Cryptocurrency is one of the largest growing industries in the world where people come in large majority to earn profits. Major currencies including Bitcoin, Dogecoin, and Ethereum being the hot buzzwords are driving the crypto frenzy nowadays. Novice investors are being drawn to the industry due to its quick process of earning profit regardless of it being a decade old. The Crypto market is a lot different from the stock market as it is not bound to any regulations. As a result, its value swings up and down every day. However, given the extreme volatility of these digital coins, here are some rules, which new investors must adhere to before investing in cryptocurrency.
Here are the rules of cryptocurrency trading for new investors you must Know:
Do not make big bets: Earning huge returns on your amount can be mouth-watering. However, it does have a negative outcome. It makes you greedy and carried away by the numbers. Earning a good profit, in the beginning, can lure you to bet a heavy amount. But remember that invest only what you are willing to lose. Earning profit in crypto is more of a luck game. Never put more than 2% of your overall portfolio in crypto. Moreover, if you are a new investor, make it a thing to bet a small amount, which does not cause you misery in case lost. Once you get familiar with the arena, read and understand about various coins and their value and prospects before you allocate.
Prepare yourself for extreme volatility: Crypto is a high-risk high-reward game. The best way to invest here is to learn about them. Before you start investing in the crypto market, prepare your mind to digest high volatility. It is kind of a luck game that can offer you huge profit or can snatch every reward seconds. According to the May crash report, an overnight fall of 70-80% can also be a possibility. Even a blue-chip like bitcoin can go down 48% from its April high of Rs. 50 lakhs. Invest in cryptocurrency only if you can manage the extreme variations and the implications of an investment going wrong.
Use secure platform: The industry has witnessed a steady rise in the number of users staking crypto to earn fixed interest or yield farming rewards. Staking is a practice where either the user blocks or hold his money in the cryptocurrency wallet to maintain the operations of a proof-of-stake (PoS)-based blockchain system. However, not every platform can be great for staking your cryptocurrency. The activity is accompanied by some terms and conditions which must be kept in mind while selecting a secure platform. Make sure to invest through an established and trustworthy platform so that your money does not get stuck due to regulatory setbacks or if the promoter company goes down.
Do not bet on tips without verifying: Misinformation can be a huge demerit even in the crypto industry. The crypto market suffers from a lack of accurate information. Most of the time investors rely on unverified information on social media which leads to the downfall. Most of the time, new investors fall prey to the self-styled crypto analysts who create WhatsApp groups to provide their pump-and-dump operations and charge a fee for them to use their tips. Before making any move, you must verify the information. In addition to this, always check the market cap and trading volumes of coins. A low market cap and insignificant daily volumes are something you must avoid at any cost.
Do not ignore the tax: The income from crypto trading comes with a tax fee. It is advisable not to ignore even if the cryptocurrencies are not specifically mentioned in the income Tax Act. Income in any form from any source is taxable unless specifically exempted under the act. Cryptos must be treated as capital assets, as they are not considered currency by the RBI. When you invest in crypto, short-term gains are added to income and taxed at normal rates while long-term gains are taxed at 20% after indexation. However, the volume and frequency of trading also have an effect on the tax payable, which can lead to the income being treated as business income.