening, and that too for all the cryptocurrencies in circulation.
Be a HODLer
You Pay Less In Taxes And Fees
There are a couple of extra costs when selling crypto within a year. The big one is short-term capital gains tax.
Whenever you make a profit selling or exchanging a cryptocurrency, the amount you earn is capital gains. The IRS requires that you report capital gains and pay taxes on them. You pay either short-term or long-term capital gains tax, depending on whether you held the crypto for more than one year. Short-term capital gains are taxed as part of your income. Long-term capital gains have lower tax rates.
If you keep your crypto for longer than a year, then you pay less in taxes when you sell it, because it will be considered a long-term capital gain. You also don’t need to pay any taxes on it until you sell. Those 65% of consumers who sell crypto within a year end up paying more in taxes.
In addition, you need to pay transaction fees when you sell crypto. These aren’t too expensive with the best cryptocurrency apps and exchanges, but they’re still a cost you pay for selling. By limiting how often you sell crypto, you pay less fees.
Selling crypto within a year isn’t always a bad decision. For example, if something changes and you no longer think a crypto is a good bet, then selling it could be the right decision.
Have You Done Your Research
The best way to guard against panic buying is to fully research any investment before you spend a penny. You don’t have to be a technical whizz, but you need to have a solid understanding of what blockchain technology is and how it works.
When you research, you’ll also learn more about how cryptocurrency investing differs from buying stock in a company and why it is a higher-risk investment. Plus, you can find out which cryptocurrency exchange may suit you best and get a full understanding of the potential benefits of buying Bitcoin.
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Are Cryptocurrencies A Good Investment
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
Thats whats called the greater fool theory of investment. Contrast that to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation.
For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability.
Some notable voices in the investment community have advised would-be investors to steer clear of them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?”
» Learn more: Is Bitcoin safe?
This price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?
You Dont Know Best Security Practices
Both the wallets and websites you choose to use hold sensitive personal information – do your best to keep it safe!
If someone compromises your accounts, then you can say goodbye to all of your funds. Take security seriously, and learn from those who have learned the hard way.
When using a wallet, hardware or desktop, be sure to:
- Avoid using Public Wifi
- Avoid using unsecured software/extensions
- Use strong passwords
One more important tip: do NOT use your daily email address when you navigate the crypto space. Use a separate one dedicated to your cryptocurrency investments.
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Best Exchanges For Selling Cryptocurrency In 2021
Cryptocurrencies like Bitcoin, Ethereum, Ripple, Dogecoin, or Litecoin can be sold on several exchanges back to the original source you deposited with, or you can exchange them into stablecoins like Tether .
Selling cryptocurrency can pose quite a problem to people who havent tried to previously. As mentioned, it is quite profitable to learn how to dispose of your digital assets yourself without needing an intermediary aside from the broker that you are using. The basic advantage of this is you can avoid the risk of losing your digital assets along the way or being scammed by third parties. It is also important if you want to gain the actual value of your crypto without large fees that affect your profits.
Here are some of the best exchanges to use whenever you are looking to sell your cryptocurrency for fiat:
The brokers/exchanges above are some of the most popular in the cryptocurrency industry. They are prominent and indispensable for millions of investors that clamor for seamless trading as well as effortless selling. Primarily, they are structured in a way that appears friendly to novice traders and virtually everyone with an interest in digital assets.
Beyond these, the majority of the above exchanges offer several methods of crypto-to-fiat liquidity via banking integrations, credit/debit cards, and secured peer-to-peer services.
What Signals Should I Look Out For
Countless things can affect the value of a digital currency. With how small the industry is and its relatively low liquidity, even a single news article can create dramatic movements in cryptocurrency spot prices. Twitter is filled with people either hyping up or spreading FUD about various blockchain-based projects in an attempt to influence the market.
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When You Should Buy Bitcoin
The most commonly sold online marketplace for Bitcoin is the Bitcoin market, the only verified marketplace for buying and selling bitcoins. The site has verified buy and sell operations from different cryptocurrency exchanges. It offers a user-friendly interface. Just select the one you are interested in, and youll be redirected to that exchanges homepage.
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our investing reporters and editors focus on the points consumers care about most how to get started, the best brokers, types of investment accounts, how to choose investments and more so you can feel confident when investing your money.
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What Is A Disposition
This refers to the way you get rid of something, such as by giving, selling or transferring it. In general, possessing or holding a cryptocurrency is not taxable. But there could be tax consequences when you do any of the following:
- sell or make a gift of cryptocurrency
- trade or exchange cryptocurrency, including disposing of one cryptocurrency to get another cryptocurrency
- convert cryptocurrency to government-issued currency, such as Canadian dollars
- use cryptocurrency to buy goods or services
Make The Best Choices Of Crypto Brokers & Wallets
Whether you like the idea or not, it is a fact that your brokers and the wallets you choose determine the safety of your funds in the cryptocurrency market. For instance, if you use an exchange that isnt secure enough, hackers could attack them and get to your assets the same goes for crypto-wallets. You should make good choices with the cryptocurrencies that you choose. These assets must have good use cases and have the potential for long-term growth.
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You Dont Prepare For Bull Markets
Do you believe the market is dead and the entire crypto industry will vanish away just because Bitcoin drops 40%? Of course not. These cycles happen, so dont be afraid to go against the crowd.
If you sold when you were in profits, then you should have fiat ready to invest in cryptocurrencies during bear markets.
Keep these funds available in your wallets and be ready to accumulate your favorite cryptocurrencies when everyone else in the market is panicking.
But, dont FOMO! Generally, bear markets can last for well over a year. If you buy the dip too early, youll end up losing a lot of money.
Bear markets should also give you plenty of time to find some altcoins worth investing in. So do not wait until the bull market is back – do your research in advance.
Is It Business Income Or Capital Gain
The income you get from disposing of cryptocurrency may be considered business income or a capital gain. In order to report it correctly, you must first establish what kind of income it is.
The following are common signs that you may be carrying on a business:
- you carry on activity for commercial reasons and in a commercially viable way
- you undertake activities in a businesslike manner, which might include preparing a business plan and acquiring capital assets or inventory
- you promote a product or service
- you show that you intend to make a profit, even if you are unlikely to do so in the short term
Business activities normally involve some regularity or a repetitive process over time. Each situation has to be looked at separately.
In some cases, a single transaction can be considered a business, for example when it is an adventure or concern in the nature of trade. Whether you are carrying on a business or not must be determined on a case by case basis. For more information, please review our archived content on an adventure or concern in the nature of trade.
Some examples of cryptocurrency businesses are:
- cryptocurrency mining
- cryptocurrency trading
- cryptocurrency exchanges, including ATMs
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How To Get Started
You can download Robinhood on iPhone and Android. After downloading, you will be taken to the main interface to see the current pricing.
Here, you can see the current digital currency prices. From there, you can click on any of the four colored icons in the top right corner. This will allow you to see the option you have chosen instantly.
Then, you can use the Robinhood app to set up an account.
Reporting As Either Income Or Capital Gain
Generally, if disposing of cryptocurrency is part of a business, the profits you make on the disposition or sale are considered business income and not a capital gain. Buying a cryptocurrency with the intention of selling it for a profit may be treated as business income, even if its an isolated incident, because it could be considered an adventure or concern in the nature of trade.
If the sale of a cryptocurrency does not constitute carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has realized a capital gain.
Capital gains from the sale of cryptocurrency are generally included in income for the year, but only half of the capital gain is subject to tax. This is called the taxable capital gain. Any capital losses resulting from the sale can only be offset against capital gains you cannot use them to reduce income from other sources, such as employment income. You can carry forward your capital losses if you do not have any capital gains against which to offset those losses for the year or any of the preceding three years.
For more information on capital gains, see Guide T4037, Capital Gains.
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Different Ways To Sell Your Crypto
One of the first Bitcoin transactions ever made was made on May 22, 2010. Known globally as Bitcoin Pizza Day, it is celebrated to remember the day Laszlo Hanyecz successfully bought two pizzas for 10,000 BTC around $80 at the time. Hanyecz made the offer on a popular Bitcoin forum and finalized the deal privately with a British man.
Besides how delicious those pizzas were, considering theyd be worth $200 million today, Bitcoins value isnt the only thing thats grown since 2010. Spending cryptocurrencies is infinitely more straightforward than it was a decade ago, and the number of platforms available that allow you to sell digital assets has skyrocketed in the last few years.
From direct trading to decentralized exchanges, crypto trading is a scorching hot topic, but the best approach isnt always entirely obvious. Where centralized exchanges offer reliability, liquidity, and fast order-matching, peer-to-peer exchanges provide anonymity, decentralization, and more control over your assets.
Things To Consider Before Investing In Bitcoin
Like any investment, cryptocurrency comes with risks and potential rewards. Compared to traditional types of investments, cryptocurrency is particularly risky.
Here are some things to think about before you invest:
- We dont recommend investing all your life savings on cryptocurrency
- Its best to see it a bit like gambling so only invest small amount of your disposable income
- Never invest more than you can afford to lose
- If you havent got much money left at the end of each month, its best to steer clear of crypto and focus on saving your money instead
Weigh up the pros and cons first:
Pro: Cryptocurrencies are global, meaning they have the same value in every country and no exchange rates.
Con: Cryptocurrencies are extremely volatileand very risky investment. People have also reported having to wait to get their cash out because of technical snarl-ups.
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Why Are Cryptocurrencies So Popular
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable
Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation
Other supporters like the technology behind cryptocurrencies, the blockchain, because its a decentralized processing and recording system and can be more secure than traditional payment systems
Some speculators like cryptocurrencies because theyre going up in value and have no interest in the currencies long-term acceptance as a way to move money
Remember To Stay Safe
Buying the best cryptocurrencies is not enough to be a successful crypto investor.
Countless promising investors saw their crypto journey end brutally because they did not pay attention to security.
If youre serious about investing in cryptocurrencies, put some effort into reinforcing your security.
- Read the ultimate cryptocurrency investment strategy guide I wrote about the 50 mistakes cryptocurrency investors make — many of them are related to security.
- Purchase a hardware wallet . Our favorite hardware wallets are the ledger nano s and ledger nano x.
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How To Invest In Bitcoin And Make Money
Like any investment, making money depends on what price you buy and sell an asset for. If you sell when its price is higher than you bought it for, you will make money.
If you sell for a lower price than you bought it for, you will lose money.
- If you had invested in bitcoin at the start of 2020 and sold on 31 December 2020, you would have made a 300% profit
- If you had invested in bitcoin at the start of 2018 and sold on 31 December 2018, you would have made a 73% loss
Bitcoin is extremely volatile so the trick is not to panic and crystallise your losses by selling when its value inevitably falls. This is the same with all investments.
You Still Don’t Know What Bitcoin Is
Your friend, kid, colleague, and neighbor have told you Bitcoin is the better than any term investment, but you still do not know what it is? Do you get a headache every time you try to understand blockchain? If the crypto market seems too complicated to handle, even for a short term investment, than it might be time to sell. If you cannot see the time high coming, there is no point in holding on.
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