Over the past 12 months, cryptocurrency has significantly increased in popularity across the world. 55 percent of Bitcoin investors say that they only started investing in 2021. At the start of this year The Commonwealth Bank announced that it was becoming the first of Australia’s major banks to allow customers to buy and sell cryptocurrency via their banking app.
If you have recently incorporated cryptocurrency into your investment portfolio, or you are thinking about investing in Bitcoin or Ethereum, here are some important things to keep in mind.
Make The Effort to Study How Cryptocurrency Works
Before you make an effort to invest your money, invest your time and your energy to learn more about how cryptocurrency works.
This same advice also applies if you are interested in staking, mining, or crypto liquidity pools. It is important to understand that you should never want to put your money into something you don’t fully understand
If you don’t know what you’re buying, even with Bitcoin and Ethereum, this is a great sign that you should not be messing around with some of the smaller altcoins. Smaller altcoins are even more volatile than Bitcoin and Ethereum. Since Bitcoin and Ethereum are already extremely volatile it is important to be aware that the more volatile a cryptocurrency is the risker, your investment is.
Be Aware That Cryptocurrency Is Highly Volatile
The volatility of cryptocurrency is one of the major reasons why many people refuse to invest in the digital currency. The key reason for cryptocurrencies volatility is their newness. Throughout history, there have been many new phenomena’s that have taken time to settle down and be accepted and the same holds true for cryptocurrencies. The asset class, the market as well as investors and speculators are still finding their feet and so it is still the initial stages of price discovery.
Due to the lack of understanding and rules, at present time trading cryptocurrency highly speculative. Investors bet on the prices going up or down, and these speculative bets cause a sudden influx or outgo, leading to an increase in volatility.
Be Aware of The Tax Requirements Associated with Trading Cryptocurrency
Despite crypto becoming a common topic of conversation amongst Australians there are plenty of misconceptions about the digital currency and plenty of tax related requirements that must be followed by individuals who make a profit off their crypto related investments.
At the present time, The Australian Tax Office (ATO) treats crypto as a form of property and as an asset for tax purposes. Cryptocurrency still has some way to go before being used, or taxed, as legal tender in Australia.
It is therefore helpful to use the more accurate label of “crypto asset” to describe cryptocurrency for taxes purposes within the Australia tax system.
An asset can be best described as a resource that you own, with economic value that’s projected to provide a future return. Other examples of an asset besides cryptocurrency includes; shares, investment property and collectables.
When you are calculating the tax owed on crypto gains, all of the usual considerations apply.
You will be required to know the cost base of the crypto asset at acquisition, its price at disposal, and convert all figures into Australian dollars. A crypto capital gain or loss could be triggered by four disposals:
1. Selling crypto like Bitcoin for any fiat currency, like AUD
2. Swapping crypto for crypto, like Bitcoin to Ethereum
3. Spending crypto to obtain goods or services unless the personal use asset rule applies
4. Giving crypto as a gift.
Be Aware of Scammers Taking Advantage of New Investors
The Australian Federal Police (AFP) has revealed that cryptocurrency related scams have increased significantly during the covid-19 pandemic. Recently released figures from the Australian consumer watchdog shows that there was an increase of 172 percent in losses between January and November 2021. This added up to a total of $109 million.
“Criminals are really quick to exploit a crisis. We're also seeing more and more people working from home which presents greater opportunities for criminals to target people,” said Australian Federal Police Cybercrime Commander Chris Goldsmid.
The crypto related scams are run by global syndicates, thus making the money trail murkier than ever and almost impossible to trace.
The Australian Competition and Consumer Commission (ACCC) believes that the losses to cryptocurrency-related scams were most likely to be much higher than the $109 million it has recorded so far this year. One of the reasons why it is predicted to be much higher is because according to the ACCC many victims are too distressed or embarrassed to report their experiences.
The AFP says that for many Australians victims are usually lured in by advertisements on social media, filling out their details and unwittingly becoming an easy target.
AFP Cybercrime Commander Chris Goldsmid has revealed that his force was increasing its resources to track down the perpetrators.