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7 tips for Bitcoin and crypto beginners

Posted: 24 June 2022 2:00 pm

Useful tips for those starting out on their crypto journey.

Sponsored by FTX - one of the world's largest crypto exchanges, now available in Australia. Get access to over 275 different cryptocurrencies including Bitcoin, Ethereum and Solana. Enjoy low fees, instant order execution and friendly 24/7 support. Sign up through Finder for a 5% discount on all trading fees. T&Cs apply.

Newcomers lured in by 2021's bull run and WAGMI call-to-arms have quickly discovered in 2022 that crypto can be a brutally cruel and lonely place when markets turn for the worse.

But if you're not earning, you should be learning. First lesson: price volatility is a feature and not a bug in the crypto space, and you can make it your friend.

Here are 7 key tips to help you capitalise through this bear market with your portfolio in good health and primed for the next ride up.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

1. Don't invest more than you're willing to lose

It's easy to get swept up in the euphoria when markets are running hot and there seems to be no end to profits in sight. Not so fast. Your brain is just caught in a battle between FOMO (fear of missing out) and FUD (fear, uncertainty and doubt) that will mercilessly suck you in during good times and spit you out during bad ones.

The best defence against your own emotions is to only invest what you're willing to lose. This will give you time to get used to the market and make it easier to resist doubling down on a bad investment.

Remember, crypto markets are volatile. It's quite common for an asset like Bitcoin to shed 50-75% of its value during bear markets, and for altcoins, this can go as high as 95%.

It's impossible for even the most seasoned investors to time the market perfectly, and if you're in over your head, you're more likely to buy high and sell low.

A sensible approach could be to use dollar cost averaging (DCA), where an investor buys a fixed amount of crypto at specific intervals to counteract volatility over the long term.

For instance, the FTX app (formerly Blockfolio) has a Recurring Buy feature where users can customise amount, frequency and view a history as well.

2. Crypto is fractional – don't buy numbers, buy value

Ask 100 people that haven't yet dipped their toes into crypto "Why not?" and you'll likely get a response related to high upfront costs. It also explains crypto newbies' obsession with cheap meme coins like Dogecoin and Shiba Inu, which can be scooped up in their thousands for as little as a dollar.

A persistent misconception among no-coiners is that you can only buy a whole Bitcoin or altcoin at a time. This is simply not true.

Bitcoin, the oldest and most valuable cryptocurrency, is a fractional and fully fungible asset that can be divided in smaller units called satoshis, which means you can theoretically own as little as 1 satoshi, or 0.00000001 BTC.

Here's some maths for you: There are currently around 56 million USD millionaires in the world. Considering that a considerable portion of Bitcoin's 21 million total supply has already been lost for good, this means that less than 1 in 3 millionaires will be able to own 1 BTC.

3. Stake your crypto for passive income – but make sure the platform is reputable

Decentralised Finance (DeFi) has revolutionised the crypto space by taking key traditional finance products such as lending, saving and borrowing and using blockchain technology to adapt them to digital assets. This makes it as easy as clicking a button to start earning passive income on your coins.

However, if the returns are too good to be true, like with Anchor Protocol's unusually high returns on stablecoins, something could very well be wrong.

Instead of using complex DeFi protocols to earn yield, consider using a reputable and well-established institution instead, such as a cryptocurrency exchange.

4. Understand market cap, fully diluted value and other key metrics

A common mistake that beginners make is to only look at a crypto's price before throwing money at it. Investors need to analyse key crypto metrics such as tokenomics, total market cap and fully diluted value.

Let's use ApeCoin, the most hyped coin of 2022, as an example. It hit an insane all-time high of $39.40 on 17 March. Since then, it has shed 90% of its value and is currently priced at under $4. Yikes. So what went wrong other than adverse market conditions? Let's take a look at the steps you can take to evaluate it based on important metrics.

    1. Review its total market cap, circulating supply and fully diluted valuation on a website like Finder or CoinMarketCap for answers:FTX News Image 2
      Source: CoinMarketCap
      APE has a total market cap of around $1.2 billion and nearly 300 million $APE in circulation, which is only 29% of the total max supply of 1 billion coins. This means that $APE actually has a fully diluted valuation (if all billion coins were circulating) of $4 billion. This is a LOT for a metaverse token only backed at present by a flexing community and a cool teaser video. With time, more $APE will be distributed, and unless the demand grows in tandem with the increasing supply, the maths is simple – the price will keep going down.
    2. Visit the project website to look at its tokenomics. Importantly, make sure to note the vesting schedule of early investors as well as how and when new coins are unlocked and distributed to them.
    3. Finally, socials. For DeFi protocols, don't get blindsided by huge Twitter or Telegram followings. Dig deeper by looking at total value locked (TVL) on sites such as DeFiLlama and DappRadar as well as GitHub to accurately gauge community growth and active development.

5. Crypto is volatile so use risk features to protect yourself

If you're a novice crypto user looking to utilise the flexibility and opportunity that comes with trading cryptocurrencies or an investor looking to move into stablecoin assets such as USDC during market turmoil, it's best to use a centralised exchange (CEX) such as FTX.

The reason is simple: You have access to a trading toolbox that helps you set up automated buy or sell orders even when you're not actively trading. And when you're trading, you're able to transact in a split second at a very low fee.

For instance, FTX has limit order, stop loss and take profit features (learn more here). These allow you to buy or sell your assets at a predetermined price.

A stop-loss sell order is activated when the market price drops below its trigger price. Conversely, a take-profit buy order does the opposite, sending buy orders when the market price goes under its trigger price. A sell order is sent when the market price exceeds its trigger price.

6. Understand crypto market cycles and where we are right now

There's a common industry belief that crypto has a 4-year market cycle, based around the Bitcoin halving mechanism. Every 4 years, BTC mining rewards automatically drop by 50%, and this increase in production cost causes a supply shock as miners and then investors begin to hold on to their BTC.

As Bitcoin's price climbs due to less availability, it attracts mainstream attention and speculative trading, which ultimately finds its way over to altcoin markets. The next Bitcoin halving is scheduled for January 2024, when miners' rewards will drop from 6.25 BTC to 3.15 BTC.

The crypto cycle theory has so far proven to be very accurate. The Bitcoin halvings of 2012, 2016 and 2020 kicked off insane bull runs in 2013, 2017 and 2021, with nasty bear market hangovers in 2014, 2018 and now also 2022. With the US economy trying to cope with record inflation and a looming recession, it's important to take a holistic view of both traditional and crypto markets before investing.

FTX News Image 2
Source: CoinMarketCap

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

7. Factor in crypto taxes

It's coming into tax season in Australia, with your taxes for the 12-month period between 1 July 2021 and 30 June 2022 due to be filed by 31 October.

If you have bought and sold crypto (or plan to), the potential tax obligations and benefits should be something you've researched as part of your trading strategy. For example, in Australia, if you hold the same crypto asset for over 12 months, you may be entitled to apply a 50% discount on your capital gain.

See Finder's guide to cryptocurrency tax in Australia for more information.

Keep in mind that we're not tax experts, and general information such as that found in our guides is no substitute for professional advice. You can also visit the ATO's guide to cryptocurrencies for more information or contact them directly on 13 28 61.

Tip: Many big crypto exchanges, including FTX, can integrate with specialist tax reporting tools that support ATO rules, such as CryptoTaxCalculator and Koinly to make it easy to track all your trades.

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