Bitcoin is the most user-friendly cryptocurrency. Earnity CEO Dan Schatt believes it’s easy to get lost in the weeds, especially for beginners. There’s also a lot of unregulated risk in crypto, so you can get into trouble if you’re not a seasoned buyer. Therefore, if you’ve recently added cryptocurrency to your portfolio or are considering buying for the first time, here are five things to consider.
1. Improve Your Crypto Knowledge
You have a small amount of Bitcoin and Ethereum. Dan Schatt of Earnity advises doing your research before moving to more advanced crypto purchases. It may take time to gain the knowledge you need to decide.
If you don’t know what you’re buying, that’s a good sign you shouldn’t be dabbling in some of the smaller altcoins. But, if you’re interested in staking, mining, or crypto liquidity pools, the same advice applies. You should avoid buying in something you do not fully understand.
2. Keep Taxes in Mind When Trading Crypto
Taxes are another consideration for new crypto buyers. For example, suppose you purchased and sold Bitcoin, Ethereum, or any other cryptocurrency in 2021. In that case, you must report any profits or losses to the IRS during this year’s tax season.
It could be simple to account for crypto in your tax return if all you did was buy and trade cryptocurrency on online exchanges. Many free software programs can assist you in calculating your capital gains and losses and generating the cost basis for your crypto trades.
However, it becomes more complicated as you become more active. For example, suppose you engage in daily trading or crypto mining. In that case, you may need to consult with a tax professional who is familiar with the tax code related to digital currencies and has experience reporting cryptocurrency gains and losses.