10 Keys To Understand BEFORE Investing In Bitcoin
Here are 10 Keys to Understand BEFORE Investing In Bitcoin.
I have a lot of people reaching out to me who are interested in investing in bitcoin.
Most of them have no idea about it, except that it had been going up in value and many believe it’s the future of money.
Here are 10 keys to understand BEFORE you invest in Bitcoin.
#1 If You Buy And Sell Bitcoin in the United States – Your Profit is Taxed as a Capital Gain
Bitcoin is not a legal currency in the United States.
It is considered property.
Hence, for tax purposes you need to keep track of any profits you earn from selling it.
CLICK HERE for details on tax reporting for Bitcoin.
#2 If You Buy Something With Bitcoin, You Will Be Taxed On Any Gains
The U.S. government considers buying something with Bitcoin the same as selling it.
If you bought Bitcoin at $3,000 and it increased in value to $50,000 and you bought a Tesla, then you would be taxed on $47,000 of that transaction.
CLICK HERE for the tax consequences in detail.
#3 You Can Move Bitcoin For Free
You don’t have to pay a transaction fee to send bitcoin to someone else.
However, if you do it will get there faster.
If you do it without adding a transaction fee, it takes a month or more. I know because I moved bitcoin to my wallet back in the bitcoin craze of 2017 and also to my wallet last year in 2020.
If you are just buying bitcoin on an exchange to hold it for a long time then move it to your wallet free.
#4 There Are A Lot Of Bitcoin Scams, So Be Sure You Use Legitimate Sources To Purchase Bitcoin
I was using an app that was supposed to reward bitcoin for watching ads.
It was a scam.
A lot of scams will say you can’t move the bitcoin until you have accumulated a certain amount.
Apps will not generate or mine bitcoin.
Bitcoin mining these days is done by power plants.
You’re phone is not capable of mining bitcoin, and neither is your home computer.
Another scam is interest bearing crypto accounts.
Be sure you know how they are generating interest.
I had one that suddenly shut down and said I owed it money, because I was regularly withdrawing my interest.
It was used by a lot of people, so just because everyone is doing it does not mean it is legit.
If your bitcoin isn’t in your own wallet, and someone else can access it, then it is vulnerable to theft and scams.
#5 Be Aware of Transaction Fees
ATMs in Hawaii charge 15% or more to exchange to Bitcoin.
If you exchange your US dollars for Bitcoin and pay 15% as a fee, you are already down 15%.
If Bitcoin stays the same, or increases in value 10%, you have still lost money.
Be aware of the fees you are paying.
#6 You Have A Higher Risk of Theft If You Leave Bitcoin in a Currency Exchange Like Coin Base or WeBull
Digital Currency exchanges such as Coinbase or WeBull can be hacked and sometimes are hacked. If someone steals you’re crypto from there it’s gone.
If you are constantly trading then your options are limited, but be aware of this risk.
If you are just buying and holding then move it to your wallet right away!
#7 You Can Lose Your Bitcoin if You Lose Your Wallet Information
You need to be organized to have Bitcoin. You need to keep safe multiple long digit numbers.
Basically, bitcoin exists in digital space and people can send it to you if you have a place in that digital space where only you can access it because you have a private key.
You can create a wallet to receive, store and send your bitcoin.
I created my wallet on Blockchain.com.
However, you don’t need to do it with software. You can make a paper wallet too. CLICK HERE for instructions on how to create a paper wallet.
CLICK HERE for the details of Private and Public Keys.
It’s so complicated that every time I want to access my wallet, I have to do a refresher course on everything.
Basically, you have to keep track of a private key that you alone have access to and no one else does (unless you give it to them).
You can keep it on paper (which makes it like cash).
You can keep it on your computer in a text document.
You can keep it in a digital wallet like blockchain.com.
You can do all of the above.
You can memorize it and it’s only in your head.
If you lose it, it’s gone.
There are many many people who have lost their wallet information and lost their bitcoin.
#8 Bitcoin Mining Emissions From Coal Are Substantial
The University of Cambridge is doing an ongoing study of the electricity used to power Bitcoin (For more information CLICK HERE) and estimates that it uses more power than many countries, including Sweden and Malaysia.
The largest country powering Bitcoin is China, and it has been confirmed by an article on Coinbase that in the Fall and Winter months, almost 25% of Bitcoin’s energy is being generated by coal (see full article here).
The evidence arose from a explosions that caused the mining stations to be shut down in April of 2021.
Elon Musk yesterday tweeted that Tesla would no longer be transacting in Bitcoin until energy emissions from resolving the Bitcoin blockchain are reduced to sustainable levels.
He also tweeted ” Energy usage trend over past few months is insane https://cbeci.org ” and added a chart. Later on the thread he shared the links to 3 articles.
Greenidge Power Plant in Upstate New York was revitalized from a shut down coal plant to natural gas to mine bitcoin. It currently has lawsuits against it on it’s environmental impact from the dumping of hot water into the local streams. See full article here – https://arstechnica.com/tech-policy/2021/05/private-equity-firm-revives-zombie-fossil-fuel-power-plant-to-mine-bitcoin/
The other two articles he included were:
https://fortune.com/2021/04/20/bitcoin-mining-coal-china-environment-pollution/
#9 Do You Really Want To Exchange Your Money For a Digital Currency That You Don’t Understand?
Warren Buffett, one of the wealthiest investors in the world, does not own any Bitcoin.
He says he will not invest in things that he doesn’t understand.
He understands car insurance (Geico) and chocolate (See’s Candies) and many more businesses.
His investments have made him huge profits.
Do you really want to invest in Bitcoin or do you want to invest in something that you truly understand?
#10 You Could Make a Lot of Money, or Lose a Lot of Money With Bitcoin
The value of Bitcoin is volatile.
When Elon Musk tweets in favor of it, the price sky rockets.
Recently he tweeted that Tesla will not transact in Bitcoin anymore because of the coal emissions and Bitcoin’s value dropped.
If you bought Bitcoin at $63,237 last month, today it would be worth $49,368.
I don’t know what it will be worth in the near future.
You get the point.
I think one of the biggest reasons you could lose money is overpaying transaction fees, falling for scams, and losing your wallet information.