While the price of bitcoin is maddening counters and making headlines, there are many curious people who also want to invest in cryptocurrencies. Perceived as a safe haven, after a difficult 2020 and whose economic impact is still difficult to measure, bitcoin would be the new El Dorado. However, here are seven mistakes to avoid and our advice before embarking on the adventure or not.
THINK THAT WE ARE SMARTER THAN THE MARKET
Just as the famous American businessman Warren Buffet advised to “never invest in a company that you cannot understand”, it is advisable to avoid investing in cryptocurrencies if you don’t understand how they work, what they are for, and what perspectives they offer.
“Thinking that we are smarter than the market is one of the main mistakes made. Some people try their hand at day-trading, for example [buying and selling stocks every day] and find that it is very difficult to make money from it. It is indeed very complicated to say when the market will reach its highest or its lowest. For Bitcoin, it’s the same. We recently passed $ 30,000, but it is very difficult to know if it will stop or if it will continue, ”explains Manuel Valente, research director at Coinhouse.
For this specialist in cryptocurrencies, we should therefore not “try to enter the lowest and exit at the highest, but rather to buy assets with small weekly or monthly payments (eg 50 or 100 euros per week or per month) , but also according to your salary). The idea is to build up capital to smooth market changes. It is the same type of financial products that the banks offer when you put a little money in your savings book each month ”.
BELIEVE THAT YOU CAN EARN IN THE SHORT TERM
Before taking out your money, you must consider investing in cryptocurrencies over the medium or long term. “Do not think of making money in the short term, because unless you are a financial professional who can invest all his time, able to be almost there 24 hours a day, 7 days a week, it is very complicated to make profits. And again, even professionals crash relatively frequently, ”continues Manuel Valente. Clearly, it is better to consider investing over several months or several years. For example, all those who invested in bitcoin a few years ago and who have not resold in the meantime are now winners.
FORGET THAT THIS MARKET IS VERY VOLATILE
“Bitcoin and cryptocurrencies remain an extremely volatile market. For example, when on the stock market you have 3% less over a day, it’s a crash, when you have 10 to 15% less on bitcoin or another electronic money in a day, it is is just a day like any other, ”recalls Manuel Valente of Coinhouse. We must therefore relativize.
PUT ALL YOUR EGGS IN THE SAME BASKET
For the latter, it is interesting not to put all your eggs in the same basket. “If you go to an investment advisor, they will suggest that you put some of your assets in a non-risky investment, some in a low-risk investment, and some in a may be riskier investment. Today, the part of your capital that can go towards riskier investments can be paid in particular into cryptocurrencies, ”adds Manuel Valente.
It may also be wise to invest in cryptocurrencies other than bitcoin. At the start of 2021, the cryptoassets market has around 5,000 to 7,000 electronic currencies. A site like coinmarketcap will list them all. “The higher you go up in the rankings, the more you will reduce the risk but the potential gain may be small, the more you go down the higher the gain can be but the risk will be high. By analogy, if you invest in Renault shares, you will reduce the risks, but if you invest in a small start-up it can make +10, + 30% but also -90% in a short time. The game is therefore the same with cryptocurrencies, ”analyzes the researcher. It is therefore necessary to be well informed. It is also easier to learn about bitcoin or ethereum, but it is more difficult for less known currencies and therefore to judge the value of the project.
RIDING ALONE AND PANITING
This is arguably the most observed reaction among beginners and those unfamiliar with the bitcoin market: panicking. As soon as the price unscrews, some sell everything at the first alert. This is the first thing not to do. If you don’t know anything, take someone with you, like with a banker or a financial advisor. And for this it is better to contact a trusted third party, rather than the first comer. Be careful, some companies that offer to manage your bitcoins may be behind scams.
To avoid unpleasant surprises, France has regulated in this direction and has issued, since 2020, the PSAN (Digital Asset Service Provider) status issued by the AMF, the Autorité des marchés financiers. So check that the consulting company that will support you has this status, as is the case for Coinhouse and StackinSat for example. Also find out about the types of advice and support that can support your investments and your efforts, so as not to jump into the unknown.
DON’T INSURE YOUR BACK
“A lot of people wonder if they risk losing more than what they started out with? You should know that it is not as if you were trading with leverage effects that could expose you to owe money in addition to what you have invested. In the cryptocurrency market, if you don’t risk yourself on very risky investments with leverage, you shouldn’t lose money. The riskiest is to lose 100% of your investment, but not more and this scenario seems unlikely if the investment is betting on a serious cryptocurrency, ”comments Manuel Valente. Investing a small amount each month in the cryptocurrency (s) that interest you is even more advisable.
DO NOT SECURE YOUR CRYPTOS
Like everything that transits the Internet, you run the risk of having your data and therefore your cryptocurrencies hacked. Fortunately, there are several very safe ways to secure them, and even recover them in the event of loss. Specialists in electronic currencies agree in recommending “cold wallets” and “hardware wallets”.
Methods that often work in conjunction with a physical storage medium (USB key, encrypted key, etc.). The idea is to make sure that your crypto-asset wallet stays in your pocket, with your bitcoins encrypted in your key. These thus remain safe and you spend them the day you want to resell them and convert it into fiat currency. Among the trusted players on the market, the French company Ledger (market leader) offers a simple and secure solution.
BELIEVE IT’S NET OF TAXcryptocurrency
Last important point, don’t believe that allgains are net of tax. If you buy a bitcoin and don’t touch it, it is not taxed. On the other hand, if you resell a bitcoin or any other cryptocurrency and you make a capital gain, the excess will be taxed and must be specified on your tax return. Profits on cyrptocurrencies are taxed in the same way as other capital gains, with a single flat-rate deduction of 30% (17.2% social security contributions + 12.8% tax). This including if your resale platform is domiciled abroad.
On the other hand, transactions between two cryptocurrencies (buying ethereum with bitcoin, for example) are not taxed.