- Date : 14/06/2022
- Read: 4 mins
Being volatile in nature, you need to have a solid investment strategy before you invest in crypto. Follow these five signs to figure out if you are ready to invest in cryptocurrency.
The growing popularity of cryptocurrency worldwide has influenced a lot of people to add it to their investment portfolios.
Numerous instances have shown that digital currency can quickly rise to prominence in the portfolios of many investors. At the same time, investors need to be continuously cautious due to crypto's volatile and unpredictable nature. It is so volatile that values can fluctuate even at the whims of Elon Musk.
Do you want to invest in crypto out of fear of missing out (FOMO)? No matter if you wish to get its short-term benefits or take advantage of its potential long-term rewards, it's important for you, as with any other investment tip, to know the right conditions to invest in digital currency.
Take a look at these five signs that you may not be ready to take the plunge right now
Scenario1: You put all cryptocurrencies in the same category
Although Bitcoin and Ethereum hold the majority of cryptocurrency shares, they aren't synonymous with all digital currencies. The reality is that you will find thousands of different digital coins to add to your portfolio.
So, it's essential for new investors to develop a sense of how the world of digital currency works. Take time to look beyond the biggest names, such as Bitcoin, Ethereum, and Ripple.
In addition, one should explore blockchain technology to get some ideas of how the digital currency world works.
Scenario 2: You don't have a solid emergency fund in place
In simple terms, don't buy cryptocurrencies unless you've a solid plan for emergencies. In the volatile world of crypto (even more volatile than the stock market), you'll always have the chance of losing money, especially at the beginner stage.
Now, here is a question – how much to save for your emergency fund? There can be an open debate on this topic. Make sure that you've enough money to cover your essential living expenses for three to six months, along with medical emergencies. And, when we say enough money, we mean liquid cash in an accessible savings account.
This ensures that if you face any financial need for money, you won't be left with no choice but to unload some digital tokens when the markets are down.
Scenario 3: You haven't strategised a general investment plan
Are you one of those who is considering incorporating cryptocurrency into their personal investing strategies? If so, you may not be ready yet to invest in cryptocurrency.
According to financial experts, along with emergency savings, you should have a conventional retirement plan in place. Moreover, there shouldn't be any high-interest debt before you start buying such digital assets.
Of course, there could be a high chance of making a lot of profit with crypto, but you can't ignore the risks and drawbacks related to this investment. Only when fundamentals are in place, and you know what you are saving for, should you consider investing in such a speculative asset.
Scenario 4: You haven't analysed the risks
The term 'risk-free investment' is a myth, as all investments come with some risk. But, when you are going to invest in crypto, you should be prepared for some unique risks. There are some long-term and short-term risks associated with each coin, and it's tough to predict the longevity of such risks. Hence, before you take the plunge or think about building a retirement plan with crypto investments, you must think twice after reading up on all the risk factors.
Also Read: Five Retirement Planning Blunders to Avoid
Scenario 5: You don't understand the tax consequences of crypto in India
Countries like the U.S. consider crypto as property, not currency, which can be taxed. In India, the scenario is different. Of course, crypto currencies aren't as regulated as banks or stocks. But, if you are investing in it, you are required to report its capital gain and pay tax on it.
Crypto is still not legalised in India, but you can't escape taxability. It has been announced that any income from such virtual assets would be taxed at a rate of 30 per cent beginning 1st April 2022.
Before you invest a significant amount in any such digital currency, spend hours researching its tax liability to avoid future risks.