How to invest your money into cryptocurrencies.
Four years ago, I knew nothing about cryptocurrencies but managed to turn a hundred dollars into six figures. I’m not a genius but followed basic principles that many investors use today. You can as well.
Let me explain, this is not the same as what day traders do. Personally, I am not a fan of buying and selling within a day or two.
You don’t need a college degree or education like a financial advisor. These are simple rules you can easily follow.
This will not guarantee you will see six figures since your results may vary.
Personally, I have invested for the last two decades so I was used to turbulence in my investment. The turbulence, or rise and fall, in cryptocurrencies, is something you have never seen before unless you traded penny stocks. This is how volatile this market is.
Cryptocurrencies can suddenly drop thousands of dollars before you even wake up. Bitcoin whales are doing their thing and trying to get you to sell your investment at a loss. Don’t fall for that and be patient.
The market will return before you know it.
“It’s money 2.0, a huge huge huge deal.” Chamath Palihapitiya
In 2017, it took me a while to understand Bitcoin and the cryptocurrency market. Bitcoin reached its previous all-time high of around $20,000.
Back then I didn’t understand the market but fortunately, I didn’t have a lot invested. I invested $100 in Bitcoin.
Then I started to add more Bitcoin and altcoins — cryptocurrencies not named Bitcoin.
I got involved with a few platforms that didn’t work out and lost some money. Be careful when investing in cryptocurrencies under the cover of a multi-level marketing (MLM) or network marketing company. These usually don’t work out in the long run.
Then the Bitcoin market dropped and continue to drop. I had hope the market would rebound, but it never did until a year ago.
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” — Albert Einstein
You probably don’t have five figures just sitting around in your bank account. But I’m sure you may have three figures from time to time. Even double digits can get you started.
When I read stories from Robert Kiyosaki, the author of Rich Dad Poor Dad, he said to pay yourself first.
Basically, when you get paid from your job, invest in yourself. Pull off some of your income and invest the money. When you do this, you are paying yourself first.
Make sure you have enough to pay your rent or mortgage and enough to put food on the table. If you don’t, then you probably need to find a second or third job.
You have to invest with what you already have. Don’t try to take out a personal loan or your mortgage money and invest it. This could easily backfire and you may end up losing your home.
When you invest $100 or so every month, the money will accumulate and grow. It may look small at first, but you need to be patient.
Don’t worry too much about the price of Bitcoin when you buy. Basically, you are using dollar-cost average when you buy every month or on a schedule that works for you.
Example of dollar-cost average with Bitcoin
For example, you bought Bitcoin, and the price was $100 for one month. This is an example since the price of Bitcoin is higher today.
The next month you bought Bitcoin, and this time the price was $150.
In the third month, you bought Bitcoin, and this time the price was $90.
Over three months you paid $340. Since you bought Bitcoin over three months, the average price you paid for Bitcoin was $113.33 (340 divided by 3).
As you invest your money, month after month, you’ll see the money slowly grow larger. You’ll go from three to four figures and then four to five figures. Then one day, you’ll cross the six-figure mark.
“Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect them to hold them for at least five years. Those who seek short-term profits should look elsewhere.” Warren Buffett
Many times you’ll see on social media, someone talking about making three or four figures from a trade they did. Many times, people talk about their wins but won’t show you their losses.
Trading cryptocurrencies can be done but the more times you buy and sell your cryptocurrencies, you could get hit with a tax bill you weren’t ready for.
A general rule is if you sell your cryptocurrencies in less than a year, you’ll pay taxes as a short-term trader. This is usually higher than if you held your cryptocurrencies for more than a year.
When you hold your cryptocurrencies for a year or more, you’ll pay less taxes. You’ll be classified as a long-term holder.
Make sure you run your cryptocurrency wins and losses with your accountant. They’ll help you figure out if you owe money to the IRS.
You don’t want to get surprised when the IRS says you owe money for cryptocurrency trades you made. The IRS is getting smarter and getting access to exchanges on your trades.
Don’t try to outsmart them. The IRS usually wins.