Investors are increasingly drawn to the world of cryptocurrency, with recent events like Trump's reelection adding to the allure. However, it's crucial to approach this asset class with caution. Robert Cannon of Experity Wealth shares valuable insights on the common pitfalls that beginner crypto investors should avoid.

Secure Your Crypto Investments with These Tips

Overallocating to Crypto

In the past decade, crypto has gained significant mainstream acceptance, but that doesn't make it a safe asset. As Robert Cannon warns, one common mistake is being overly bullish and allocating too much of one's portfolio to crypto. It depends on individual factors like age, financial needs, and risk tolerance. Generally, Cannon recommends allocating between 1% and 10% of the portfolio to crypto. This helps mitigate the risk of losing everything if the market takes a downturn.Another aspect to consider is the potential for emotional biases. When crypto prices are soaring, it's easy to get carried away and invest more than planned. However, a disciplined approach is essential. By setting clear allocation limits and sticking to them, investors can avoid the pitfall of overcommitting to crypto.

Not Having an Exit Strategy

In Cannon's experience, some investors hold onto their crypto assets for too long without a clear exit strategy. They believe that the price of bitcoin will continue to rise indefinitely and miss out on taking profits at the right time. Having an exit strategy is crucial when dealing with a risky asset like crypto.Investors should have a rough idea of how much money they want to make or are willing to lose and set an investment time period. For example, they might decide to exit a position once they double their initial investment or set up a stop-loss to automatically close out if the asset falls below a certain price. This way, they can protect their profits and minimize losses.

Buying Highly Speculative Coins

The cryptocurrency market is filled with a wide variety of coins, but not all are created equal. Cannon advises beginners to start with the basics and invest in bitcoin. Other cryptocurrencies can be highly speculative and can lead to significant losses in a short period.For example, some new or niche cryptocurrencies may have little to no underlying value and are driven mainly by speculation. By focusing on bitcoin, which has a more established market and a track record, investors can gain stability and reduce the risk of losing all their money.Investors can purchase bitcoin through popular exchanges like Coinbase or Robinhood. Some also prefer self-custody wallets for more control over their assets. Additionally, there are alternative ways to invest in crypto, such as buying a bitcoin ETF, which is less risky than buying cryptocurrency outright.

Not Thinking about Cryptocurrency Tax Implications

Similar to stocks, crypto transactions are subject to capital gains taxes. However, due to the nascent nature of the crypto market, certain tax laws are still evolving.When purchasing crypto on an exchange, investors may receive a cryptocurrency Form 1099. But there are no explicit rules requiring exchanges to provide these documents. This means that investors may need to be proactive in reporting their gains to the IRS.New legislation starting in 2025 will require crypto exchanges to issue Form 1099-DA to track digital asset transactions. Meanwhile, President-elect Trump has suggested eliminating capital gains taxes on crypto, which could have a significant impact on the tax landscape. Buying bitcoin through an ETF simplifies tax reporting as the security is treated like any other stock.By being aware of these tax implications and taking appropriate measures, investors can avoid potential tax headaches and make more informed decisions.

Coinbase COIN CEO Brian Armstrong has emerged as a prominent figure in the ongoing debate surrounding the U.S. government's handling of its Bitcoin BTC/USD holdings. His strong stance against the potential sale of these holdings has sparked significant discussions within the cryptocurrency community.

"Coinbase's Armstrong Urges Against US Govt Bitcoin Sell-Off"

Debate Intensifies After Bitcoin Transfers

On Tuesday, Coinbase COIN CEO Brian Armstrong voiced his vehement opposition to the U.S. government selling its Bitcoin holdings. This came in the wake of a significant event where 19,800 bitcoin, valued at $1.9 billion, was transferred to a Coinbase Prime deposit address on December 2. The debate surrounding this transfer has intensified, with various experts and industry players weighing in.Jason Lowery, a U.S. Space Force major and author of Softwar, tweeted that this is a "huge strategic mistake." He emphasized that there is no price at which it makes sense for the U.S. to sell any Bitcoin it holds. Armstrong echoed Lowery's sentiment, stating, "Agreed – the U.S. government should never sell Bitcoin IMO."

Strategic Concerns Over Bitcoin Sales

Lowery argued that the government lacks an understanding of Bitcoin's strategic value. He drew parallels to past shortsighted policies and warned that the U.S. may later attempt to reclaim Bitcoin sold off due to its ignorance of its importance. Referencing Executive Order 6102, a 1933 directive that forbade hoarding gold, Lowery suggested that future policies might aim to reacquire Bitcoin in a similar fashion.Crypto educator Toby Cunningham labeled the potential sale as "dumb," asserting that the supply would be instantly absorbed by the market. Meanwhile, Tether USDT/USD strategy adviser Gabor Gurbacs speculated that the transfers could be routine custody updates rather than sales. He noted, "There is also a lot we don't know. It's not guaranteed they will sell. I haven't seen any official auction information yet."

Mixed Signals and Market Implications

While the government has moved 25,999 bitcoin worth approximately $2.49 billion to Coinbase this year, analytics platforms suggest that not all these transfers are intended for sale. Spot On Chain indicated that some movements could involve consolidating wallets or upgrading security for older addresses. CryptoQuant's head of research, Julio Moreno, noted that it was "highly likely" only 10,000 bitcoin were sold in the latest transactions, with the remaining 9,800 BTC transferred to a newly created wallet.Currently, the U.S. government holds approximately 183,850 BTC valued at $17.7 billion across various addresses. Armstrong emphasized, "The U.S. should recognize the significance of this technology before making irreversible mistakes."