Bitcoin's price has recently dipped below $100k, leading to the familiar advice to "buy the dip" gaining popularity once again. However, I propose a different perspective: Don't buy the dip.
Investment Advice Disclaimer
Before delving further, it's essential to clarify that the views expressed in this article do not constitute investment advice.
Reasons to Avoid Buying the Dip
But why am I advising against buying the dip? It's not due to a sudden disdain for bitcoin; rather, there are specific reasons behind this stance.
Avoiding Becoming Exit Liquidity
One primary reason is to prevent individuals from unwittingly becoming exit liquidity for certain market players.
Timing Your Bitcoin Purchase
Another key consideration is the importance of buying bitcoin at a true discount, rather than merely when it appears to be discounted.
Market Dynamics and Bitcoin Price Cycles
Currently, bitcoin is trading approximately 13% below its all-time highs. While this might seem like a substantial discount in traditional financial markets, it's relatively minor within the realm of bitcoin's price volatility.
Understanding Bitcoin Price Trends
In the context of four-year bitcoin cycles, the cryptocurrency's price typically surges in the years leading up to and following its halving event. Subsequently, the subsequent year often sees a significant price decline, with the price bottoming out around the previous cycle's peak.
Illustrative Example
For instance, in 2022, considered a challenging year for bitcoin, the price dropped to around $15,500, which was notably lower than the previous cycle's peak of $20,000.
Investment Strategy Considerations
While discouraging immediate bitcoin purchases, this perspective doesn't negate the efficacy of strategies like dollar-cost averaging for long-term investors. It aims to caution against impulsive buying decisions, especially for newcomers to the cryptocurrency space.
Long-Term Investment Approach
My goal is to optimize the financial gains of bitcoin investments, particularly for those seeking long-term growth. While short-term trading may offer opportunities, I advocate for a buy-and-hold strategy for sustainable returns.
Anticipating Market Shifts
Despite positive developments like potential strategic bitcoin reserves by nations and corporate bitcoin purchases, historical price patterns suggest the likelihood of future downturns. This cautious approach prepares for proactive buying during significant market corrections.
Disclaimer
This article reflects the author's opinion and does not necessarily represent the views of BTC Inc or Bitcoin Magazine.
Frequently Asked Questions
What is the best precious metal to invest in?
Answering this question will depend on your willingness to take some risk and the return you seek. Gold is a traditional haven investment. However, it is not always the most profitable. You might not want to invest in gold if you're looking for quick returns. If patience and time are your priorities, silver is the best investment.
If you're not looking to make quick money, gold is probably your best choice. Silver may be a better option for investors who want long-term steady returns.
What amount should I invest in my Roth IRA?
Roth IRAs can be used to save taxes on your retirement funds. The account cannot be withdrawn from until you are 59 1/2. You must adhere to certain rules if you are going to withdraw any of your contributions prior. First, you can't touch your principal (the initial amount that was deposited). No matter how much money you contribute, you cannot take out more than was originally deposited to the account. If you take out more than the initial contribution, you must pay tax.
The second rule says that you cannot withdraw your earnings without paying income tax. When you withdraw, you will have to pay income tax. Let's suppose that you contribute $5,000 annually to your Roth IRA. Let's say you earn $10,000 each year after contributing. You would owe $3,500 in federal income taxes on the earnings. That leaves you with only $6,500 left. Since you're limited to taking out only what you initially contributed, that's all you could take out.
You would still owe tax on $1,500 if you took out $4,000 of your earnings. In addition, 50% of your earnings will be subject to tax again (half of 40%). So even though you received $7,000 in Roth IRA contributions, you only received $4,000.
There are two types of Roth IRAs: Traditional and Roth. A traditional IRA allows you to deduct pre-tax contributions from your taxable income. Your traditional IRA can be used to withdraw your balance and interest when you are retired. You can withdraw as much as you want from a traditional IRA.
Roth IRAs do not allow you to deduct your contributions. But once you've retired, you can withdraw the entire contribution amount plus any accrued interest. Unlike a traditional IRA, there is no minimum withdrawal requirement. You don't need to wait until your 70 1/2 year old age before you can withdraw your contribution.
What proportion of your portfolio should you have in precious metals
First, let's define precious metals to answer the question. Precious metals have elements with an extremely high worth relative to other commodity. This makes them extremely valuable for trading and investing. Gold is currently the most widely traded precious metal.
But, there are other types of precious metals available, including platinum and silver. The price of gold fluctuates, but it generally remains stable during times of economic turmoil. It is not affected by inflation or deflation.
As a general rule, the prices for all precious metals tend to increase with the overall market. That said, they do not always move in lockstep with each other. When the economy is in trouble, for example, gold prices tend to rise while other precious metals fall. Investors expect lower interest rates which makes bonds less appealing investments.
In contrast, when the economy is strong, the opposite effect occurs. Investors favor safe assets like Treasury Bonds, and less precious metals. Because they are rare, they become more pricey and lose value.
It is important to diversify your portfolio across precious metals in order to maximize your profit from precious metals investments. You should also diversify because precious metal prices can fluctuate and it is better to invest in multiple types of precious metals than in one.
Is physical gold allowed in an IRA.
Gold is money, not just paper currency or coinage. Gold is an asset people have used for thousands years as a place to store value and protect their wealth from economic uncertainty and inflation. Gold is a part of a diversified portfolio that investors can use to protect their wealth from financial uncertainty.
Many Americans now invest in precious metals. Although owning gold does not guarantee that you will make money investing in it, there are many reasons to consider adding gold into your retirement portfolio.
One reason is that gold historically performs better than other assets during financial panics. The S&P 500 declined 21 percent during the same period. Gold prices increased nearly 100 per cent between August 2011 – early 2013. Gold was one asset that outperformed stocks in turbulent market conditions.
The best thing about gold investing is the fact that there's virtually no counterparty risk. Even if your stock portfolio is down, your shares are still yours. However, if you have gold, your value will rise even if the company that you invested in defaults on its loans.
Finally, gold is liquid. This means that you can sell gold anytime, regardless of whether or not another buyer is available. Gold is liquid and therefore it makes sense to purchase small amounts. This allows for you to benefit from the short-term fluctuations of the gold market.
How do I open a Precious Metal IRA
First, decide if an Individual Retirement Account is right for you. You must complete Form 8606 to open an account. You will then need to complete Form 5204 in order to determine which type IRA you are eligible. You must complete this form within 60 days of opening your account. Once you have completed this form, it is possible to begin investing. You can also choose to pay your salary directly by making a payroll deduction.
If you opt for a Roth IRA, you must complete Form 8903. Otherwise, the process is identical to an ordinary IRA.
To qualify for a precious Metals IRA, there are specific requirements. The IRS says you must be 18 years old and have earned income. Your earnings cannot exceed $110,000 per year ($220,000 if married and filing jointly) for any single tax year. Contributions must be made regularly. These rules apply to contributions made directly or through employer sponsorship.
You can use a precious-metals IRA to purchase gold, silver and palladium. However, physical bullion will not be available for purchase. This means you can't trade shares of stock and bonds.
You can also use your precious metallics IRA to invest in companies that deal with precious metals. This option can be provided by some IRA companies.
However, there are two significant drawbacks to investing in precious metals via an IRA. First, they are not as liquid or as easy to sell as stocks and bonds. It's also more difficult to sell them when they are needed. Second, they don’t produce dividends like stocks or bonds. Therefore, you will lose money over time and not gain it.
How much gold should you have in your portfolio?
The amount that you want to invest will dictate how much money it takes. If you want to start small, then $5k-$10k would be great. Then as you grow, you could move into an office space and rent out desks, etc. This will allow you to pay rent monthly, and not worry about it all at once. You just pay per month.
It is also important to decide what kind of business you want to run. My website design company charges clients $1000-2000 per month depending on the order. Consider how much you expect to make from each client, if you decide to do this kinda thing.
You won't get a monthly paycheck if you work freelance. This is because freelancers are paid. Therefore, you might only get paid one time every six months.
You need to determine what kind or income you want before you decide how much of it you will need.
I suggest starting with $1k-2k gold and building from there.
Statistics
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- You can only purchase gold bars at least 99.5% purity. (forbes.com)
- If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
External Links
irs.gov
finance.yahoo.com
law.cornell.edu
- 7 U.S. Code SS 7 – Designation of boards of trade as contract markets
- 26 U.S. Code SS 408 – Individual retirement accounts
forbes.com
How To
Gold IRAs are a growing trend
As investors seek to diversify their portfolios while protecting themselves from inflation, the trend towards gold IRAs is on the rise.
Owners can invest in gold bars and bullion with the gold IRA. It is a tax-free investment that can be used to grow wealth and offers an alternative investment option to those who are concerned about stocks or bonds.
A gold IRA allows investors to manage their assets without worrying about market volatility. They can use the gold IRA to protect themselves against inflation and other potential problems.
Investors also benefit from physical gold's unique properties, such as durability and portability.
The gold IRA also offers many other benefits, such as the ability to quickly transfer the ownership of the gold to heirs, and the fact the IRS doesn't consider gold a currency.
Investors who seek financial stability and a safe haven are finding the gold IRA increasingly attractive.
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