It’s no secret that cryptocurrency is taking the world by storm. You’ve likely heard of Bitcoin or Ethereum, two of the most popular currencies. Perhaps you’re ready to begin investing in crypto. Where do you start?
There are a lot of myths and misinformation surrounding cryptocurrency investments, so it can be challenging to sift through the noise to learn how to make your first cryptocurrency investment. Because the cryptocurrency marketplace is largely unregulated, you want to make sure you’re working with reputable companies and products at every stage.
How to Invest in Cryptocurrency
Investing in cryptocurrency is different from investing in stocks or physical coins because it’s not backed by any physical currency or company assets. Cryptocurrency exchanges are not protected or managed by a centralized institution, so crypto assets do not have the same level of protection as traditional investment opportunities.
Here is your guide to making your first cryptocurrency investment.
1. Choose a Cryptocurrency Exchange
You’ll need to select a cryptocurrency exchange to buy and sell crypto assets. Exchanges come with various features, and if you’re starting, it’s best to research which ones will work best for you and your crypto knowledge level.
There are several factors to consider when choosing a crypto exchange:
- Authentication and security
- Supported tokens
- Purchase method
- Fee structure
- Choosing an exchange method, such as a trading platform (like Binance or Coinbase), peer-to-peer trading (like Cointal), or a crypto broker (like Avatrade).
- User interface and user experience (UX)
It’s best to research some of the top crypto exchanges before signing up. You want to ensure you’re choosing a legitimate and secure platform.
2. Open an Account
You’ll need to follow a registration process when starting your investment journey, which tends to be quite similar among crypto trading platforms. You’ll provide some personal information, such as your name and email address. The platform will send you an email for confirmation.
Then, you’ll add a payment method that you can use for withdrawals and deposits. Depending on the exchange, you may need to provide more personal information, including your phone number, address or government-issued ID. Typically, platforms that allow you to make large trades will require more personal data. If you’re beginning, the registration process is fairly straightforward.
3. Fund Your Account With Fiat Currency
Fiat money describes most of the currency circulating today. It’s legal tender but has no intrinsic value — in other words, it’s paper money backed by governments.
You can fund your new cryptocurrency account with fiat currency such as U.S. dollars. Other examples include the British pound, the Japanese yen, the euro and the Canadian dollar.
4. Choose a Cryptocurrency
After following the steps above, you can now select a cryptocurrency to invest in. There are many options, and you can choose to invest in one or multiple tokens. Generally, the more established a crypto is, the better investment it will be if you’re a beginner investor.
It’s critical to start your investing and trading with coins that are well-established, large, and secure. Recommended cryptocurrencies for beginners include Bitcoin (BTC), Ethereum (ETH), and Cardano (ADA), among others. Many online resources will provide you with more information about the best coins for beginner investors.
Make sure you only invest money you can afford to lose because the cryptocurrency market is extremely volatile.
Additionally, you want to make sure you’re not falling for any cryptocurrency scams. Beginners may not know about the viability of lesser-known coins, but many of them are worthless, shady, or just outright scams. According to the Federal Trade Commission (FTC), American investors lost more than $80 million to crypto investment scams from October 2020 to May 2021.
To protect yourself and your hard-earned money, stick to mainstream coins at first and always research coins before investing to ensure they are legitimate.
5. Place a Buy Order
Once you’ve chosen the cryptocurrency you plan to invest in, it’s time to visit your exchange platform and submit and complete a buy order. The platform you use will provide you with instructions on how to go through the process, so be sure to follow them.
On most platforms, buying cryptocurrency is similar to buying a share of stock. Simply look up the currency you wish to purchase and enter an order to buy the desired amount at the current market price. Some platforms may charge a commission or a transaction fee.
6. Store the Cryptocurrency in a Digital Wallet
After placing a buy order for your cryptocurrency, the information you need to access it is held in a digital wallet. Wallets are either hosted by the crypto exchange platform or by one of many independent providers.
Choosing an independent digital wallet provider will give you a safe place to store your crypto. Consider selecting a popular cryptocurrency wallet from Coinbase, Trezor, Ledger, Exodus, or Mycelium.
7. Review & Rebalance Your Portfolio Periodically
New and experienced investors will often periodically review their crypto portfolios. This may include rebalancing your holdings by increasing or scaling back how much you invest. It all comes down to your investment goals and unique financial situation.
Other Methods of Cryptocurrency Investing
Aside from the direct cryptocurrency investment strategy outlined above, you can consider some other methods to gain exposure to cryptocurrency as you start your journey.
Suppose you’d like to increase your crypto exposure without or in addition to investing directly in coins. In that case, you can buy stocks that are financially tied to cryptocurrency assets. Some examples of popular crypto-related stocks include:
- MicroStrategy Inc.
- Tesla Inc.
- Block Inc.
- Coinbase Global Inc.
- Nvidia Corp.
You can invest in company stocks to gain crypto exposure without purchasing any coins. These companies are well-established in the crypto world and believe in digital currency, but also have other areas of business that can act as a buffer for investors if the entire crypto market were to collapse.
Crypto funds are hedge funds that use cryptocurrency to make short- and long-term profits. However, they can be even more volatile than investing in basic coins like Bitcoin. You can earn a lot of money through a fund, but you can also lose it quickly.
Popular crypto hedge funds include Coin Capital, Pantera Capital, and Bitcoin Reserve. It’s a best practice to only invest money you can afford to lose.
Crypto futures are a type of derivative trading product. Regulated trading contracts contain an agreement between two parties. An underlying asset is purchased or sold at a fixed price on a certain date. Futures contracts allow investors to gain crypto exposure indirectly without owning the underlying currencies.
Many platforms offer futures trading, such as FTX, CME, BitMex, eToro, and Kraken. Traders interested in crypto futures should consider doing online research to learn more about this type of trading product because it is not suitable for everyone.
Blockchain-focused exchange-traded funds (ETFs) allow people to invest their money into hundreds of companies that use their assets in revolutionary blockchain technology-based strategies. By buying such an ETF, you’re not directly investing in crypto but in the companies that are bringing blockchain tech into various industries.
Crypto has taken off. Many companies recognize its potential, and several bitcoin-backed investment vehicles have emerged.
It’s well understood that IRAs (individual retirement accounts) help provide financial security for your future. But investing in cryptocurrency inside an IRA requires a little extra effort because many custodians do not accept crypto. Crypto IRAs are custodians or companies that facilitate investors trading cryptocurrencies inside an IRA.
It’s best to invest in a crypto IRA associated with a well-established company with deep expertise in managing traditional and digital assets. Bitcoin IRA is a widely used crypto IRA that can be great for beginners. It has an easy account setup, 24/7 trading in real-time and enhanced security features.
Crypto mining involves verifying cryptocurrency transactions on a blockchain network and adding them to a distributed ledger. Getting involved in crypto mining is different from basic crypto investing. Still, it can reward you with passive income for minimal effort.
You’ll need a digital wallet, mining software, and advanced computer equipment to start mining crypto, so consider these essentials before proceeding.
The main methods of crypto mining are ASIC, GPU, CPU, mining pools, solo mining, and cloud mining. The strategy you choose will depend on the type of crypto you want to mine and how much you can afford to invest in the software and hardware you need.
There’s no doubt that cryptocurrency is a new, exciting way to think about money. However, experts and seasoned investors urge beginners to educate themselves about how crypto works before making significant investments. It would be best to weigh the risks and rewards of investing, so you maintain a strong financial posture.
Hopefully, you feel more confident in how to invest in crypto and are ready to get started on your journey.