Steps To Safely Dip Your Toes Into Cryptocurrency Investment
On Feb 28, 2022
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Those interested in cryptocurrency might use these suggestions as a starting point before plunging in headfirst in Cryptocurrency investment. Cryptocurrency appears to have captured the attention of the entire globe these days . Everyone is attempting to get in on the activity, from the wildly popular Coinbase Super Bowl commercial to A-list celebs like Justin Bieber and Gwyneth Paltrow accumulating NFTs. However, while it may be incredibly appealing, jumping headfirst into the unpredictable cryptocurrency market may be quite hazardous.
Before you dive in, here are three steps to safely putting your toes into the crypto pool.
First, ensure that you have a solid financial base
Before investing in cryptocurrency, be sure you have a stable financial foundation that can endure the risk, uncertainty, and potential loss that comes with it.
“The world of crypto is growing quickly, but it’s also essential to realize that cryptocurrencies are high-risk investments that may be incredibly unpredictable,” says Tony Molina, a CPA and senior product expert at Wealthfront, a robo-advisor investing platform. “First, examine your present savings, and then select what amount of risk you wish to accept.”
Aside from having an emergency fund or savings on hand, you’ll also want to make sure you’ve checked off a few other financial goal boxes, such as paying off high-interest credit card debt, which can eat away at any potential investing gains. You should also be contributing to a retirement account, such as an IRA, Roth IRA, or employer-sponsored 401(k).
Also, if your work offers a 401(k) company match, be sure you are contributing enough to meet the match before investing in cryptocurrency, as the match is practically free money. For example, if your business matches up to 6% of your pay, contribute 6% so you’re first double what you’re able to save before thinking about investing elsewhere.
Find the best cryptocurrency platform for you
Fortunately, there are various techniques available for beginners who are willing to take on the danger of crypto.
Traditional finance apps, such as Cash App, a peer-to-peer payment service owned by Block, Inc. (formerly known as Square) that allows users to buy bitcoin only, or PayPal, which allows users to buy four different cryptocurrencies: bitcoin, Ethereum, bitcoin cash, and Litecoin, make it simple to purchase cryptocurrency. Robinhood, a prominent trading app, enables users to buy seven cryptocurrencies, while SoFi, a personal finance service, allows customers to buy 21 different coins and crypto tokens through its app. These programs will not allow you to transmit your tokens to a cryptocurrency wallet that you control.
However, the above applications that enable crypto trading have a restricted variety, which may make purchasing crypto on a centralized exchange (controlled by a single corporation) more appealing. Coinbase, Gemini, and Kraken are among the most popular cryptocurrency exchanges. A centralized exchange provides investors with some insurance in the event of a cybersecurity compromise, regulatory clarity because they are regulated organizations, and assistance in asset protection. In exchange, you have a middleman between you and your assets, and your funds can be blocked or restricted at any time.
If you desire greater control over your crypto after purchasing it through a centralized exchange such as Coinbase, you may move your assets to a crypto wallet that you have more direct control over.
Trusts in cryptocurrency
“Those who wish to gain crypto exposure through a more typical brokerage account might look at crypto trusts,” Molina says. A crypto trust is comparable to any other financial trust, with the exception that it only stores bitcoin. For example, the Grayscale Bitcoin Trust lets you “invest” in bitcoin via a brokerage account.
Trusts are a wonderful alternative for individuals who do not want to monitor the security of their own cryptocurrencies and wish to pass on money from coins to loved ones later on. Wealthfront and other robo-advisors allow you to invest up to 10% of your account in these trusts to reduce risk.
Extend your investment horizons beyond cryptocurrency
Molina recommends allocating no more than 10% of your portfolio to cryptocurrency, and then using a longer-term passive investment approach for the remainder of your financial assets. “It’s critical to understand crypto as an additional component of your long-term investing plan,” he says.
Diversification guarantees that your risk is adequately spread out. This way, if the crypto market does suffer some volatility, you have more potential for other parts of your portfolio to profit to compensate for any losses.
To begin investing in cryptocurrency properly, be sure you have other financial goals that enable you to take on significant risk. You may then browse around for the best crypto platform for you, knowing that you will not spend more than 10% of your investment portfolio on buying coins.