Considering that Bitcoin was named the best investment asset of the 2010s, it’s no surprise that many investors have continued to put their faith in it in this decade. In fact, Bitcoin hit its highest-ever value in early January 2021, surging to a record $41,973 (£31,000), making it clear that there’s plenty of potential for money to be made in cryptocurrency.
Bitcoin is currently so profitable that many Americans are actually renouncing their passports and buying ones in other territories to get around the US’s stringent tax laws, which apply regardless of where they live. As noted by Bitcoin.com: “For people who want to sell as little of their crypto as possible, it makes sense to go with a citizenship by investment program”, with Dominica highlighted for its tax-friendliness. Indeed, the country’s CBI programme offers a range of benefits which have made it incredibly popular as a whole, including visa-free travel to over 140 countries and territories, and duty-free access to Caribbean markets. Fittingly, it has been ranked as the world’s best citizenship by investment programme for four years running.
Relinquishing your passport is certainly one way to get more bang for your buck when it comes to cryptocurrency, but it is arguably an expensive and drastic step. Fortunately, there are other ways to maximise your profit potential, three of which we’ve outlined below.
- Diversify your portfolio
Aside from doing extensive research and having a clear investment strategy, the most obvious tip for investing in cryptocurrency is to diversify your portfolio. This helps keep you protected against overexposure to a particular asset by giving you alternatives to fall back on in the event that one comes tumbling down. After all, the cryptocurrency market is a volatile one, and keeping all your eggs in one basket could leave you back at square one if the price suddenly drops. Having a more balanced portfolio means you’re more likely to avoid such scenarios.
Of course, you could simply just buy many different types of Bitcoin, but it pays to put a bit more thought into the process. For example, one of the best ways to diversify your crypto portfolio is to invest in currencies from different industries, in case one suffers a huge hit. So, if you bought cryptocurrencies used in the finance, supply chain and data analysis sectors, you’ll be in a better position to absorb any losses from a particular industry. Another useful tip is to buy other kinds of cryptocurrency, such as ones used for payments, infrastructure, service, and media purposes. Investing in currencies from different regions is also likely to stand you in good stead.
- Don’t buy just because the price is low
One of the biggest errors cryptocurrency investors make is buying a coin simply because it’s affordable. Though this allows first-time investors an easy route into the crypto market, it shouldn’t be the deciding factor, and their focus should instead be on capitalisation (market cap). This is worked out by multiplying a coin’s unit value by the total number of them in circulation, revealing its true value. Say a currency is priced at £10 per coin with a total number of one million available, and another worth £100 per coin with 100,000 coins in the market. Despite the fact that one coin is valued lower than the other, there is no actual difference between them if you take the market cap (£10 million) into account. As such, both are worth the same, despite one being a lot more affordable.
Another thing to bear in mind is how much progress has been made since the currency’s ICO (initial coin offering). This is essentially the crypto industry’s equivalent to an IPO (initial public offering) when shares become available to the public for the first time. A coin that’s gained in value since its ICO is unlikely to maintain this upward trajectory, and may not be as good an investment as it first appears. Conversely, another that hasn’t risen in value much at all may not seem like a good idea, though this could be down to external factors like unfavourable market conditions. Again, doing your research is key here.
- Be careful with your currency
Unfortunately, hacking can be all too common in the crypto realm, and you need to do everything possible to avoid falling victim to this and losing money as a result. One of the best ways to protect your coins is to store them in an offline ‘cold’ wallet, which is much less susceptible to cyberattacks than an online ‘hot’ one. Also, remember not to confuse exchanges with wallets. Exchanges aren’t a place to keep your crypto — they’re somewhere to trade them, and are particularly vulnerable to being hacked. You only need to read about the infamous Mt. Gox incident to see why keeping your coins in exchange is a bad idea.
You could also use an alternative personal email address for cryptocurrency investment purposes, which reduces the possibility of your personal data being exposed. Trading or storing large amounts of cryptocurrency on your smartphone is also a bad idea, considering these are becoming far more likely to be compromised than PCs.