What investors should consider when investing in cryptocurrencies!

What investors should consider when investing in cryptocurrencies!

Price gains in the partly three-digit range attract more and more private investors into the cryptocurrency world – coupled with the good feeling of supporting innovative technologies. Meanwhile, even the major US bank JP Morgan recommends its customers to invest at least a small part of their portfolio in cryptocurrencies. But there are some things to consider. The most important points at a glance:

How risky are crypto investments?
Especially in times of low interest rates and asset shortages, market analyst and crypto expert Timo Emden from the eponymous analysis house sees a trend: “Investors are taking refuge in cryptocurrencies as a supposedly safe haven.“

But this can prove misleading, he warns: “Basically, there is always the risk of a total loss.”Many experts therefore advise investors to invest only their “play money”, a sum at which they could live with a loss.

In addition, there are major differences between different cryptocurrencies: According to Emden, investors should ask themselves before an investment whether the company behind a coin is considered trustworthy and whether the cryptocurrency has a valid field of application, thus fulfils a purpose within the industry – and could therefore also be of value in the long term.

What else is there besides Bitcoin?
In addition to Bitcoin, ether is currently pushing itself into the foreground. The second – largest cryptocurrency has even performed significantly better this year and has risen by almost 350 percent-Bitcoin by around 90 percent. Ether futures and ether ETFs are already tradable. Ether is the digital currency of the distributed platform Ethereum.

The technology behind it functions as a kind of building block for other applications and is therefore more than a payment network. Currently, however, Ethereum is still comparatively slow and power-intensive. While an update is being worked on, other digital currencies want to rank Ethereum. Cardano wants to become the better Ethereum.

The means of payment for this is the Coin Ada, which has already gained more than 600 percent this year. Another Ethereum competitor is Polkadot, who wants to connect blockchains with each other. This is well received by investors, and the share price has risen by almost 300 percent so far this year. According to the industry platform Coinmarketcap, there are currently more than 9400 cryptocurrencies.

How safe are Trend-Coins like Dogecoin?
Many experts warn against investing in the cryptocurrency Dogecoin, originally conceived as a fun currency, which became known, among other things, through tweets from Tesla CEO Elon Musk. It looks similar to the Trend-Coin-safe moon, both recorded within a few weeks of gains of several Thousand percent.

“The risk of total loss is incredibly high. Investing in Dogecoin, or safe-moon, a trip to the Casino,“ says Emden. Patrick Hansen, blockchain eexpert of the digital association Bitkom, also warns: “With Dogecoin, the security of the network is not guaranteed in the same way as with Bitcoin or Ethereum, for example.“

In safe moon he even sees “Parallels to the classic Ponzi and pyramid systems”. Because besides the pure purchase and sale, the coin has no use for the industry. Overall, Emden advises against particularly small cryptocurrencies: “With small coins with a small market capitalization, it is enough to own a relatively small amount to influence the price. These coins are very vulnerable to manipulation.“

Where can I buy cryptocurrencies?
Crypto expert Elisa Spiess, founder of Femme Capital, which offers women’s crypto workshops for women, mentions three ways investors can buy cryptocurrencies. First, online brokers, some of which have now also included cryptocurrencies in their Portfolio.

However, these require fees, which are usually higher than with the second option: centralized crypto exchanges. “The three largest crypto exchanges are Binance, Coinbase, and Kraken”. Kraken is “quite simple and clear to start”, Binance although “somewhat more complicated structured”, offers however a larger selection of cryptocurrencies.

In general, Spiess advises to “choose a large crypto exchange that offers high liquidity”. The exchange should also have sufficient resources to guarantee users a high level of security. Kraken and Coinbase are based in the USA, Binance in Malta. Interested parties can also use German providers, for example the Berlin company Bitwala or the app “Bison” of the Stuttgart Stock Exchange.

Advanced users could also choose decentralized crypto exchanges as a third option, consisting solely of digital contracts on a blockchain: “Here, the user is always in control of his assets, and there is no longer a middleman or intermediary standing between the buyer and seller.“

Is it worth investing in a crypto exchange?
Those who prefer to invest in shares can, for example, invest in the US company Coinbase, which went public in April. “If you want to enter the crypto market but want to do so with manageable risk, an investment in Coinbase is certainly not a bad idea,” says Spiess.

Crypto exchanges earn at the fees of each individual trade-no matter which cryptocurrencies are bought or sold. “In this respect, the stock exchanges are not dependent on the success of individual assets.”Whether the investment pays off for investors in the long term, however, will still be seen. After a brilliant stock market start, the Coinbase share fell to currently around 280 dollars.

Do I have to tax crypto profits?
In Germany, all exchange gains are currently tax-free after one year. So if you invest in cryptocurrencies and want to take the profits a year later, you do not have to tax them – regardless of how high they are. However, anyone who owns cryptocurrencies for less than a year and resells them before the expiry of this period may have to pay taxes. Gains of up to a total income of 600 euros are also tax-free, those who achieve more must pay tax on the amount.

In any case, caution is required: the exemption limit applies to all so – called “private sale transactions” of an investor-not only to the cryptocurrencies.

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