If you have been thinking about purchasing bitcoin, or other cryptocurrencies, since the pandemic started, you are not the only one that who given some thought to the idea.Crypto sales have been rising since the economies around the world started experiencing inflation and declared a state of recession. As bitcoin and cryptocurrencies are practically immune to economic and political circumstances, they have become the new Mecca for beginners and experienced shareholders.
However, everyone should understand that no investment promises risk-free profit, and the same thing goes for cryptocurrencies. That is why every potential crypto investment needs to have a lot of prior research. To shield oneself from possible error, we will highlight some vital precautionary measures/advice that one should take before buying bitcoin and other cryptos. Each advice applies to both bitcoin and other cryptocurrencies, even though bitcoin will be mentioned the most.
Advice #1 – Do Your Research
Probably the most important part before buying bitcoin is doing the necessary homework – research. Every investor should gain knowledge about what bitcoin is, how it works, what the potential flaws are, how it appears on the market and related things. Depending on the experience, research should be either more or less thorough. As bitcoin gained vast popularity back in 2017 when it experienced the biggest increase in the market, it drew most investors’ attention. Apart from them, individuals that had no connections to trading shares had taken their chances with cryptocurrencies. Without any knowledge, it is highly recommended to spend several hours on research prior to the purchase, as a fast and reckless investment can cost a lot, both financially and emotionally.
Advice #2 – Pay Attention to Crypto Volatility
Even though bitcoin and other cryptocurrencies are almost entirely resistant to the country’s affairs, their worth can change overnight, literally. Bitcoin’s volatility is probably one of the highest on the market and is highly unpredictable. For example, back in 2017, when bitcoin experienced its peak, the bitcoin value dropped to US$12,000 from US$19,000 within one week. Still, there are some recognized circumstances when bitcoin can rise or fall in its price:
- Bitcoin tends to behave differently due to supply and demand. When demand for investing in bitcoin is high, the price will usually go up, while in the situation of many bitcoin sales, it will likely go down in worth.
- If there are several positive news about bitcoin on the market, its value will likely go up due to the better acceptance. On the other hand, when the crypto regulation news emerges, bitcoin has a habit of decreasing on the market.
Some experts argue that bitcoin is not a store of value, though the example in China shows a different situation – the Chinese have made more investments in bitcoin due to the most recent trade war with the US.
Advice #3 – Be Wary of the Weekends
Bitcoin and other cryptos have shown a high possibility of being volatile on the weekends, and not in the right way. Many may see the crypto market open on the weekends as an advantage (mostly because traditional financial markets are closed during that time) but be cautious about the bitcoin volumes. The volumes are often lower during the weekends, which causes high bitcoin volatility. Due to that, it would probably be the smartest to stay off the market during this time and charge the batteries for the upcoming week.
Advice #4 – Avoid Impulse Purchases and Sales
Once you have taken all the necessary steps before purchasing and finally decided to invest in bitcoin, it is still recommended not to be impulsive. Whatever you choose to do, there is still a high chance that its worth will drop at some point in the future, and that is why impulsive sales should not occur. On the contrary, investors should not check any charts after purchasing for at least a day to avoid collapsing in this trap. If it is easier, consider trading on automated trading systems.
Advice #5 – Report Bitcoin Income
Times, when cryptocurrencies were not taxable, are long gone and are a thing of the past for most developed nations. Australia has already introduced a regulatory plan for all cryptocurrencies and has explained what is considered as crypto income, in detail. The leaked draft that the European Commission is planning to implement by the end of the month is also available and will affect the entire EU. Due to that, check how cryptocurrency gain is regulated in your country and act accordingly.
Advice #6 – The Timing Matters
Sometimes, bitcoin can act as a bubble. In the trading world, a bubble describes a quick rise and unexpected fall in price. As mentioned in Advice #2 above, situations like the one in 2017 have happened on numerous occasions. When bitcoin reached its peak, experts thought that there is no possible bitcoin bubble because it was believed that blockchain technology could not make that mathematically possible. However, the bubble burst though it did not break down for good. Since 2019, bitcoin has had mostly positive outcomes. That said, it is imperative to time all purchases and sales. A famous oil mogul, Paul Getty once said that investors should purchase when everyone else is selling and hang on until everyone else is buying.