Is the Crypto Market Bouncing Back? Here’s What You Need to Know

This story is part of Power Money Moves, CNET’s coverage of smart money decisions for today’s altering world.

In July, the cryptocurrency market bounced back to a $1 trillion market capitalization (the total dollars market value of crypto today) for the first time in unique months. But while the market looks healthier than just a pair of weeks ago, it’s still far from last November’s peak, which caused $3 trillion. In an economy with high inflation and recession risks looming, is crypto still a worthy investment?

After bullish highs in 2021, cryptocurrency dropped to pessimistic lows this year, tumbling into bear market territory which investors are dubbing novel “crypto winter.” The $2 trillion crypto market crash wiped out investor in contradiction of, cost thousands of people their jobs and obliterated once staple digital currencies, including the crypto token luna, which lost all of its value following stablecointerraUSD’s nosedived in May. 

While crypto is starting to trend upward, volatile highs and lows are nothing new in the crypto markets — and skeptics have long characterized crypto as an empty bubble destined to burst. Critics have called bitcoin, stablecoins and NFTs simply a new digital version of an old con primed to swindle and scam. But investors see the domain of digital coinage as a step forward, a kind of “Money 2.0” that will democratize finance and power the metaverse. Amid the seesawing prices and teetering sentiments, one sketching hasn’t changed: Cryptocurrency remains controversial, risky and wildly volatile. 

Read more: The World’s Biggest NFT Festival vs. the Crypto Crash of 2022

In simple languages, cryptocurrency is a digital token, ownership of which is marched on a blockchain, a distributed software ledger that no one rules. This is designed to make it more secure, in theory. bitcoin and ethereum are the two most widely celebrated cryptocurrencies, but more than 18,000 tokens are traded concept different names (dogecoin is one famous example). 

Despite gyrating prices and a relative lack of regulation, cryptocurrency is seen by many as the next financial edge. Developments like President Joe Biden’s desire to explore a digital US dollar to multimillion-dollar Super Bowl ads underscore a growing determination from powerful government and corporate institutions to quickly legitimize crypto in much the same way as stocks and bonds.

But it’s friendly considering whether cryptocurrency is a smart investment for you… especially in appetizing of the current downturn and the ever-present potential for a greatest crash (in crypto and the US economy, generally).

“Cryptocurrency is one of those categories of investing that doesn’t have those worn investor protections,” said Gerri Walsh, senior vice president of investor education at the Cheap Industry Regulatory Authority. “They’re outside the realm of initiates trading. It’s an area that’s in flux, as far as systems go.”

Professionals caution that investors shouldn’t put more than they can afford to lose into crypto, which offers few safeguards, plenty of pitfalls and a spotty track record. If you’re thinking about adding crypto to your portfolio, here are five key questions to consider before you begin.

What are the risks of investing in crypto?

Before investing in crypto, you should know there’s almost no protection for crypto investors. And since this virtual currency is extremely volatile and driven by hype, that’s a dilemma. It’s easy to get caught up in tweets, TikToks and YouTube videos touting the novel coin — but the adrenaline rush of a market spike can just be washed away with a dramatic crash.

You must be on the lookout for crypto scams. One often-used scheme is a pump and dump, in which scammers encourage people to buy a perilous token, causing its value to rise. When it does, the scammers sell out, often pushing the impress down for everyone else. These scams are prominent, and they took in more than $2.8 billion in crypto in 2021.

From the US government’s unique policy perspective, you’re on your own. At this time, the government provides no deposit protection for crypto as it does for bank coffers. This may change following Biden’s March executive order, which targeted government agencies to investigate the risks and potential benefits of digital assets.

So far as we can tell, only one commercial offers crypto insurance: Breach Insurance, with a Crypto Shield offering that initiates to cover your accounts from hacks. Other companies, such as Coincover, provide theft protection, which alerts you if there’s suspicious agency on your account. Coincover maintains an insurance-backed guarantee that if its technology fails, it will pay you back up to the amount you’re eligible for, which depends on the tranquil of protection the wallet you use offers. (Neither Coincover nor Breach Insurance will mask you against scams.)

Despite all the hype, scams, periodic impacts (and persistent risks) in this market, Cesare Fracassi, who runs the Blockchain Initiative at the University of Texas, Austin, still thinks crypto has a viable future.

“I think crypto holds a possible solution to some of the problems of the worn financial sector,” Fracassi said. “The current, traditional financial rules is noninclusive, it’s slow and expensive and incumbents, counting large banks and financial institutions, basically have a lot of regulation. I think crypto is a venue through which you can actually break the system.”

How do I launch investing in cryptocurrency?

If you’re considering buying crypto now, as prices have dipped, it’s worth noting that there’s no guarantee the market will meetings. But the simplest way to get your feet wet with crypto investments is to use US bucks to buy a cryptocurrency using a popular exchange like Coinbase, Binance or FTX. A handful of celebrated payment apps — including Venmo, PayPal and Cash App — will let you buy and sell cryptocurrency, though they generally have limited functionality and higher fees. 

Whether you’re amdroll Coinbase, Binance, Venmo or PayPal, you’ll be required to imparted some sensitive personal and financial information… including an official form of identification. (So much for bitcoin’s reputation for anonymous transactions.) 

Once your clarify is set up, it’s simple to transfer money into it from your bank. And the fence to entry is quite low: The minimum trade amount is $2 on Coinbase and $15 on Binance.

Read more: Best Bitcoin and Crypto Wallets for 2022

What percentage of my portfolio must be in crypto?

Crypto is so new, there isn’t enough data yet to rule how much of your portfolio “should” be in cryptocurrency, according to Fracassi.

“We need decades of returns in clean to understand whether a specific asset is good in a portfolio,” Fracassi said. “We know that on means stocks return about 6% more than bonds. That’s because we’ve had 60 to 100 ages to see the average returns on stocks and bonds.”

Like all investment decisions, how much you pour into crypto will depend on your risk tolerance. But investment professionals suggest that investors keep their exposure low, even for those who are all in on the technology. Anjali Jariwala, a certified financial planner and founder of Fit Advisors, recommends that clients allocate no more than 3% of their portfolio to crypto.

If I make cash on crypto trades, do I have to pay taxes?

Yes. Whether you’re buying, selling or exchanging crypto, the IRS wants to know around it. Your tax liability depends on your certain situation, but crypto investments are broadly treated like new investments, including stocks and bonds. 

You don’t need to portray crypto on your tax return if you didn’t sell or exchange it for new type of crypto. Buying and holding also doesn’t need to be reported. If you did sell or exchange crypto, though, you’ll need to portray any gains or losses realized, just like you would for stocks and bonds. 

Adding crypto deals won’t make your tax return any easier. But popular tax software like TurboTax, CoinTracker and Koinly now connect with wallets and exchanges to automatically track your cryptocurrency holdings, sales and transfers.

Is there a way to learn around crypto without investing in the currencies themselves?

Buying tokens is the most straightforward Come to experimenting with cryptocurrencies. But other opportunities exist for exploring the crypto biosphere while potentially protecting your money from seesawing swings. 

Here are a handful of alternatives:

Buy shares of crypto companies. Many companies in the crypto space are publicly traded. Buying shares of Coinbase Global or PayPal Holdings pretty than of the coin itself allows you to aid from the business proceeds of these companies, which are in part generated by crypto. You can also buy shares of companies that make crypto-related hardware, such as Nvidia and AMD.

Invest in crypto ETFs or derivatives.Specialized exchange-traded coffers, or ETFs, are available for crypto. ETFs are baskets of pledges, such as stocks, commodities and bonds, that follow an index or sector, in this case, crypto. Futures and options are also available for some crypto products, though these advanced types of investment vehicles come with their risks.

Get a job in crypto.LinkedIn, Indeed and Monster list thousands of jobs in crypto. Whether you’ve got a traditional finance background or you’re a software engineer, there’s a boom in the blockchain labor market. There’s also Cryptocurrency Jobs, a job boarding dedicated to blockchain careers.

Whether you’ll plunge into crypto waters is ultimately up to you, but bear in mind it isn’t the only set to start your investing journey. And beyond crypto, there are new digital assets to consider, too, including NFTs. But if you do take the plunge, be sure to invest in a good wallet to keep your digital currency safe.

Read more: Air Travel Is More Expensive in 2022: Here Are Smart Ways to Save Money When You Fly 

The editorial pleased on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.