How do you start investing in cryptocurrency?
When the first transaction was born on January 3, 2009, no one could realize the enormous impact that the cryptocurrency would have on the traditional financial market. Now that we are ten years later, there is already a select group that has accumulated wealth in trading with cryptocurrency. These people made their fortune when the cryptocurrency was only available to a select audience. Now that the cryptocurrency is also available to the general public, more and more people are interested in trading in this digital currency. Some people even take out loans to invest in cryptocurrency.
Cryptocurrency versus traditional money
Although the traditional currency and the cryptocurrency have much in common, there are also substantial differences. Where we can use traditional money all over the world to make payments, the cryptocurrency has many limitations in this area. And although there are more than 3,500 Bitcoin ATMs around the world, the cryptocurrency does not represent a regular payment method. The decentralized cryptocurrency lacks any form of regulation, which means that there is no basis for a stable value. With the cryptocurrency, we always have to deal with a limited amount that is not reproducible.
Cryptocurrency versus shares and bonds
In practice, you can actually compare the cryptocurrency better with shares and bonds, but here too there is a substantial difference. In fact, compared to the cryptocurrency, it can be said that shares and bonds are even reasonably stable. This whimsical character is part of the source code of the cryptocurrency, making them ideal for speculation. Investing in cryptocurrency entails more risks than trading in shares and bonds.
Another big difference is that the cryptocurrency is easily accessible to the general public, while shares and bonds are actually accessible to a select group of investors.
How can you invest in cryptocurrency?
Of course, we can start long discussions about, for example, the ‘hype’ with which the cryptocurrency is typed or the regulations regarding this digital currency. Anyway, the fact remains that people are currently making money by speculating and investing in cryptocurrency. To start trading with cryptocurrency you must first have access to a digital wallet where you can safely store your digital coins. For example, you can choose the Ledger Nano S if you are going to trade exclusively in Ethereum, the Coinbase if you are going to trade with Bitcoin or the StrongCoin if you are going to trade with different cryptocurrencies.
Just as with traditional shares and bonds, it is wise to make a diversity of investments. Based on market signals, background information and your own knowledge of the cryptocurrency, you make a conscious choice where you think the return is the highest. The trade within this digital currency is fairly extensive, so there are daily news and developments.
There may be a few annoying pitfalls that make you lose your hard-earned money quickly. Within the European Union, the cryptocurrency is exempt from VAT, so you are not entitled to a refund of the VAT on the costs incurred. An exception to this is the trade in cryptocurrency where the transactions are directed at locations outside the European Union. Because the Bitcoin has undergone such an enormous value development, the tax authorities have of course also become interested in this cryptocurrency.
Even though the trade in cryptocurrency is anonymous, you are still required to include it in your tax return. The value of the cryptocurrency is calculated based on the exchange rate on January 1 of the relevant year. The first 25,000 euros is exempt from tax, which means that you and your partner can keep the first 50,000 euros free of tax.
Invest and speculate
When trading in cryptocurrency, you only want to invest with money that you have left. Definitely do not break into piggy banks and do not use money that you need to be able to pay your daily costs. Remember that the value of the cryptocurrency is enormously erratic and that it is not regulated centrally, as is the case with traditional money. For example, if you have a total value of 2,000 euros in cryptocurrency today, this may be worth only 400 euros tomorrow.
Conversely, of course, exactly the same applies because the 400 euros may suddenly be worth 3,000 euros tomorrow. Although the blockchain offers reasonable security, there are still cybercriminals who can take advantage of the naivety of owners of cryptocurrencies.
Basic rules in crypto trading
As far as we are concerned, a few rules apply to invest and trading in cryptocurrency that is extremely important. Ensure a healthy spread of your investments over at least five different crypto coins. Make sure you don’t panic and therefore lose your cryptocurrency. A dip in the rate simply happens and is actually also healthy for the development of the relevant cryptocurrency.
We expect that crypto coins generally only gain in value in the long term. Trading in the short term can quickly yield a small profit, but you can easily lose that profit because you had to invest in another cryptocurrency. The fourth rule that is important relates to trading in crypto coins themselves. Realize that the trade-in crypto coins is not an obligation, but an opportunity.
Another rule that can yield a lot of returns in practice is the value-volume ratio of crypto coins.