Precautions before investing in cryptocurrencies

After 2021, marked by massive adoption, the cryptocurrency market is going through a period of decline in the face of the global economic downturn. This price drop offers the perfect opportunity for anyone looking to take their first steps into the world of crypto assets. But be careful because there are many risks. To avoid unpleasant surprises, we have put together tips and precautions for you to follow before investing in cryptocurrencies.

Cryptocurrencies, with their extreme volatility and high upside potential, are a great way to diversify your investments. However, we advise you to be careful because their processing is difficult and scams abound to the detriment of gullible investors.

Study yourself before spending pennies

Before investing in cryptocurrencies, take all the necessary time to learn about these digital assets. Understand how the blockchain works, explore the different uses of cryptocurrencies, learn how each crypto asset is different… This step, commonly referred to by those familiar with the ecosystem as “DYOR”, which means “Do Your Own Research”, will allow you to compose your own opinion about projects that seem to you the most promising, the most secure.

To check the legitimacy of each cryptocurrency you wish to add to your wallet, here are some clues to help you make your decision:

  • Read the project’s white paper, which summarizes the overall goal as well as the means designed to achieve it,
  • Go through all the official resources of the project: website, social networks, etc.,
  • Consult the opinion of specialized media about cryptocurrencies and the Internet3,
  • Discuss with more experienced investors on specialized forums.

Choose a regulated platform in France

Make sure you choose a reliable cryptocurrency exchange. Many scammers are trying to take advantage of the credulity of investors who have discovered these revolutionary technologies. Therefore, be very careful before investing and avoid suspicious offers, such as those that promise you high returns without risk or push you to invest quickly.

To get started safely, we highly recommend that you select a player registered with the Autorité des Marchés Financiers (AMF) as a Digital Asset Service Provider (PSAN). Binance, eToro, Feel Mining… there is something for all investor profiles. To help you see the situation more clearly, AMF has compiled a whitelist that lists all approved cryptocurrency exchange platforms.

If you do not want to declare one or more foreign accounts to the tax authorities, we advise you to invest on a French exchange platform such as Coinhouse or Paymium. This will save you the hassle of filling out Form 3916-bis on your next tax return.

Diversify your investments

If Bitcoin remains the king of cryptocurrencies with a market share of almost 40% in August 2022, we advise you to diversify your investments in cryptocurrencies. This will not only allow you to reduce risks, but also prevent you from missing out on a project with high growth potential.

Therefore, we advise you to allocate a significant portion of your investment to safe-haven values ​​such as Bitcoin (BTC) and Ether (ETH) and to bet less on established cryptocurrencies such as XRP (XRP), Cardano (ADA), Binance Coin (BNB). ) or Solana (SOL).

You can also invest in more rudimentary projects. But to limit the risks, invest only in cryptocurrencies with real use. Don’t be blinded by the amazing returns of some coin memes or projects that just aim to ride market trends.

Protect your cryptocurrencies

It’s one thing to take precautions when investing in cryptocurrencies, but it’s also important to protect your crypto assets. Currently, the best way to protect them is to store them in a physical wallet (or “hardware wallet”), such as those offered by Ledger or Trezor. This allows them to be placed out of reach of hackers, but this is not secure. Indeed, if this method of storage is considered the most secure, it also places the most responsibility on you for your cryptocurrencies. The slightest mistake, such as sending your coins to the wrong address or giving away your private key, can result in the loss of your investment.

If you prefer to store your cryptocurrencies on an exchange platform, never share your access codes even with your friends. Fraudsters can take advantage of this to gain access to your wallet and steal your assets. Also pay attention to all communications (emails, SMS, social media private messages, etc.) that you receive in connection with cryptocurrencies: never click on the links contained in them without making sure they are legal.

In conclusion, always remember the golden rule of the cryptocurrency market: invest only what you can afford to lose.

This content has been produced in collaboration with Finance Héros. The editors of BFM Business did not take part in the production of this content.

In partnership with Finance Heros

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