How to Invest in Cryptocurrency: An Easy Guide
Key Takeaways
Though not new in the investment market, cryptocurrency is gaining popularity for many reasons. Knowing how to invest in cryptocurrency can help you make the most of this digital currency and get the most out of your funds.
Keep in mind that crypto is not as strictly regulated as other investment avenues and is volatile, making it a risky option. One way you can manage this is by choosing the right cryptocurrency and implementing risk management strategies. Learn more about the why, what, and how of investing in crypto here.
Why Invest in Crypto?
Before understanding the steps to invest in crypto, here are a few reasons why you should consider this in your wealth-building journey:
High Returns
Cryptocurrency is a digital investment avenue that can give you great returns in the long run. For instance, a $100 investment in crypto in 2011 would have grown to $6 million in 2021.
Diversification
Cryptocurrency is a unique investment class and is not completely correlated to traditional stocks and bonds. This allows you to balance the overall performance of your portfolio.
Accessibility
One of the key answers as to why invest in crypto is that it is more accessible. Unlike traditional investment options, you can have fractional ownership while investing in crypto. So, you can invest conveniently in smaller amounts, like ₹100.
Innovation
The technology behind cryptocurrency is blockchain, which has the potential to revolutionise many sectors. By investing right now, you can have the front seat to witness these changes and the gains resulting from them.
Guide for Investing in Crypto
Although it is not a new avenue, the process of investing in crypto is not as well-known. Since it is a digital option backed by blockchain technology, it may be complicated for novice investors to understand.
However, with advancement, the process has become much simpler and you can now invest in crypto just as easily as you do in other avenues. Here are the simple steps on how to invest in cryptocurrency:
Key Points to Consider
Before you invest in crypto, there are a few things you should keep in mind to ensure that you invest safely and smartly. For those exploring cryptocurrency for beginners, understanding these basics is essential to maximise returns and minimise risks.
Invest in the Right Crypto
Choosing the right cryptocurrency is key to safeguarding your money. Do your research and understand the different types before making your decision. You should also not base your decision simply on market capitalisation or popularity. Consider your investment goals and timeline to decide.
Time Your Investment
Cryptocurrency is volatile. Given this, it is important that you monitor crypto market trends and make a decision accordingly. Since crypto exchanges operate around the clock, this helps protect your investment and returns. However, do keep in mind that you don’t make a hasty decision.
Maintain the Balance in Digital Wallets
Since cryptocurrency is a digital investment option, you need digital money to buy or sell it. You cannot use cash and, therefore, must maintain an adequate balance in your digital wallet and bank accounts. Also, ensure that the exchange supports your preferred payment mode.
Implement Solid Strategies
Risk management in crypto investment is crucial to protect your money as it is a volatile and unregulated investment option. Follow a strategy that is based on your risk tolerance and market trends. Here are some other tips to mitigate risk:
Investing in cryptocurrency can help you generate better returns and diversify your portfolio. Remember, choosing the right cryptocurrency and timing your investment is crucial to get the most from your funds.
Frequently Asked Questions
1. Is it safe to invest in cryptocurrency?
Cryptocurrency is not regulated like other avenues, such as stocks, and is volatile. As such, it is a risky option, but it also has the potential for high returns. You can implement strategies to manage the risk and keep your funds secure, like diversifying your investments and regularly reviewing your portfolio.
2. Which cryptocurrency is best for beginners?
When it comes to cryptocurrency for beginners, start with well-known and easy-to-understand options like:
3. How much money should I start with?
Experts suggest that you should not invest more than 5-10% of your total portfolio in digital tokens like cryptocurrency. So, if your total investment is ₹5 lakh, you should invest no more than ₹25,000 to ₹50,000 in crypto.
4. How do I secure my crypto holdings?
There are several ways to keep your crypto holdings secure. Some of these are:
5. Are there tax implications for crypto gains?
Yes. According to Section 115BBH, your profit from cryptocurrency is taxed at 30%, plus cess at 4%. In case of transfer of crypto, TDS will be levied at 1% as per Section 194S if the transaction amount exceeds ₹50,000 or ₹10,000 in some cases.