Even if cryptocurrencies have broken into the mainstream, most people still know very little about them, and that includes many investors. There are also many myths being perpetuated about them, and they mainly stem from scepticism. While some of these myths might have a grain of truth about them, some of them are patently false and could stop you from taking advantage of all the benefits crypto has to offer. Let’s look at some of the common myths and misconceptions about cryptocurrencies and the truth behind them.
Cryptocurrencies Have no Intrinsic Value
While it’s true that coins like Bitcoin are not backed by an economy and have no real asset backing them, they still hold value since value is whatever the market decides to pay for them. There are also thousands of cryptocurrencies out there, and they were not all built on the same principle as Bitcoin.
Coins like Ether, for instance, were not meant to be purely transactional. They were made to power apps on the Ethereum blockchain. These coins have a purpose and a real use case that infers value to them. You even have coins that are backed by commodities like gold, silver, and petrol. So, thinking that all coins are backed by demand only is false.
Cryptocurrencies are Viewed as Currency by the Tax Code
You should know that the tax landscape for cryptocurrencies is very complex and that cryptocurrencies are not viewed as true currencies by the HMRC; they’re viewed as property. This means that crypto trading will be subject to either capital gains tax or income tax.
You will have to pay income tax if you receive crypto payments or if you mine crypto, for instance. If you decide to dispose of your crypto in any way, then you will be subject to capital gains tax. That goes whether you want to exchange crypto for fiat, use crypto to buy things, or even give crypto as a gift in most cases.
If you want to learn more about crypto tax, we suggest you check out Hodge Bakshi Chartered Accountants & Chartered Tax Advisers. They’re one of the best firms for cryptocurrency traders and are a great resource on the subject. They explain everything about cryptocurrency tax from when crypto is subject to capital gains to how things like staking and pooling are treated by the tax code.
Blockchain News Benefits Bitcoin
It is not always the case that the blockchain has a direct impact on bitcoin. You have to understand that Bitcoin and the blockchain are not one and the same. The blockchain is a ledger system where several copies of a ledger are distributed to a wide network of computers, or nodes, for verification and bookkeeping. This means that anyone could set up a blockchain, and a company announcing that it will start using blockchain technology has no direct incidence on crypto. Instead, you might want to look at stocks from companies that build blockchain systems, like IBM, for instance. These are the ones who stand to benefit from blockchain adoption the most.
Cryptocurrencies Aren’t Safe
Since its inception, there have been zero errors on Bitcoin’s blockchain. That’s how robust and safe it is. There have been some cases where exchanges have been hacked and others that disappeared overnight, but this has more to do with the safety of these exchanges than anything else.
If you want your coins to remain safe at all times, you need to use a proper cryptocurrency wallet and not leave your coins on an exchange. You never know what could happen to an exchange, and when you leave your money on one, it basically becomes their money. So, learn about the different types of wallets out there and find the best one for you.
They’re Easy, Fast Money
Cryptocurrency is far from easy money. Many people who get into Bitcoin remember its meteoric rise from a few hundred pounds and wish to get the same type of results. But the truth is that this ship sailed a long time ago. Even if Bitcoin reached 1 million US dollars, which is far from guaranteed, that would only be about a 20X return if you buy it at the current price. That may seem okay to some, but as we said, it is not guaranteed and there will be lots of ups and downs before that happens if it does.
This is why you need to have very realistic expectations about cryptocurrencies and don’t think that they’ll get you rich fast. Your portfolio should contain a healthy mix of crypto and other assets and crypto should only make up a small portion of your portfolio for safety.
Now that you know a bit more about cryptocurrencies, you can start looking at a few coins and see how you can integrate crypto into your investment strategy. Move with caution, however, and learn as much about them as possible before you start investing.
