5 Things to Do Before You Invest in Cryptocurrency
In the last few years, cryptocurrency has become increasingly popular. Cryptocurrencies are a digital asset, payment system, and in some exceptional cases, even legal tender. There are always new applications being thought up for them. Many new companies and exchanges have emerged in India to cater to the growing demands for cryptocurrency.
Currently, thousands of different cryptocurrencies can be bought and sold online. Most people are familiar with Bitcoin, Ethereum, Cardona, Dogecoin, Tron, and Ripple. Bitcoin was the first and is still the largest virtual currency, with a market cap roughly 40% larger than all other cryptocurrencies. Bitcoin, the first Cryptocurrency, was created in 2009, making this decade-plus long.
Before putting your money into cryptocurrency, consider these five points.
To establish decentralised networks, cryptocurrencies rely on blockchain technology. Blockchain was designed to guarantee the authenticity of financial transactions. Because of their decentralised nature, cryptocurrencies are not managed or governed by any central authority.
The term “crypto” is used to describe a specific type of digital asset built on a network shared by many computers worldwide. Because of their decentralised nature, governments and other authorities cannot regulate them.
Several governments and central banks are currently debating the best way to regulate cryptocurrencies while still allowing them to function as a medium of exchange, investment, or technological advancement. It’s important to remember that only a handful of countries have banned cryptocurrencies, which suggests that people everywhere realize that cryptocurrencies may be the new normal to which they’ll have to adjust.
- Nature is speculative.
Some economists and analysts see cryptocurrencies as a fad because of their immaturity.
However, some in the financial industry worry that the advent of cryptocurrencies will lead to the collapse of the current financial system and the introduction of a new transaction system. Only the strongest Cryptocurrencies may remain after this market crash. Numerous facets of Cryptocurrencies, including their practicality, need to be better understood. While some people view it as currency, others as a means of payment or exchange, and still others as a means of joining or contributing to communities, the vast majority view it as a form of speculation.
A cryptocurrency is not tied to any physical commodity. For instance, a stock’s value is affected by factors such as the company’s performance. Only speculation can increase or decrease the value of a cryptocurrency. The value of bitcoin is predicated largely on expectations of its future growth. Cryptocurrencies have been in a bubble as a result.
- Extremely volatile
The speculative nature of blockchain-based investments like Bitcoin makes them highly volatile and hard to predict. The value of cryptocurrencies fluctuates wildly. They are traded around the clock, every day of the year, and often by unknown investors who can manipulate the market due to a lack of oversight.
We need more data to say what causes price increases or decreases. Regulatory action in any country often has the effect of lowering prices. The cryptocurrency market is even more volatile than the stock market. If a stock index drops by 10%, it will send shockwaves through the market. However, 10% swings are a daily occurrence on cryptocurrency exchanges. In the same way that a sudden upswing can boost your bank account, a sudden downswing can wipe you out financially.
The value of Bitcoin, the first and the largest cryptocurrency today, has fluctuated wildly over the past few years. Bitcoin’s value has fluctuated over the past few months due to uncertainty in macroeconomic and geopolitical factors.
Bitcoin prices have dropped below $30,000 as of May 27, 2022. Cryptocurrency values have plummeted in response to the recent market downturn. If you don’t have the financial wherewithal to withstand extreme volatility, you should avoid investing in cryptocurrencies.
- Susceptible to cyberattacks
Even though cryptocurrencies are built on the blockchain’s extremely secure technology, they may still be susceptible to cyber threats. Bitcoin and other cryptocurrencies may be secure on a blockchain, but the exchanges that facilitate their trading do not use the same technology. That leaves them open to all sorts of cyber threats.
Fraudsters use social media impersonation and spoofing to trick victims into handing over credentials to their cryptocurrency wallets. Many cryptocurrency investors have lost money due to hacks that affected major cryptocurrency exchanges.
Hackers could gain access to various parts of the virtual ecosystem, including cryptocurrency exchanges and digital wallets. When it comes to Bitcoin, for instance, numerous online exchanges have been compromised by hackers, resulting in the theft of coins worth millions of dollars.
As a result, many of the largest exchanges in the world are scrambling to put in place a framework and robust systems and protocols to protect themselves against cyber attacks in anticipation of impending cryptocurrency regulation that will make these fintech platforms liable for investor losses.
- Cryptocurrency Profits Are Taxed in India
Although these digital currencies are not yet regulated, any profits from trading them are still subject to capital gains tax under the Income Tax Act, just like gold. The Finance Minister recently announced a 30% tax on profits from selling digital assets that can only be used online.
Despite the high risks involved, the cryptocurrency market has grown in popularity since then and has provided instant profit to many investors.