Crypto Investing for Beginners: What to do & what not to do?
By Ankit Agrawal | Nov 22, 2023
Bitcoin, Ethereum and Blockchains are all terms that our generation is familiar with. Even without knowing their right meaning, we know that they are associated with cryptocurrency(crypto). Maybe you've seen it in the news, or a friend won't stop talking about it. But between all of this, you definitely would be wondering, "What the heck is cryptocurrency anyway?" Fear not, because we’re here to break it down for you.
Let's start with the basics. While stocks and bonds have existed for decades, cryptocurrency is a newer form of investment. Therefore, it is to forecast how a Reliance stock would change in the coming years compared to changes in Bitcoin. Now, you might be wondering, "Is investing in cryptocurrency worth the hassle?" The answer is, it depends. Here are some pros and cons to consider before making a decision:
Potential for high returns: Cryptocurrencies have seen significant growth in the past and have a potential for high returns in the future.
Decentralization: Crypto operates independently of a central bank, which means it is not subject to the same regulations and restrictions as traditional currencies. Therefore, its value is not impacted by political or economic decisions.
Diversification: Since it is a completely different asset class, it can act as a hedge when the rest of the market is falling.
Accessibility: You can buy and sell crypto from anywhere in the world, at any time of day.
Volatility: Crypto prices can be incredibly volatile, which means you could lose a significant amount of money if the market takes a turn for the worse.
Lack of regulation: Since cryptocurrency is not subject to the same regulations as traditional currencies, there is a higher risk of scams and fraud.
Complexity: Investing in cryptocurrency can be complex, especially for beginners who are unfamiliar with the technology and it is difficult to calculate its value to take an investment decision.
Tax: The Indian government imposes a 30% tax on gains received from investing in cryptocurrency with no exemption limit or adjustments against other losses. This makes the deal expensive.
In our opinion, trading in cryptocurrency is a decision that one should make on their own. You can make an effective decision by keeping in mind the pros and cons associated with it along with proper information, asset allocation and diversification for crypto. Even for the most aggressive investor, the maximum amount of investment in cryptocurrency should not exceed 5% of their total assets. This percentage only accounts for a small portion of your holdings, and gives you enough exposure to learn and explore a completely new asset class. Investments should only be made by people who can stomach a loss as the market is highly volatile and prone to major losses. For the brave-hearted who still wish to begin their crypto journey, these are the steps to consider-
Do your research: Before investing in any cryptocurrency, do your due diligence. Read up on the technology behind it, the team behind the project, and any potential risks. While doing your research, also make sure to understand the back story of the crypto coin. Find answers to questions such as – “What the business is, how stable it is and what does its future seem like”.
Choose a platform: There are a variety of platforms available for buying and selling cryptocurrencies, such as WazirX, Binance, and CoinSwitch. Choose one that suits your needs and has a good reputation.
Create an account: Once you've chosen a platform, create an account and verify your identity.
Fund your account: Most platforms will allow you to fund your account with a debit or credit card, or by transferring funds from your bank account.
Buy cryptocurrency: Once your account is funded, you can buy the cryptocurrency of your choice.
Remember, investing in cryptocurrency comes with its risks, so only invest what you can afford to lose. Cryptocurrency can be a great way to diversify your portfolio, but it's important to do your research and proceed with caution. Well, that’s it from our side! We hope this guide has helped you understand cryptocurrency. Happy investing!