You’ve heard about cryptocurrency for years, but have you taken the plunge into the world of investing? Throughout its history, cryptocurrencies have been incredibly volatile and have created opportunities to make a profit. Bitcoin and Ethereum might seem intimidating if you aren’t sure where to begin. If you’re not currently involved in the crypto market, our crypto tax accountant team has outlined some basics for you to keep in mind. 

#1: Understand your investment

Similar to any financial investment that you’re making, you’ll want to understand where your money is going and why. As there are thousands of cryptocurrencies on the market, you’ll want to have a basic understanding of the functionality of the specific investments that you’re making. Before putting your money behind popular coins such as Cardano, Dogecoin, or Ethereum, you’ll want to understand how you’ll be able to gain a return on your investment. 

#2: Consider volatility

There are few assets as volatile as cryptocurrency. In the same way that their value can rise within seconds, the same can be said about how quickly their value can decline. Experienced investors might be able to use volatility to their advantage, but if you’re not aware of the market’s fundamentals, you can quickly get in over your head. Make sure you understand how volatility can cause inexperienced investors to “buy high and sell low” while it can also encourage knowledgeable traders to “buy low and sell high.”

#3: Leave mistakes behind you

While you’ll want to take the lessons you’ve learned with you along the process, make sure you don’t extrapolate past scenarios into the future. There’s no way to exactly predict how the market will ebb and flow, so you’ll want to continue to make decisions on the current market. Even if a cryptocurrency has performed one way in the past, don’t let this be the basis for your present decisions. 

#4: Manage your risk

Managing risk and understanding how to avoid crypto tax mistakes is a huge part of being successful with your cryptocurrency assets. New traders need to do a bit of research on how to manage risk and develop processes that reduce risk along the way. This can help mitigate losses. Risk management, however, depends on whether you’re a short-term trader or a long-term investor. As a starting point, our crypto tax accountant recommends putting aside a fixed amount of money to trade and only using a portion of it. This helps provide a safety net if needed. 

#5: Only invest what you can afford to lose

There’s an inherent risk with investments, and this is especially true with cryptocurrency. Don’t put money toward it if you aren’t able to lose all of it. 

Bonus Tip: Work With a Professional

If you’re feeling hesitant but you still are interested in cryptocurrency, why not turn to an expert? There are plenty of professionals such as our team at Founder’s CPA who can assist you with various aspects of your cryptocurrency investments. 

We have deep industry knowledge of both cryptocurrency accounting and taxation. Contact our team today to take advantage of our free consultations! 

 

Curt Mastio
Post by Curt Mastio
May 5, 2023 10:11:00 AM
Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.