Cryptocurrency trading is fast becoming mainstream and was even advertised during the 2022 Superbowl. It is a great, exciting, and modern way to make extra money through profitable investment opportunities.

If you are considering getting into the volatile and exciting world of cryptocurrency investment and exchange, read on. There are several things to understand and keep in mind before you take the plunge, such as how best to get into crypto exchange, and which transactions should be declared on tax returns.

Depending on your preferences and how much and frequently you wish to trade, you can identify the best broker for your specific crypto needs using an online comparison tool. Once you get set up with your cryptocurrency trading, it’s all about staying calm and prepared as crypto values fluctuate, making good decisions, and reaping the financial rewards.

What Is Cryptocurrency?

Cryptocurrency is a virtual currency that is stored on a digital technology called a blockchain. Some cryptocurrencies can be used like money to purchase goods, while others are more like stocks that are traded and their value can fluctuate (more on this later).

There are more than 17,000 cryptocurrencies, such as Bitcoin and Binance Coin. The “crypto” part of cryptocurrency refers to the fact that it is encrypted on the blockchain, with cryptocurrency owners holding a digital “key” that proves they own the currency.

Cryptocurrencies are not regulated by a centralized government or agency but are stored on digital blockchains hosted by decentralized computers around the world. Many users feel this gives cryptocurrency owners more autonomy, security and privacy.

Cryptocurrencies Can Fluctuate Dramatically

Crypto is like stock, and so can significantly rise and fall in value. This volatility affects different investors to various degrees and can be alarming for people who are new to the cryptocurrency scene, while it is business as usual for long-term traders. It is worth knowing what you are getting yourself into, choosing an opportune moment to invest, and not rushing to sell when the going gets tough, when possible.

Cryptocurrency is volatile by nature. Because there is no cash flow with digital currency, traders rely on changes in sentiment to drive the price. This means depending on the current feeling toward crypto, the market can swing between optimism and high value, to pessimism and a crash. The best thing to do when experiencing a plummet in crypto value is to stay calm and assess the situation without making rash decisions. Crypto has a way of swinging back up again.

Investing in dividend stocks can provide stability to your investment portfolio. Check out the best books on dividend investing to get you started.

Crypto Exchange

If you want to exchange crypto but don’t know where to start, you can use an online comparison tool to help identify the best crypto exchange platform for you. With guidance from Sortter, you can find a crypto trader that suits your needs. You simply need to identify your priorities, such as low cost and ease of use, your currency, the amount you want to invest, how frequent a trader you will be, and a few other factors which are used to narrow down the best broker for you.

Remember: trading in cryptocurrencies is a taxable transaction!

Taxable Income

The IRS requires that you declare any financial gains from cryptocurrency investments, so make sure your crypto exchange platform allows access to your tax documents. Your crypto is considered to be your property for tax purposes, meaning it is taxed in just the same way as your other assets, such as stocks or gold.

If you simply bought some cryptocurrency this tax year, with your US dollars, and kept it within the exchange where you made the purchase, or transferred it to your personal wallet, you do not need to declare this.

It is when you start trading crypto that the IRS get interested. Taxable transactions are when you use crypto as a method of exchange, such as selling it for US dollars, trading one cryptocurrency for another, or paying for goods using cryptocurrency.

The IRS is cracking down on spotting cryptocurrency tax avoiders, so it is always best to be honest, transparent, and upfront with your crypto trading and tax returns.

Crypto currency taxes don’t only apply to the United States but also overseas. Expat Tax Thailand notes that expats need to understand the taxation regime of their place of residence as each country will treat crypto currency gains differently and it’s important to maintain compliance.

You’re All Set

Now that you have a basic understanding of what cryptocurrency is, the volatile nature of its value fluctuations, how to begin trading cryptocurrencies through a broker identified as fitting your specific needs, and which transactions the IRS require you to declare, you are ready to jump in.

Start investing and trading today – just don’t forget to declare your financial gains. Good luck!

This information on this site is for general information purposes only. It is not intended as financial or investment advice.