Cryptocurrencies are on fire right now, and the idea of investing into cryptocurrencies has fired up the imaginations of millions of people worldwide.
And with good reason. The House of Representatives is celebrating crypto. From the House Committee On Financial Services press release:
House Leadership announced that the week of July 14th will be “Crypto Week.”
To “celebrate” Congress is working on passing crypto legislation. Ian Hall with Global Government Fintech writes,
Three high-profile pieces of digital assets legislation are in line to be discussed by the House of Representatives during what US lawmakers have dubbed ‘Crypto Week’ […].
And to put icing on the crypto cake, bitcoin traded at a new all-time high over $120,000 for the first time.
It’s astounding to see, and it’s abundantly clear to me that crypto is here to stay while growing by leaps and bounds.
Which, of course, brings in wide-eyed newcomers to crypto investing.
As with any new investment venture, it’s important to know the dangers and the upside of what you’re considering investing in, so, let’s start by discussing the dangers.
Common crypto investing mistakes to avoid
The first thing to realize is that the “dangers” of cryptocurrency investing are, in reality, overwhelmingly problems of ignorance.
Too many people jump into investing in crypto without considering basic things such as steps that they need to take to protect themselves and their investment strategy.
Let’s start with the first thing to realize. Diversifying your savings with crypto is an investment.
It’s not a lottery. It’s not a magic ticket to a rocket ship to quick and easy wealth.
No, crypto is an asset. Which means that it is a method of storing wealth (and, ideally, increasing wealth as well).
Too many newcomers approach crypto with a lottery mentality. They think that they’ll “buy a ticket” and “strike it rich” from the equivalent of a $20 scratch-off from 7-11. But seriously, how likely is it that spending $20 on anything is going to instantly change your life?
No, that’s not the way that real investing works. And make no mistake: crypto investing is real investing.
So, if you come in with the “instant wealth” mentality, you’ll be disappointed. Regardless of what the Lambo bros post on TikTok.
If you think that things that show up out of the blue based on media hype, such as memecoins, are your best bet for crypto investing, you’re still thinking about it wrong. There’s a difference between speculation (buying to resell at a profit) and investing (buying in the hopes of long-term growth).
You need to think of crypto like an investor, not like a speculator. And the first thing that investors understand is this…
All investments have risk!
Crypto is no different. When you buy crypto (or any other asset), you take the chance that you could lose money. Remember, in investing, risk and reward are joined at the hip. So big growth potential also means big loss potential. Here’s the interesting thing.
That’s not a downside! As we’ve talked about before, volatility isn’t just a finance term. It is part of life itself. The thing is that volatility, the scale of price movements up and down, is the very reason that crypto can explode in price.
Therefore, volatility isn’t something to be afraid of. It is something to be understood and managed within your own personal risk tolerance. And that’s why long-term investors aren’t concerned with short-term fluctuations. They’re looking at the long-term, just as most of us should. (The exception here is when you’re near retirement – generally speaking, you should dial down your overall risk as your time horizon shortens.)
There’s another kind of risk in the crypto world – security. That can best be managed by relying on world-class protection. This is exactly why we at BitIRA focus on security for you:
- End-to-end insurance against hacking, embezzlement, theft, physical loss, damage or destruction
- Multi-signature authorization with backup protection
- Layered encryption
- Military-grade cold storage
- Even FDIC insurance on your cash deposits
There’s a reason we call BitIRA “The World’s Most Secure Digital Currency IRA.” I do not believe that’s an exaggeration!
All this means you can stop worrying about the safety of your assets and focus on the big picture.
So, how should new investors approach crypto?
This is one of the single most important questions to ask when coming to cryptocurrencies (or any investment, really).
And there are a few answers to this question, all of which you should do.
First of all, you need to decide if you want to take the plunge with lump sum investing (if you have the funds) into crypto or go with dollar-cost averaging. As I’ve talked about before, lump sum investing gives you the best possibility for bigger returns on your investment, but not everyone is able to do that. And if you can’t put a huge amount into an investment all at once, dollar-cost averaging is a great choice.
Second, you should diversify among more than one type of coin. Diversifying helps to mitigate risk, and that’s smart in any investment arena. This also means that it isn’t prudent to go all-in on one asset class, whether it’s crypto, gold or real estate. Concentration risk is often overlooked – diversify instead.
Third, don’t fall for FOMO; go with HODL. In other words, don’t make knee jerk reaction decisions based on fear of missing out (FOMO) or just plain fear. Instead, make your investment choices and stick with them for the long-term, or HODL (hold on for dear life). The HODL strategy historically gives you the best chance for the best returns on your investment.
The crucial fourth factor (too many investors forget about this)
The fourth thing that you should do when investing into crypto is to take tax law into consideration, and that’s one of the reasons that investing in a Digital IRA through BitIRA can work so well for you.
Like other IRAs, a digital IRA provides the benefits of being able to defer taxes (or, if you go with a Digital Roth IRA, take advantage of tax free profits). With a digital IRA, though, you can invest into cryptocurrencies using your retirement savings – so you get exposure to the growth potential of cryptocurrencies while outsourcing IRS compliance and record-keeping. Along with all the tax benefits of a Traditional or Roth IRA.
Your first step to making the right decision for you. Take advantage of our education-first approach to cryptocurrencies. You can begin your due diligence by getting our free Insider’s Guide to Digital IRAs now. Or, if you’re ready to get started today, you can open your Digital IRA online right now (anytime, day or night) in less than 10 minutes.
Never forget, our Digital Currency Specialists are standing by to answer your questions at (800) 299-1567.
