Disclaimer: This is for informational purposes and is not meant to serve as financial or investing advice.
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What Should You Know Before Investing in Crypto?
When it comes to cryptocurrencies, or crypto for short, you should know what it is and how it works before deciding to invest.
In a nutshell, crypto is a digital currency that is internet based, meaning that it exists virtually and does not have a physical form like dollar bills and coins.
It was uniquely created by Satoshi Nakamoto, the unknown founder of the first cryptocurrency ever, Bitcoin (BTC).
Let's also add that in the creation of Bitcoin, the original intention was never to create an entirely virtual currency but rather to hedge against the recession of 2008.
Cryptocurrency uses blockchain technology, is secured by cryptography, and is transparent, decentralized, and immutable. This means that it is not regulatory to any governmental authority, making it immune to control, and each transaction is permanent and irreversible.
So why invest in crypto?
Crypto Is a High-Risk, High-Reward Investment
By definition, crypto follows a volatile nature, making it the leading reason why it is set apart from almost all of its other investment counterparts. Even if it is risky, it can be worthwhile.
As of late, digital assets have become a prominent diversification piece in the portfolio of all types of investors.
Due to its volatile temperament, crypto is considered extremely high risk, but almost all risky investments come with huge profitability margins.
Cryptocurrencies, like Bitcoin and Ethereum, have allowed investors to see massive profits in very short amounts of time.
Crypto Assets Are Taxable
Although in previous years, crypto was uncontrollable by any government entity, taxes were not being forced upon profits. Within the last few years, that has changed, and tax laws are now in place for cryptocurrency investments.
Since cryptocurrency is considered a digital asset, it is liable to taxes. In the U.S., taxpayers must report crypto sales, conversions, payments, and income to the IRS.
The IRS is now treating digital assets like they do in the stock market on stocks, bonds, and other capital assets. The money you gain from crypto is taxed at different rates, either as capital gains or income, depending on the time frame of your holdings and withdrawals.
Looking at how you used your crypto to understand if you owe taxes is essential.
Transactions that result in tax are called taxable events, and those that are not are called non-taxable events.
Some examples of non-taxable events include:
- Purchasing crypto with cash and holding it. You can incur taxes when you sell.
- Donating crypto to a qualified tax-exempt charity or non-profit.
- Receiving crypto as a gift. You can incur taxes when you sell.
- Giving a gift. You can give up to $15,000 per person per year.
- Transferring crypto between wallets to yourself.
- Staking ETH2 and receiving staking rewards is not yet taxable.
Examples of taxable events include:
- Selling crypto for cash.
- Converting one crypto to another — for example, converting Ether to Litecoin.
- Spending crypto on goods and services. For example, buying a coffee, you may owe taxes on that transaction.
- Getting paid as income.
- Receiving payment in the form of crypto for services rendered.
- Mining crypto, for example, Bitcoin mining.
- Earning staking rewards. Some coins that are popular for staking are Bitcoin (BTC), Ethereum (ETH), and Cardano (ADA).
Ultimately, you may not incur taxes if you are simply holding crypto in an account on a cryptocurrency exchange or in a secured wallet. Taxes are due when you sell your digital assets.
Cryptocurrency Is Not FDIC Insured
To sum it up quickly, cryptocurrency and all digital assets are not FDIC-insured.
According to the FDIC, there are concerns around crypto assets and crypto-related activities because they are rapidly evolving, posing risks that are not yet understood.
Any institution involved with cryptocurrency transactions and activities should know that there are high risks involving financial concerns, so the FDIC will not grant insurance.
What Are Some Ways To Invest in Crypto?
1. Buying Crypto
With more and more platforms launching crypto capabilities, buying crypto is relatively easy.
Along with our platform, you can purchase different cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), Solana (SOL), Cardano (ADA), stablecoins, altcoins, exchange-traded funds (ETFs), and more on most crypto exchanges, such as Coinbase or Binance, and even standard brokerages, such as Robinhood or Fidelity.
Once you browse through the crypto market and purchase your crypto assets, you have a few options on what to do with them. You can buy and hold, trade, and stake.
Buying and holding are ideal for newbies who want to make a good investment and dip their toes into crypto investing.
2. Mining Crypto
As a healthy mining network mines cryptocurrencies, there are ways to invest in mining crypto.
Crypto mining refers to creating a new cryptocurrency, which entails performing a specific process to create new crypto. Each new coin varies in method and computational operations.
In crypto’s early stages, global volunteers wanted to get in on the efforts and were able to mine crypto right from the hardware in their homes. Still, with the surge in the value of cryptocurrencies and the amount of computer power necessary to produce, whole companies were created and dedicated to crypto mining.
So now, instead of only investing in virtual currencies, you can invest directly in companies that solely mine crypto globally.
Five of these companies include:
- Ambit Mining: A crypto, cloud-based mining start-up.
- Canaan: A China-based company that sells crypto mining hardware.
- Envion: A crypto mining company that sells portable mining units designed for anyone and can be used anywhere.
- Genesis Mining: A cloud-based crypto mining company based in Iceland.
- HydroMiner: An green- mining company based in Austria.
3. Crypto Stocks and ETFs
Usually recommended by financial services, an alternative investment strategy to crypto investing for those seeking cryptocurrency exposure with less risk would be to invest in crypto stocks and ETFs.
As we mentioned earlier, ETFs are exchange-traded funds.
Without purchasing crypto coins directly, you can invest in other ways, such as:
- Invest in stocks of companies that are holding cryptocurrency. Some popular stocks that hold cryptocurrency are Coinbase Global (COIN), Robinhood Market (HOOD), PayPal (PYPL), and Tesla (TSLA).
- Invest in exchange-traded funds (ETFs) like ProShares Bitcoin Strategy (BITO).
- Invest in blockchain technology or mining companies like Genesis Mining and HydroMiner.
4. Invest in Blockchain
Investors considering a stake in future-proof industries are often attracted to investment objectives like blockchains.
Since it is associated with cryptocurrency directly, there is still some risk, but it varies. Some of the ways to invest in a blockchain include:
- Entering into cryptocurrency presales. This allows investors to acquire a digital asset at its earliest life cycle stages. This benefits investors due to purchasing at lower price points and gaining profits on upward price momentums.
- Invest in utility tokens. Tokens with a robust utility tend to fare best long term compared to tokens with little- to no utility backing. The best tokens to invest in are those that have real-world impact and provide value to their users.
- Invest in blockchain stocks. With the growing number of blockchain companies worldwide, investing in their stocks is a good idea, as many have to perform very well.
- Invest in blockchain games. One of the most promising applications of blockchain technology is the emergence of blockchain games. This is still a new concept, but there is money to be made so early on.
- Invest in NFTs. NFTs are non-fungible tokens and have blown up in popularity over the last few years. Being recognized and utilized by creators, brands, and projects worldwide, NFTs have proven to be a staple in the portfolios of seasoned investors.
Other common ways to invest in blockchain technology are to stake your cryptocurrencies, earn interest on your crypto holdings, participate in yield farms, start mining yourself, participate in IDOs and become a liquidity provider.
In all honesty, the possibilities and opportunities are endless.
What Are the Advantages of Investing in Crypto?
Get in on the Future’s Technology
It is no lie when we say that cryptocurrency is the future of technology. With the rise of the internet, remote work, digital transactions, blockchain technology, crypto mining, and the utmost privacy, investing in the future has never looked better.
Now, with automated crypto investing, as a service we provide, you can easily invest in the future without having to do the heavy lifting.
Possibility of Massive Profits
Yes, cryptocurrency is wildly volatile, but that same risky environment breeds the possibility of massive profits.
You can see immense profits not only by buying and holding crypto but also by leverage trading.
With leverage trading, you can borrow significant funds on margin and use that to multiply your trading position, which can yield tremendous gains, much more than trading with your own money.
Many Investment Options
As outlined above, there are numerous ways to invest in cryptocurrency. You can directly purchase or trade crypto on a cryptocurrency exchange or go through a broker-dealer, who can further explain the financial products available to you through their brokerage.
What Are the Risks Involved With Crypto Investing?
Along with the many advantages of crypto investing, many risks are also associated.
By now, you know that the cryptocurrency market breeds high volatility. This deters many investors because they can lose money just as quickly as they can gain it.
Security Risks and Scams
Since the cryptocurrency world lives on the internet, it is highly susceptible to security risks such as hackers and scams. Make sure to secure all passwords to accounts, and for added security, you should regularly transfer your purchased crypto onto a crypto wallet and keep it on an external hard drive.
Is Crypto a Good Investment for You?
With all things considered, cryptocurrency investments may be an excellent choice.
There are many ways to invest in crypto and avoid the speculated “risks” involved.
Cryptocurrency is the digital asset of the future, and it is not likely to go anywhere.
The Bottom Line
Investing in cryptocurrency can be done in numerous ways. Besides investing directly in virtual currency, you can invest in stocks, ETFs, blockchain operatives, NFTs, and more. The possibilities are endless, and they won’t stop there.
So, what are you waiting for? At Pluto, we provide automated crypto investing in growing your digital assets without too much effort. You provide the funds; we provide the strategy. Check out our YouTube channel and apps today.
What Is Cryptocurrency? |CoinDesk
Understanding crypto taxes | Coinbase
FIL-16-2022: Notification of Engaging in Crypto-Related Activities | FDIC
Commission-free Stock Trading & Investing App | Robinhood
Retirement Plans, Investing, Brokerage, Wealth Management, Financial Planning and Advice, Online Trading | Fidelity Investments
Five Great Investment Opportunities in Crypto Mining | Bitcoin Market Journal
Envion is Bringing Mining to the Source in Mobile Containers | NewsBTC
Best Cryptocurrency Stocks for 2022 | The Motley Fool
How to Invest in Blockchain in December 2022 Business 2 Community