Cryptocurrencies have been steadily rising over the past few years, and for this reason, many people are looking to invest in them. While this can be a great way to build your wealth, it’s important to remember that, like any type of investment, there are risks involved. One of the biggest risks is losing your money if the currency crashes.
In this article, we will discuss nine rules to remember when investing in cryptocurrencies.
1. You Need to Set Up an SMSF for It
If you want to invest in cryptocurrencies through your superannuation, you will need to set up a self-managed super fund (SMSF). This type of fund gives you more control over your investments, but it also comes with more responsibility. Only when you have set up an SMSF can you get into SMSF investing in Bitcoin and other cryptocurrencies.
2. Understand the Risks
Before you invest in any cryptocurrency, it’s very important to understand the risks involved. Cryptocurrencies are a highly volatile asset class, and prices can fluctuate wildly. This means that you could lose all of your investment if the price crashes.
3. Accurate SMSF Crypto Reporting is Absolutely Necessary
When it comes to SMSFs and crypto, accurate reporting is essential. This is because the Australian Taxation Office (ATO) requires that all assets held in an SMSF be reported on the fund’s annual return.
4. You Need to Invest for the Long Term
Cryptocurrencies are a long-term investment, and you should not expect to see any short-term gains. Prices can fluctuate wildly in the short-term, so it’s important to have a long-term outlook when investing in them.
5. Diversify Your Portfolio
Be sure to diversify your portfolio. This means investing in a variety of different coins and tokens to mitigate the risk of losing all of your investment if the price of one currency crashes.
6. Staking Coins Are Allowed
If you’re looking to earn some passive income from your cryptocurrency investments, staking is a great option. This involves holding coins in your wallet to help secure the network and earn rewards.
7. Use a Reputable Exchange
When buying and selling cryptocurrencies, it’s important to use a reputable exchange. There are many exchanges out there, but, of course, not all of them are created equal. It would certainly help to do some research before choosing an exchange.
8. Never Invest More Than What You Can Afford to Lose
Cryptocurrencies are a risky investment. A good advice is to invest only what you can afford to lose. This way, if the price does crash, you will not be left in financial ruin.
9. Have an Exit Strategy
Before investing in any cryptocurrency, you should have an exit strategy in place. This will help you sell your investment if the price starts to crash and it will also help you take profits if the price goes up.
Conclusion
Following the simple rules above will help you to avoid some of the pitfalls associated with investing in cryptocurrencies. So, if you’re thinking about investing in this new asset class, be sure to keep these rules in mind.