Did you get swept up in the cryptocurrency hype in 2021? If you didn’t, maybe you’re considering investing now. It’s not too late to reap big rewards with Bitcoin, Ethereum, or any of the “altcoins,” out there – including Doge – but crypto investments don’t come without risks.
It’s important to understand what you’re getting into before investing in cryptocurrency – or any other high-risk investment, such as meme stocks, for that matter.
Follow these steps to ensure you’re making the right choices for a solid financial future, and not just playing games with your money.
1: Evaluate Your Current Financial Situation
First of all, can you afford to put money into crypto? Considering that nearly one-quarter of American workers say they have no retirement plan — and no idea how they will meet expenses once they stop working — it’s wise to think about your other investment needs first.
Also, are you paying off high-interest debt? Take care of debt first or you’ll see your crypto gains evaporate with the interest you pay to credit card companies.
Finally, make sure you have at least three months worth of easy-to-access emergency savings socked away. In an emergency, you could potentially sell your crypto investments, but it may not be the wisest financial choice. On the other hand, there’s also the potential to lose your crypto investment. Online savings accounts offer yields as high as 0.6% or more, and you can get your money quickly in an emergency.
2: Create Your Investment Strategy
Find out your “why” when it comes to crypto. Do you want to buy now and sell at the first spike to cash in on your investment? Do you plan to hold coins as part of your retirement investment strategy? Keep in mind that tax laws surrounding crypto might change in the near future, so holding it for long-term gains might be a better choice if that happens.
On the other hand, no one is certain about the future of crypto. As with any investment, it should be part of a diversified portfolio if you’re saving for something as important as retirement.
3: Determine the “How” and the “Where”
Buying and selling crypto is a little different than trading stocks because of the technology involved. If you’re dealing in large amounts of money, you may want to consider “cold storage,” a digital wallet which stores your crypto on a physical hard drive rather than in the cloud. If you choose this option, make sure you don’t lose your password because these hard drives are virtually impossible to hack. You can’t just click a “reset my password” button to gain access.
Otherwise, you’ll want to select a reputable crypto exchange that is secure, has low transaction fees, and deals in the digital currency you want to buy.
Services like PayPal and Venmo now allow you to buy crypto through their service, but the options are limited to a few of the better-known coins — including Bitcoin, Bitcoin Lite, and Ethereum. For broader choices, look into exchanges like Coinbase.
4: Choose Your Crypto
The last question remains: What to buy?
While established currencies like Bitcoin and ETH may carry less risk, altcoins may deliver better returns in the short term.
“Altcoins offer an opportunity in that they have a much higher upside in terms of percentage gain,” CoinFlip chief operating officer Ben Weiss told U.S. News and World Report. He emphasized that many altcoins also carry greater risk, as many are here today and gone tomorrow.
You might choose an altcoin because its value proposition fits your personal philosophy or because it has historically performed well. Weiss advises to perform due diligence before taking on any investment, but especially with something as new and experimental as altcoins. “A worthwhile altcoin to invest in should provide a service that you believe is unique to that particular token,” he told U.S. News.
Take a look at some of the altcoins with both staying power and higher market caps. Some altcoins, like Doge, are beginning to gain credibility in the market. For instance, Dogecoin jumped 15% when Tesla CEO Elon Musk announced that the electric vehicle manufacturer will only accept Doge for the purchase of a few novelty items in its online merchandise shop.
On the other hand, if you’re looking for an easily accessible coin you can hold for the long term, Bitcoin and ETH are worth exploring.
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