Steer clear of blunders in cryptocurrency investment: Here are the top three errors you ought to absolutely dodge
Riding the Crypto Wave:
Jumping on the cryptocurrency bandwagon has become a trend! Back in the day, Bitcoin and its peers were often tied to illegal activities and were looked upon skeptically by governments. However, times have changed, and now, companies and even governments are embracing digital currencies. The growing acceptance, along with the escalating Bitcoin price in euros, has attracted numerous new investments. But, as a newbie, mistakes are easily made.
Panic Selling - A Recipe for Losses
Suppose you hear from source X that Elon Musk is dumping all his Bitcoins, or Ethereum plummets by 35%. The result? New market participants would likely sell off their cryptocurrencies in a frenzy. Remember the catchphrase: "Sell all of your cryptocurrencies as fast as possible, before I lose everything!" While a natural response, historically, it hasn't been a wise choice.
The values of cryptocurrencies can go through wild fluctuations. However, remember that the media has portrayed Bitcoin and other digital currencies negatively for years. Many times, they have declared it defunct, only to see the price skyrocket later. Examine past price charts to see for yourself. And here's a pro tip: A loss only occurs if you sell the cryptocurrencies for a poor price. Be patient.
Attention: We're referring to major cryptocurrencies such as Bitcoin or Ethereum here. Trivial altcoins with a minuscule market cap or even memecoins should be watched separately.
Knowledge is Power - Conduct thorough Research
Has this ever happened to you: A good friend tip you off about an amazing cryptocurrency, swearing it's going to soar in a few months? You take their word for it and invest all your savings in the digital coin. A couple of months later, the coin turns out to be a dud, and poof—your money is gone. In such a case, the saying "A well-intentioned tip could cost you" comes to mind, and that's painfully true for you.
So, never rely solely on investment advice from others. Of course, that person means well and might have invested themselves. But, we're human, and we make mistakes, especially when navigating algorithms, blockchain, and numbers in the crypto sphere—in other words, being new to the game. So, self-educate yourself before investing in individual cryptocurrencies.
Day Trading - A Stealthy Tax Trap
In theory, cryptocurrencies are long-term investment vehicles. Many experts predict a massive price surge for major cryptocurrencies in the future. Yet, there will always be individuals who engage in day trading—buying at a low price and selling when the value goes up.
The issue here lies with the German tax office. Essentially, there is a one-year holding period in Germany. This means: If you sell your cryptocurrencies within a year, you'll have to pay taxes on your profits. For example, if you hold Bitcoin for over a year and then sell it, the gains are tax-exempt.
When day trading, you must pay taxes on all profits at your personal income tax rate (0.00% - 45%). A detail often ignored by newcomers in the market! The shock comes when the postman brings an ominous letter from the tax authorities, suspecting tax evasion. Note that there is a tax-free threshold of €600 per year[*].
- venturing into cryptocurrency investing through technology has become increasingly popular, yet it's crucial to avoid panic selling when market fluctuations occur, as historically, such decisions have proven to be not wise;
- conducting thorough research is essential before making any investment decisions in the world of digital currencies, especially when relying on advice from others, as it can help avoid costly mistakes.
