In business, there will always be losses. Cryptocurrency markets are no different. Losses are frequent here. However, with a bit of effort, you can avoid these losses. Here is how.
#1 Keep Your Wallet Private
You don’t want to share your wallet address with anyone, especially not publicly on social media. That includes the people you know and trust. If someone gets ahold of your public key, they can see all of your transactions and balances, which is a huge security risk.
Similarly, if someone gets ahold of your private keys (which may or may not be stored on an exchange), they will have full access to all of your coins in that wallet. It is also vital to make sure that no one has access to any device that stores private keys or passwords for cryptocurrency wallets. And finally, never give out personal information such as phone numbers and email addresses when it isn’t necessary!
#2 Diversify
The first and most obvious thing you need to do is diversify your portfolio.
If you have one cryptocurrency in your portfolio, then that’s all that matters—and it is all that can matter. That single coin will either go up or down by a significant amount, and there’s nothing you can do about it. If it goes down, then you’re on the hook for the loss because of how much of your money was tied up in the investment.
But suppose instead that you spread out your investments among many different coins and tokens. Now, what happens if one of them goes belly-up? Well, if it does happen to fall sharply in price (which hopefully doesn’t happen often), then only a fractional portion of your overall investment will be affected. That will help keep losses manageable compared with what could have happened had everything been tied up in just one currency at any given time!
#3 Understand the Income and Tax Implications of Fiat Conversions
If you make money by selling cryptocurrency, the IRS considers it income. Capital gains taxes are calculated based on how much time has elapsed since you first bought the currency. If a year or less has passed, you report your earnings as ordinary income and pay a flat rate of 20%. If more than one year has passed, your capital gains tax rate is based on your ordinary income tax bracket.
For example: Let’s say that in January 2019 you bought 1 bitcoin at $20,000 and sold that same bitcoin in March 2019 for $30k (a 50% profit). That would mean the capital gain would be $10k ($30k – $20k). Because this was your only cryptocurrency transaction last year, the capital gain would be taxed at 20% instead of the regular 23% marginal rate because you qualify as an individual taxpayer under current law who earns less than $38k per year in unearned income.
#4 Never Sell Too Soon
It’s tempting to sell your investment as soon as you see a profit, but it can be tough to predict which coins will go up and down in cryptocurrency value. You might be able to sell at $2,000 each for a coin that is worth $5,000 today. But if the cryptocurrency prices go up tomorrow and it is now worth $10k per coin, you’ve missed out on substantial gains by selling too early!
Don’t sell until after your initial investment has reached its full potential (and preferably further).
#5 Research Before Investing in ICOs
Understanding the company and the team behind an ICO is a huge step in avoiding scams. You should be able to find information about them on their website, LinkedIn pages, Twitter accounts, and more. The more information you have access to, the better idea you’ll have of whether or not they’re legitimate.
You’ll also want to research the white paper itself. If you’re investing in something like Ethereum or Ripple, it might not make sense for them to release their white paper. That is because these are already established projects with plenty of information out there (although some companies do). But if it is a newer project that is just starting up and has no other information available yet besides its website—this is where doing your due diligence comes into play!
#6 Stop Investing Money You Cannot Afford to Lose
One of the best things to do to protect your money is to avoid investing anything you need shortly. You should never invest money that will be needed for a crucial purchase or bill, like a mortgage or car payment. That also includes putting money into cryptocurrency trading if you have other expenses coming up, as it could cause financial problems for you down the road.
As long as you stick to these points, you do not have to worry about losing money in the crypto market.