The world of crypto can be incredibly intimidating for newcomers. What on earth is a blockchain? What’s the difference between major coins? And how am I meant to keep my funds safe? Here, let’s take a look at four things every beginner should know.
1. Crypto is volatile
If you want to gain exposure to digital assets, it’s crucial to remember that they can be subject to wild price swings. After hitting dizzying heights of $68,789 in November 2021, Bitcoin crashed below $17,000 just a year later — a stomach-churning fall of 75%.
However, 2023 has led to an extraordinary rally, with the world’s biggest cryptocurrency appreciating by 160% over the year.
Other, smaller cryptocurrencies have witnessed comparable seesawing action. Because of this, you should only invest what you can afford to lose — and ensure that only a small portion of your portfolio is earmarked for digital assets.
Some experts believe your allocation shouldn’t exceed more than 5%.
2. It’s a long-term investment
Attempting to ride the market is a risky move. Purchasing BTC while plunging is akin to trying to catch a falling knife.
Meanwhile, piling in and making an investment when prices are surging means there may be little upside for profit.
One popular method for gradually accruing cryptocurrencies is dollar cost averaging. This means you purchase your chosen coins on a regular schedule — whether it’s a little every week, month, or quarter. Snapping up £50 of Bitcoin a month can be a more sensible strategy than amassing £600 in one go.
If you’re planning to join the five million British adults who have gained crypto exposure, you should treat it as a long-term investment of four years or more. This is typically the duration of a bull and bear cycle.
3. Security matters
After several high-profile exchanges went bankrupt in 2022 — including FTX — keeping any crypto you purchase stored on trading platforms is not recommended.
If they encounter financial difficulty, withdrawals could be frozen… and it may be months (or years) before you get funds back.
Hardware wallets allow you to keep your digital assets safe and secure on a device that isn’t connected to the internet. This can also reduce the risk of you falling victim to hacks and scams.
Your crypto will be secured by a seed phrase, and it’s essential to keep this safe. If you forget your bank account login, you can ring up to get a new one. But if you lose a seed phrase, your digital assets can be rendered inaccessible forever.
4. You’ll need to pay tax
Tax agencies around the world, including HM Revenue & Customs, are clamping down on crypto investors. If you sell coins or non-fungible tokens for a profit, you must pay capital gains tax.
For several years now, major exchanges such as Coinbase have been handing over information about their customers to HMRC — especially if those users receive more than £5,000 in crypto over the tax year.
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