As the year of 2022 comes to a close, but with no end in sight for the crypto bear market – things are pretty complicated for a crypto investor of any level of experience. Crypto markets have seen such situations, but the fact is that in terms of pure dollar value – the 2021 rally followed by the 2022 crash and bear market – have been huge. The quantum of money that was made purely based on the overall market cap – which almost went to a near $3 trillion figure at the height of the bull market in November 2021 and quickly list over 65-70% of it in the following year, falling down below the $1 trillion mark has been historic and never seen before.
So now, with the context set, let’s try to answer some questions you need to consider before you buy crypto in 2023.
Question 1: In a market such as this, should you be involved in crypto investing or trading?
Before answering this question, let’s quickly go through what both these terms mean. ‘Investing‘ is a method of making money in an open market where you put your money in an asset class after thoroughly studying it, understanding all about the fundamental aspects of that asset and going in it for a reasonably longer time frame. The time frame can range anywhere between a month to a year to even over several years.
The second term, which is ‘trading’ is another method of making money from an open market where a ‘trader’ essentially trades off of a price change in the asset without really caring about the meaning behind the more or the fundamentals of the asset itself.
Now, both of these methods require a different kind of mindset and work and thus can’t be done by all. The potential risk of loss is far higher in trading than in investing, but the returns from a successful trading operation is far greater and more efficient. While on the opposite side, investing is a method that involves lesser risk but less rewards too, relatively.
Read more on: Crypto Investing vs Trading
Question 2: How should one manage their risks in the crypto market?
The crypto market, by its nature is extremely volatile. This is due to two reasons, one that the market is still very small in terms of capitalization and secondly, the number of market participants, especially, institutional participants are very low too. Due to these reasons, there are various risks associated with investing in a nascent market such as the crypto market. While risks are high, rewards tend to be higher too. Risks in the crypto market can range from extreme volatility, frauds and deception and finally lack of clarity and education.
Hence, while investing in a market that is fraught with so many unpredictable risks – taking steps to manage those risks in a way that investors don’t end up losing a lion’s share of their capital becomes extremely important.
Question 3: How to set smart crypto investment goals?
Investment goals is something that should be done for any asset class, not just cryptos. Investment goals are simply nothing but what goal you want to achieve out of the investment you are making. It could be different for different people! Reasons can range from retirement funding to children’s schooling and many many others. The list can be endless.
However, the crypto market is a completely different animal, compared to rest of the world’s markets and asset classes. Equities have existed for over a hundred years and there are defined ways you can invest and reap a return. Crypto has a history of less than 15 years. But despite that, there are some common things in any investment goal setting strategy that one must follow – for example these goals should be measurable, specific, achievable and actionable.
To know more about this topic, read: Crypto Investing Strategy
Question 4: How to pick a crypto to invest in?
Picking a crypto to invest in can be a very daunting task. This is because of the simple reason that you don’t have a lot of history to look at, or business fundamentals as is the case with equities. Finding a crypto to invest in is also particularly difficult because of the market’s unpredictability and volatility. But there are a few things you can do to make better informed decision before putting your hard earned money into a crypto asset.
So as a rule of thumb, a couple of things you can do as a new crypto investor is check out the crypto project’s whitepaper, find credibility of the founders or the founding team and check market and supply capital.
Read more: Which is the best crypto to invest in
We at CoinDCX also work on a proprietary 7M method of selecting coins before listing them on our platform, thus weeding out a lot of the really bad ones out of the lot. Click on the link to learn more about CoinDCX 7M Framework for analysing crypto projects.
Question 5: How to choose a safe crypto exchange to trust and put your money in?
Crypto exchange is an absolutely essential component of the entire crypto industry. It is essentially a gateway to enter into the ecosystem – where you can buy a particular coin of a particular crypto project and be a part of that ecosystem. But, while that is true – the recent devastating collapse of the FTX crypto exchange has.
Thus it has become more important to choose a crypto exchange wisely before putting your hard earned money and crypto funds in an exchange. You can ensure you as a customer are in good hands by researching about the crypto exchange, funding out the levels of transparency it works with, how secure it is, what its order book volumes are and where it is location.
To know more, read: How to choose a Safe Crypto Exchange?
Question 6: What is the crypto tax situation in India?
As Indian investors in the crypto market, one must be very aware of the kind of tax liabilities one is accountable to in the country. In India, we currently have two kinds of taxations that are live on crypto assets, also called ‘virtual digital assets’ in our country. The first is a flat 30% crypto tax on all gains made in the particular financial year. This is applicable to profits or gains made from trading in crypto assets, and also it mentions that losses made in the crypto space cannot be offset against the gains made in the year.
Secondly, we also have a TDS or a Tax Deducted at Source mechanism in place too, to essentially enable the government to track VDA transactions. There is a 1% TDS on all crypto transactions which can be claimed as a refund at the end of the year too.
Thus in conclusion, these are some of the most commonly asked question by any newcomer in the crypto market. But whether a newcomer or not, these are question that all crypto participants must be aware of.
Additional read: Top Crypto Partnerships