Is the crypto market rebounding? Here’s What You Need to Know
5 min read
It was the first time in recent months that the crypto market surpassed $1 trillion in market capitalization (the total dollar value of crypto today). While the market looks healthier than it did a few weeks ago, it remains far from its peak last November, when it reached $3 trillion. Is crypto still a good investment in an economy with high inflation and recession risks?
Cryptocurrencies sank to pessimistic lows in 2018 after reaching bullish highs in 2021, the latest “crypto winter” that investors are calling. The $2 trillion crash wiped out investor gains, cost thousands of jobs, and completely wiped out eleven crypto tokens, including luna, which lost its value after stablecoin terraUSD crashed in May.
While crypto is beginning to trend upward, the crypto markets are characterized by volatile highs and lows — and skeptics have long viewed crypto as an empty bubble prone to burst. NFTs, stablecoins, and bitcoin have been decried by critics as digital versions of old scams. Digital coinage, however, is seen by investors as a step forward, as “Money 2.0” that will democratize finance and power the cyber world. Despite teetering sentiments and seesawing prices, cryptocurrency remains a risky, volatile, and controversial asset class.
An electronic token, a cryptocurrency, whose ownership is documented on a distributed ledger called a blockchain, is a digital token. According to theory, this should make it more secure, in theory. The two most widely known cryptocurrencies are bitcoin and Ethereum, but there are more than 18,000 different tokens that are traded (a famous example is a dogecoin).
Cryptocurrencies are seen by many as the next financial frontier despite gyrating prices and a relative lack of regulation. There is a growing desire from powerful governments and corporations to quickly legitimize crypto in a similar way to stocks and bonds, as evidenced by President Joe Biden’s desire to explore a digital US dollar.
You should consider whether cryptocurrency is a good investment for you… Especially in light of the current downturn and the possibility of a major crash (in crypto and in the US economy overall).
“The Financial Industry Regulatory Authority’s senior vice president for investor education says cryptocurrency is one of those investment categories without traditional investor protections. “As far as regulations go, they’re outside of securities trading. They’re outside of the realm of securities trading.”
Cryptocurrencies offer few safeguards, plenty of pitfalls, and an unproven track record, so investors shouldn’t bet more than they can afford to lose. Consider these five questions before adding crypto to your portfolio if you’re considering it.
What are the risks of investing in crypto?
It’s important to know that crypto investors are almost entirely unprotected. The problem lies in the fact that this virtual currency is extremely volatile and driven by hype. With Twitter, TikTok, and YouTube videos touting the latest coin, it’s easy to get caught up in the excitement — but the adrenaline rush can be wiped away with a dramatic crash.
Crypto scams should be avoided. It is common for scammers to use pump and dump schemes to encourage people to buy tokens and cause their values to rise. It is then that the scammers sell out, causing everyone else to pay a lower price. It is evident that these scams are prevalent, and in 2021, they took in more than $2.8 billion in cryptocurrency.
At present, you are on your own from the point of view of the US government. The government does not protect cryptocurrency deposits as bank accounts are. The government may be required to examine digital assets’ risks and potential benefits following Biden’s executive order in March.
In our research, only Breach Insurance offers crypto insurance: Crypto Shield, which promises to protect your account against hacking. Theft protection is also available from other companies, such as Coincover, which alerts you if your account shows suspicious activity. As part of Coincover’s insurance-backed guarantee, if the company’s technology fails, it will refund you up to the amount you are eligible for, depending on the wallet you use. There is no coverage for scams under Coincover or Breach Insurance.
Cesare Fracassi, the director of the University of Texas Blockchain Initiative, still believes crypto has a future in spite of all the hype, scams, and periodic crashes (and persistent risks) in this market.
“In Fracassi’s opinion, crypto may hold the key to solving some of the problems in the traditional financial sector. “I think crypto is a venue through which you can actually break the traditional financial system, which is noninclusive, expensive, and controlled by large institutions, including banks.”
How do I start investing in cryptocurrency?
In the current market, there is no guarantee that the market will recover if you’re considering buying crypto now, as prices have fallen. If you’re new to crypto investments, the easiest way to get started is to buy a cryptocurrency using a popular exchange like Coinbase, Binance, or FTX. Cryptocurrency can be bought and sold using a few well-known payment apps, such as Venmo, PayPal, or Cash App, though their functionality is generally limited and their fees are higher.
You’ll have to provide some sensitive financial and personal information whether you’re using Coinbase, Binance, Venmo, or PayPal… along with an official form of identification. (So much for bitcoin’s reputation for anonymous transactions.)
The process of transferring money from your bank into your account is simple once you have set up your account.
What percentage of my portfolio should be in crypto?
“For Fracassi, understanding whether a specific asset is good for a portfolio requires decades of returns. “As a result of observing the average returns of stocks and bonds for 60 to 100 years, we know that stocks return about 6% more than bonds.”
Investing in crypto depends on your risk tolerance, just like any other investment decision. Even those who are all-in on the technology should keep their exposure low, according to investment professionals. Cryptocurrency shouldn’t account for more than 3% of a client’s portfolio, says Anjali Jariwala, founder of Fit Advisors.
If I make money on crypto trades, do I have to pay taxes?
Yes. In fact, the IRS wants to know about everything you do with crypto, no matter if you’re buying, selling, or exchanging it. Tax liability for crypto investments varies according to your particular situation, but they generally follow the same rules as stock and bond investments.
If you didn’t sell or exchange crypto for another type of crypto, you don’t need to report it on your tax return. It is also not necessary to report buying and holding. Crypto gains or losses must be reported just as you would for stocks and bonds if you sold or exchanged crypto.
You won’t be able to simplify your tax return by adding crypto trades. Cryptocurrency holdings, sales, and transfers can now be tracked automatically using popular tax software such as TurboTax, CoinTracker, and Koinly.
Is there a way to learn about crypto without investing in the currencies themselves?
Cryptocurrencies can be experimented with most easily by buying tokens. It is also possible to explore the crypto world while potentially protecting your money from swings in the market.
Here are a handful of alternatives:
Buy shares of crypto companies. There are many publicly traded companies in the crypto space. You can benefit from the business proceeds of Coinbase Global or PayPal Holdings, which are fueled in part by crypto, by buying shares of these companies rather than the coin itself. The companies Nvidia and AMD make crypto-related hardware, which you can also buy shares of.
Invest in crypto ETFs or derivatives. Cryptocurrency exchange-traded funds, or ETFs, are available. An ETF is a basket of securities, such as stocks, commodities, and bonds that follow an index or sector, in this case, cryptocurrency. The crypto market also offers futures and options, though these advanced types of investment vehicles come with their own set of risks.
Get a job in crypto. There are thousands of crypto jobs listed on LinkedIn, Indeed, and Monster. Blockchain jobs are plentiful, regardless of whether you have a financial background or a software engineering background. A blockchain-focused job board can also be found at Cryptocurrency Jobs.
Crypto may be the right place for you to start your investing journey, but it isn’t the only one. Additionally, NFTs are a digital asset worth considering in addition to crypto. To keep your digital currency safe, you should invest in a good wallet if you decide to take the plunge.
