Investing in cryptocurrencies is a highly speculative activity and requires in-depth knowledge. Whether you are an individual or a business, the cryptocurrency market is constantly changing, so there are many things you should know before putting your money into it. Here are some valuable tips from experts in the crypto exchange market.
It requires diversification
If you are considering diversifying your OKX crypto exchange portfolio, you should consider these tips. The first tip is understanding that crypto is fractional, meaning you can buy fractions of Bitcoin and ETH. While this isn’t a guaranteed strategy, it’s still an option.
When considering diversification, consider choosing assets that don’t have a high correlation. For instance, if you’re worried that a single investment will make you poorer than another, it’s probably not worth it. Ideally, you’ll want a correlation between your crypto and the stock market of at least 1%. This way, you’ll get the same long-term returns with lower volatility.
It is a volatile asset class
Cryptocurrency, or cryptocurrencies, is a volatile asset class. The market value of cryptocurrencies reached an all-time high in November 2021, when bitcoin hit US$68,000. At that time, the total market value reached almost US$3 trillion. Since then, however, cryptocurrencies have experienced a sharp fall in price. Since then, most cryptocurrencies have dropped more than 70 percent, with bitcoin currently trading below US$18,000, a price below its all-time high.
Traders are drawn to the volatile price potential of cryptocurrencies. Many hottest projects feature high volatility daily, which is ideal for active traders. In addition, some of these volatile coins are appropriate for scalping strategies, which involve opening and closing trades within minutes. When done correctly, this strategy can be highly profitable. Investors who prefer to stick with stocks and bonds may also find these volatile cryptocurrencies attractive. However, volatility in cryptocurrencies is usually lower than the returns offered by other asset classes.
It is taxed in the United States
If you are using cryptocurrencies in your business or personal life, it is important to understand how to report these transactions and pay the correct taxes correctly. Many companies accept crypto as payment, and this type of payment is considered taxable income. It is important to remember that the dollar value of the crypto is determined by the digital currency’s fair market value on the day you receive it.
To calculate the correct amount of tax due, you should know how to determine the cost basis of your cryptocurrencies. Generally, you should use the FIFO method. It assumes that you buy and sell coins in the order they were purchased. You must also keep detailed records of your transactions using these cryptocurrencies. You can report this information on your Form 8949 or your 1040.
Investing in cryptocurrencies
Bitcoin and other cryptocurrencies have gained significant mainstream popularity over the past several years, but the risks involved are considerable. Since cryptocurrencies are not legal tender and have limited operating histories, they are highly speculative investments and should only be considered by sophisticated investors. Moreover, there is a significant chance of losing money, and investment fees may be considerable. And because any government does not back the value of cryptocurrencies, they are far more volatile than traditional flat currencies. The price volatility of cryptocurrencies is driven by supply and demand. While a certain level of stability is associated with the crypto market, it is essential to remember that this volatility is entirely unrelated to intrinsic value. As a result, investment professionals recommend a balanced approach to cryptocurrency investing.