What To Know Before Trading Cryptocurrencies In Australia
Cryptocurrencies have become a popular investment worldwide, and Australia is no different. But before you start trading cryptocurrencies in Australia, there are a few things you need to know.
Cryptocurrencies Are Not Regulated
Unlike stocks or other traditional investments, cryptocurrencies are not regulated by any central authority, meaning there is no one to protect you if something goes wrong. For example, if you buy a cryptocurrency and the price falls, you could lose all of your money.
There is also no guarantee that you will be able to convert your cryptocurrency back into Australian dollars (or other currency). This can make it very difficult to get your money out if the crypto price starts dipping and you want to sell.
Cryptocurrencies Can Be Volatile
Cryptocurrencies are volatile and can rapidly fluctuate in value, making them a highly risky investment, as you could lose a lot of money if the price falls.
It’s also vital that you remember that the cryptocurrency market is still relatively new, and there is not much regulation. Therefore, prices are mostly driven by trader sentiment, meaning they can be influenced by news stories, social media, and even rumours.
You Could Be Taxed On Your Profits
You may have to pay tax on your earnings if you profit from trading cryptocurrencies. Cryptocurrencies are considered property by the Australian Tax Office (ATO), so any profits you make will be subject to capital gains tax.
therefore, you will need to keep records of all your trades to calculate how much tax you owe.
You Could Be Scammed
Unfortunately, there have been several scams involving cryptocurrencies. For example, some people have been tricked into sending money to fake cryptocurrency exchanges. Others have lost money after investing in fake cryptocurrencies.
It’s essential to be careful when dealing with cryptocurrencies, as losing your money is effortless if you’re not careful. Make sure you only deal with reputable crypto providers and research any apps and trading platforms thoroughly before depositing any money.
You May Need To Declare Your Investments
If you’re interested in cryptocurrencies, you may need to declare your earnings on your tax return because the ATO requires you to declare any capital gains or losses.
If you don’t declare your earnings, you may have to pay a fine or even go to jail. So, keeping good records of all your trades and investments is essential.
You Could Lose The Keys To Your Digital Wallet
When you own cryptocurrencies, you need to store them in a digital ‘wallet’, where you keep your ‘private keys’, like a password for your coins.
If you lose your private keys, you could lose access to your cryptocurrency. So, keeping them safe and secure, preferably offline in a physical wallet, could be more helpful if you are the type of person to forget passwords.
Portfolio Diversification Matters In Crypto Too
Investing all of your money in one cryptocurrency is very risky, and portfolio diversification is equally important in crypto as it is when you trade stocks, forex, and other assets.
It is therefore generally advisable to invest in various cryptocurrencies to spread the risk. That way, if the price of one falls, you can minimise the impact of its negative performance.
Doing Your Homework Is Vital
Cryptocurrencies are complex and ever-changing, and it’s essential to do your research before investing. This includes understanding how the technology works, what could affect the price of a coin, and where to buy and sell cryptocurrencies.
Beware Of Pump And Dump Schemes
A ‘pump and dump’ is when investors artificially inflate the price of a cryptocurrency by buying it in large quantities. It can lead to novice investors buying the currency seeing massive increases in price, only to see the price crash soon after when investors pull out of the market quickly and with no warning.
If you’re considering investing in cryptocurrency, do your research first and be aware of any potential pumps and dumps. Always turn on price alerts if you are trading on an app, so that you can swiftly react to any price movements. You should also have an exit strategy in place before you open any trades, just in case.
You Should Know The Difference Between Coins And Tokens
Finally, cryptocurrencies are often referred to as ‘coins’, and sometimes referred to as ‘tokens’, but these two terms are not the same. Coins, like Bitcoin and Ethereum, are their independent currency with their blockchain. On the other hand, tokens are built on top of another blockchain and represent an asset or utility.
So, when you’re looking to invest in cryptocurrencies, make sure you know which ones you’re buying, and understand how they work before investing your money and opening positions.
The Bottom Line
Investing in cryptocurrencies can be an exciting endeavour and traders can potentially benefit from participating in the online crypto market. However, as a rookie, it is essential to ensure you know how the market works and to steer clear of any dodgy websites or investment platforms, which are abundant in today’s climate. One way to protect your investments is to only trade with reputable brokers, including Saxo Bank. You can click here to go to site and, with Saxo, begin investing in crypto in no time with no worries.