A cryptocurrency is a digital form of currency that some people consider an attractive investment opportunity. You may have heard of the currency that sparked interest in Bitcoin and crypto, first mentioned in a white paper in 2009.
Cryptocurrencies operate using an electronic distributed ledger system called the blockchain. Blockchain technology allows anyone with an internet connection to participate, which is part of why many people see cryptocurrencies as an investment that will increase in value over time.
If you want to invest in cryptocurrency, it’s important to understand how cryptocurrencies work, where to buy cryptocurrencies, and how to invest safely. Read on to learn more about how to invest in cryptocurrencies and whether investing in cryptocurrencies makes sense for you.
How to Invest in Cryptocurrencies in 4 Steps
You can invest in crypto without any technical knowledge. Advanced cryptocurrency users often use blockchain-enabled decentralized exchanges and physical hardware cryptocurrency wallets, but you can take a simpler approach.
These steps offer the simplest way to buy cryptocurrencies through a centralized exchange (like Coinbase) or a retail cryptocurrency-backed broker (like Robinhood).
- Open a Cryptocurrency Investment Account: Start by opening a cryptocurrency account at your chosen exchange or broker. You’ll need personal contact information, a Social Security number, and a photo ID, but signing up only takes a few minutes.
- Fund your account: You will need dollars (or your local currency) in your new account to buy cryptocurrencies. Contact your bank to fund your cryptocurrency account.
- Explore cryptocurrencies to invest in: Don’t buy cryptocurrencies just because you’ve heard of them. Take the time to research each cryptocurrency to understand its potential benefits and risks.
- Make your first cryptocurrency trade: After doing your homework, enter the required information in the order form and click the buy button. Once you see the trade confirmation, you are officially a cryptocurrency investor.
What You Need to Know Before Investing in Cryptocurrency
Cryptocurrency is a relatively new type of investment and asset class, and it’s not without controversy. Some naysayers argue that cryptocurrencies have no value and will eventually become worthless. Proponents say digital money is ideal for finding value over time. You can also learn what are altcoins with details.
Note: In order to make an informed investment decision, it is a good idea to have enough knowledge about cryptocurrencies before investing. As with any investment, consider the potential upsides and risks when deciding how much to invest.
Understanding the Risks of Investing in Cryptocurrency
Cryptocurrency is considered a very risky asset. Remember that cryptocurrencies are not backed by any government or central bank. They do not represent ownership of the company like shares of stock.
Importance: Cryptocurrencies derive their value from the security of the underlying technology and the community that uses and supports cryptocurrencies.
Even Bitcoin, the largest and most valuable cryptocurrency, has significant price volatility. It is not unusual for cryptocurrency prices to change by more than 10% in one day. More than once in the past, the price of cryptocurrencies has fallen by more than 50% in a short period of time. It is wise to avoid investing more money in crypto than you are willing to lose because of the risk.
Cryptocurrencies are also a ready target for fraudsters. It is vital to follow strong online security practices to keep your cryptocurrency safe. If your account or crypto wallet is hacked or you accidentally send cryptocurrency to the wrong address, you are unlikely to recover your losses.
Pros and Cons
Just like investing in any asset class, investing in cryptocurrencies has its pros and cons.
| Pros | Cons |
|---|---|
| Investment Opportunity | Investment Risks |
| Easy to transfer worldwide | Potential for Errors and Losses |
| Anonymity and Privacy | Scams and Fraud |
Pros Explained
Investment Opportunity: Some investors believe that the value of cryptocurrencies is likely to rise significantly over time.
Easy to Transfers Worldwide: You can send cryptocurrency to any compatible account or crypto wallet worldwide without an intermediary.
Anonymity and Privacy: With a decentralized crypto exchange and your own cryptocurrency wallet, you can use cryptocurrencies with privacy and semi-privacy.
Cons Explained
Investment Risks: Some investment veterans believe that Bitcoin and other cryptocurrencies have no capital value because they have no income or utility.
Potential for Errors and Losses: Cryptocurrencies are technology-enabled investments, but they are limited by technology. Sending crypto to the wrong wallet or making any other mistake can lead to large, irreversible losses.
Scams and Fraud: Cybercriminals use the novelty of cryptocurrencies to execute fraudulent schemes targeting uninformed investors.
How to Start Investing in Cryptocurrency
If you want to weigh the pros and cons and start investing in cryptocurrencies, follow these steps.
Open An Account
The easiest way to buy cryptocurrency is to have an account with a centralized exchange or brokerage. When you use a centralized platform, you don’t have to worry about creating and maintaining a cryptocurrency wallet.
You plan to enter your contact information, Social Security number, and other personal information to open a new account. Some exchanges or brokers may require a certain minimum balance for a new account. Also, pay attention to fees when shopping for the best cryptocurrency account for your needs.
Decide Which Cryptocurrency to Buy
Are you planning to buy Bitcoin or Ethereum, the leading crypto market? Or do you want to diversify into other cryptocurrencies like Dogecoin, Stellar Lumens, Cardano, and Solana? There are thousands of cryptocurrencies to choose from.
Don’t rush to click the buy button. Take the time to research each cryptocurrency you are considering to make an informed investment decision.
Make Your First Transaction
Now that your account is funded and you’ve researched which cryptocurrency you want to buy first, it’s time to start a transaction and buy your first cryptocurrency. This is usually a simple process. If you’ve ever bought stocks using a major brokerage’s website or mobile app, you’ll have a familiar experience.
What to Consider after Investing in Cryptocurrency
You don’t spend a lot of time buying and tracking certain investments, but it’s a good idea to keep up with the crypto market so you know what’s going on in your portfolio.
As mentioned above, it is important to keep your cryptocurrency account and wallet information safe. Be very careful with your account as losses cannot be recovered. Also, be careful not to lose your access, as funds are not always replenishable.
Should I Invest in Cryptocurrency?
Only you can decide whether investing in cryptocurrency makes sense for you. If you are excited by the idea of a high-risk investment that can bring huge returns, and you understand that cryptos are highly volatile and subject to downsides, then invest in cryptocurrency may be a good idea.
Cryptocurrency investors need to understand how cryptocurrencies work and the costs and fees associated with them. Investing in crypto has both short- and long-term risks that affect how a cryptocurrency fits your overall portfolio and investment goals.
Frequently Asked Questions (FAQs)
How to Invest in Cryptocurrency for Beginners?
The easiest way for most people to start investing in cryptocurrency is to use a beginner-friendly cryptocurrency exchange or broker. Apps from companies like Coinbase and Robinhood make it very easy to buy and store cryptocurrencies. When choosing where to start and where to open an account, pay attention to fees and the reputation of the exchange.
Do I Need a Lot of Money to Invest in Cryptocurrency?
You don’t need to be rich to invest in cryptocurrencies. Many cryptocurrency apps have no minimum balance requirements and allow you to invest very little money. Coins can be purchased for as little as $10.11, so you don’t need to buy the entire coin at once.
What Is the Best Way to Invest in Cryptocurrency?
The best way to invest in cryptocurrency varies depending on your investment goals and risk tolerance. Some cryptocurrency investors focus on the long term and are willing to HODL (hold on dear) as cryptocurrency prices ebb and flow. Others prefer more hands-on, active trading. The best way is not to invest more than you can afford to lose.
Balance does not provide tax, investment, financial services or advice. The information is presented without regard to the investment objectives, risk tolerance or financial situation of any particular investor and may not be suitable for all investors. Past performance is not indicative of future results. Investments involve the risk of losing principal.
