- Since the crypto market either reaches record highs or crashes to new lows, it is essential to study the market thoroughly.
- While Bitcoin is undoubtedly the leader of digital currencies due to its first-mover advantage, there has been huge competition from numerous coins that have sprung up in the market known as Altcoins.
- Understand the distribution strategy for tokens and how the firm has divided the tokens according to different stages of the ICO.
As digitization disrupts our daily lives, Cryptocurrency Exchanges have become the sought-after platform attracting huge investments. Since the value of digital currencies keeps on fluctuating, investors must pledge their money after analyzing the expected consequences instead of relying on mere speculation.
Let us know more about the factors to make a note before investing in Cryptocurrency Exchanges.
- Take risks after analyzing the market conditions – Since the crypto market either reaches record highs or crashes to new lows, it is essential to study the market thoroughly. Additional risks such as banning of cryptocurrencies by a country’s legal authorities also make it vulnerable. Do not invest your whole life-savings in cryptocurrency. Invest an amount of money that you can afford.
- Competition from alternative coins – While Bitcoin is undoubtedly the leader of digital currencies due to its first-mover advantage, there has been huge competition from numerous coins that have sprung up in the market known as Altcoins. Users should have a close watch over the price movement and look at the market cap of the coin.
- Focus on the utility that the coin brings to your investment – Before forecasting the benefits to be received from coins, read the whitepaper to know more about the firm and its project vision. If the company’s whitepaper does not explain the advantages of their coin or token, the investor can avoid putting his money in such platforms. A professionally written whitepaper can result in huge success for the firm’s ICO.
- Keep a check on the project’s promises – While the firm would be aiming to improve its financial performance by implementing projects, investors must look at the advantages it brings into the crypto ecosystem. Every project must solve issues like privacy, scalability, and interoperability.
- Look at the value brought in by tokens – Understand the distribution strategy for tokens and how the firm has divided the tokens according to different stages of the ICO. Study the utility value offered by the token. Tokens can offer voting rights to investors, rewards after completing certain tasks, enrich the overall customer experience, store of value to execute transactions, and assist in better distribution of profits. Choose tokens of those projects that offer utility. Tokens will have a greater value if people hold it on for a longer period.
- Keep a close eye on scams – To ensure that your money goes in safe hands, have a close look at the background and experience of their team members. Verify if they have got positive recommendations from previous clients. There have been plenty of cases where investors have got duped by the presence of celebrity photos on an ICO offering. Investors must also avoid investing in pyramid schemes. They are schemes that offer guaranteed payments for referring fellow investors into the platform. It does not offer the sale of any product or services. Regular traders will be able to spot out dubious schemes that offer guaranteed returns or abnormally high rates of interest.
- Watch their activity in Github repository – Github is a hosting platform for software development. It indicates the progress in different projects made by developers. Investors must not put their money on firms that are not active on Github and do not have any contracts to execute.
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Some of the other aspects to look out for in Cryptocurrency Exchanges are
- Type of exchange – Fiat- to- crypto exchanges permit the purchase of cryptocurrencies in exchange for fiat currency. A popular example would be Coinbase. On the other hand, Crypto to Crypto Exchanges allows the buying of cryptocurrencies in exchange for other cryptocurrencies. Binance is well-known crypto- to- crypto exchange.
- Procedure to follow – The general process would be to create an account, identity verification, complying with KYC and AML guidelines, followed by trading. It is ideal to use the services of exchange in your own jurisdiction or in countries where there is a stable legal system.
- Different types of wallets – Hot wallets store the cryptocurrency on an internet-connected device. It is easy to get access to funds and also execute transactions using hot wallets. However, hot wallets are vulnerable to hacking and ransomware. Cold wallets are facilities where a user stores his funds in an offline device. It suits long-term holders who do not wish access to their coins for a few months or years. Cold wallets are not apt for performing daily transactions.
- Taxes to pay – Though cryptocurrency is exempted from paying VAT (Value Added Tax) owing to a European court ruling, many countries are planning to get revenue by taxing the digital currency. It also depends on whether cryptocurrencies are considered as financial products or properties. To discourage daily trading, a few countries are not levying taxes if virtual currencies are held more for than a year. Hence, investors must prove their ownership of cryptocurrencies for a certain timeframe by keeping a watch on their trade history and transactions.
Follow all the above guidelines carefully for maximizing gains from your investment with cryptocurrency exchanges.