Bitcoin, Ethereum, and other major cryptocurrencies seem to be bouncing back from the “crypto winter” bear market.
At the time of writing, 1 bitcoin (BTC) was valued at around $21,290, a dramatic increase from its recent low of $15,760 on November 21, 2022. The drop was caused by the dramatic collapse of FTX Trading Ltd., a major cryptocurrency exchange that filed for bankruptcy in early November.
The collapse of FTX shook nearly every cryptocurrency market. However, crypto traders seem to believe that the worst is behind them — at least, for the time being.
Of course, if you’re investing your money in cryptocurrency, massive price fluctuations come with the territory. Whether you’ve decided to hold through the recent upswing or sell your assets, we have a few tips to keep in mind.
If possible, use a hardware wallet.
FTX’s woes show the dangers of using a cryptocurrency exchange for long-term asset storage. In the United States, exchanges may be regulated by the Commodity Futures Trading Commission (CFTC).
However, the Federal Deposit Insurance Corporation (FDIC) does not currently offer deposit insurance for crypto exchanges. FDIC insurance protects consumers if banks, credit unions, and other financial institutions collapse.
The safest way to store your cryptocurrency is with a hardware wallet. Wallets keep your private keys, enabling you to access your cryptocurrencies safely.
Of course, there’s a downside: If you store your wallet on a hard drive or solid-state drive (SSD) and you don’t have your seed phrase (discussed below), you may lose your funds if the device stops working.
Back up your data to several devices. Otherwise, you’re taking a significant risk — though Datarecovery.com can help you restore lost funds if your media fails.
Take care of your cryptocurrency recovery phrases.
Most cryptocurrencies use seed phrases (also called recovery phrases), 12-24 mnemonic phrases that allow users to restore their wallets if their hardware fails. Seed phrases are extremely secure.
Unfortunately, we’ve handled cases from many crypto investors who misplaced their seed phrases (or worse, they didn’t make a copy of the seed phrase when setting up their wallets).
Keep your seed phrase in a safe place. We do not recommend using email, text files, or other digital methods to store the seed phrase; it’s safer to write down each word on a piece of paper.
Remember, your seed phrase is your wallet. Treat it like you’d treat paper currency. While it’s sometimes possible to restore access to funds with a partial seed phrase, you’ll need most of the words from the phrase to have any chance of a successful data recovery.
Don’t forget to account for taxes on any cryptocurrency sales.
In the United States, digital assets — such as bitcoin and ether — are treated as property. You can hold your assets and allow them to accrue value, but when you sell them, you incur a taxable gain (or loss, depending on the sale value).
- Keep a record of digital asset purchase prices. If you’re using a cryptocurrency exchange for transactions, keep your receipts.
- If you receive digital assets for goods, property, services, or as the result of a hard fork, you generally must pay taxes on the value of the asset at the time of payment.
- This also applies to digital assets received from mining or staking.
Remember, cryptocurrency transactions are trackable — the IRS and other tax organizations have the same access to crypto ledgers as anyone else. While assigning those transactions to a recipient or sender may be difficult, you shouldn’t count on anonymity when trading crypto.
In other words: Pay your taxes, period. For more guidance, read the IRS.gov guidance on digital assets.
If you lose access to your cryptocurrency, don’t panic.
As a leader in cryptocurrency recovery, Datarecovery.com has years of experience with virtually every asset — and with the dozens of data loss scenarios that impact traders.
If you lose access to your funds, we strongly recommend calling an experienced data recovery firm before taking any other steps. Attempting to fix your storage device can cause additional damage, limiting the chances of a successful case result.
We’re here to provide crypto enthusiasts with a safe, secure, and private option for data recovery. Our services are supported with a no data, no charge guarantee — if we can’t recover your assets, you don’t pay for the attempt.
To learn more, call us at 1-800-237-4200 or click here to submit a case online.