Crypto Investment Guide: Strategies For Beginners

Investing in crypto can be a daunting task, especially for beginners. There are thousands of cryptocurrencies to choose from, each with its own unique features and risks. The most well-known and dominant cryptocurrency is Bitcoin, which was created in 2009 and has soared to unimaginable heights, gaining attention from investors, the media, and businesses worldwide. Ethereum, Binance Coin, and Dogecoin are also popular cryptocurrencies with their own advantages and drawbacks. When investing in crypto, it is important to consider your financial goals, risk tolerance, and conduct thorough research. There are various ways to invest in crypto, including using cryptocurrency exchanges, traditional stockbrokers, money transfer apps, and Bitcoin ATMs. It is crucial to understand the risks and potential rewards associated with investing in cryptocurrencies, as the market is highly volatile.

How to buy crypto

There are several ways to buy crypto, each with its own pros and cons. Here is a step-by-step guide on how to get started:

Choose a Platform

Firstly, you need to select a platform that offers crypto. There are four main types of platforms:

• Traditional trading platforms: These typically offer stocks and other conventional assets, but many now also offer crypto. The benefit of these platforms is simplified security. For example, try Robinhood, Webull, TradeStation, or Fidelity.
• Crypto exchanges: These platforms only offer crypto and can vary in terms of fees and security. Examples include Gemini, Kraken, Coinbase, Crypto.com, Uphold, and Binance.
• Mobile payment services: These apps, such as PayPal, Venmo, or Cash App, allow you to buy crypto directly from your smartphone.
• Alternative platforms: You can use online platforms or Bitcoin ATMs to buy crypto with a credit or debit card, but these often involve high fees.

Set Up an Account

Once you have chosen a platform, you will usually need to create an account. This typically involves providing some personal information, such as your name, contact details, and Social Security number. You may also need to verify your identity and set up two-factor authentication for added security.

Add a Payment Method

To buy crypto, you will need to add a payment method to your account. This could be a credit or debit card, or you may be able to link a bank account to make purchases directly. Note that some platforms may charge higher fees for certain payment methods, and some cards may not be supported.

Make Your Purchase

Now you are ready to buy crypto! Simply select the crypto you want to purchase, enter the amount you wish to buy, and confirm the transaction. Remember to review the details carefully before finalizing your purchase.

Store Your Crypto

After purchasing crypto, you will need to store it in a digital wallet. There are two main types of wallets: hot wallets and cold wallets. Hot wallets are typically provided by exchanges and offer faster transactions, but they are more attractive to hackers. Cold wallets, on the other hand, are small, encrypted portable devices that offer more security but may be less convenient for frequent transactions.

It is important to remember that crypto is a highly volatile asset class and may be susceptible to market manipulation. Always do your own research and only invest what you can afford to lose.

Crypto wallets

There are two main types of crypto wallets: hot wallets and cold wallets. Hot wallets are always connected to the internet, while cold wallets are kept offline.

Hot Wallets

Hot wallets are digital tools whose connection to the internet cannot be severed. They are more convenient as your public and private keys are stored and encrypted on your wallet's respective app or website, so you can access them anywhere with an online connection. However, they are less secure than cold wallets and are vulnerable to a wider variety of attacks.

Examples of hot wallets include:

• Coinbase Wallet - Best for Beginners
• MetaMask - Best for Ethereum
• TrustWallet - Best for Mobile
• Electrum - Best Desktop Bitcoin Wallet
• BlueWallet - Best Mobile Bitcoin Wallet
• Exodus - Best for Desktop
• Crypto.com - Best DeFi Wallet
• Zengo - Best MPC Wallet

Cold Wallets

Cold wallets store your digital keys offline, either on a piece of hardware or a sheet of paper. Hardware wallets usually come in the form of a USB drive, while "paper" wallets may have your keys accessible via print-out QR codes, written on a piece of paper, or engraved on some other material, such as metal. Cold wallets are more secure than hot wallets due to offline storage, but transactions take longer on average, and it is nearly impossible to recover currencies without a backup of your digital keys.

Examples of cold wallets include:

• KeepKey - Best Cold Wallet for Beginners
• Ledger Nano S Plus - Best Hardware Crypto Wallet
• SafePal - Best Hybrid Crypto Wallet

Crypto exchanges

There are two main types of crypto exchanges: centralized and decentralized. Centralized exchanges are managed by a single corporate authority, like a brokerage company, and are the most common type of exchange. Decentralized exchanges, on the other hand, distribute responsibility for facilitating and verifying crypto trades among a network of users. While decentralized exchanges may offer increased accountability and transparency, they are often less user-friendly and may not support the conversion of fiat currencies into crypto.

When choosing a crypto exchange, it is important to consider factors such as fees, security, the availability of desired cryptocurrencies, and educational resources. Some popular crypto exchanges include Coinbase, Binance, Kraken, and Gemini. These exchanges offer a wide range of cryptocurrencies, competitive fees, and user-friendly interfaces, making them suitable for both beginner and advanced crypto investors.

Crypto investment options

Investing in cryptocurrency is risky, so it's important to understand the different options available to you before diving in. Here are some of the most common ways to invest in crypto:

Buying Crypto Directly

The most common way to invest in crypto is to buy and store one or more cryptocurrencies directly. You can choose from a range of well-known digital currencies like Bitcoin and Ethereum, or opt for newer and lesser-known coins. You can buy crypto using crypto exchanges, apps, or through certain broker-dealers. Once you own crypto, you can store and manage it in a digital wallet.

Investing in Crypto Funds and Companies

Instead of buying crypto directly, you can invest in companies with a partial or total focus on cryptocurrency. This includes crypto mining companies, mining hardware makers, and companies that support cryptocurrency, such as Robinhood Markets Inc. and PayPal Holdings Inc. You can also invest in crypto-focused funds, such as exchange-traded funds (ETFs) and cryptocurrency investment trusts.

Crypto Mining or Validation

Another way to invest in crypto is to become a crypto miner or validator. This involves using computers with specialized chips to solve complicated mathematical puzzles and validate transactions on a blockchain. Miners and validators are rewarded with crypto, which they can hold as an investment or exchange for another currency.

Crypto Derivatives and Financial Products

You can gain exposure to the crypto market through financial derivatives, such as CME's Bitcoin futures, or through other instruments like Bitcoin trusts and ETFs. These products allow you to invest in crypto without directly purchasing the underlying asset.

Crypto Retirement Accounts

If you want to invest in crypto for the long term, you can consider a cryptocurrency Roth IRA. These accounts offer tax advantages similar to traditional individual retirement accounts (IRAs) while allowing you to invest in crypto.

When investing in cryptocurrency, it's important to remember that the market is highly volatile and unregulated. Always do your research, understand the risks involved, and only invest what you can afford to lose.

Crypto risks

While cryptocurrencies have become increasingly popular, they are not without their risks. Here are some key considerations before investing in crypto:

Volatility and Loss

The price of cryptocurrencies is extremely volatile, with frequent high highs and low lows. This volatility is influenced by various factors, and there is no guarantee that the value of an investment will rise again after a drop. As such, it is important to only invest what you can afford to lose.

Regulatory Uncertainties

Government regulations around crypto are constantly evolving and vary across different jurisdictions. These regulations can impact how crypto is used and accessed, leading to uncertainty and potential market volatility.

Security and Scams

Cryptocurrency transactions are typically irreversible, and there are no legal protections like those provided by credit card companies. Crypto exchanges and wallets have been hacked in the past, resulting in the loss of millions of dollars. Additionally, some newer coins may be higher-risk for scams, and there is no insurance for lost or stolen cryptocurrencies.

Centralization and Environmental Concerns

Cryptocurrencies were designed to be decentralized, but ownership is becoming more concentrated among large firms and investment fund managers. The process of mining crypto, particularly popular cryptocurrencies, requires significant energy consumption, sometimes as much as entire countries consume.

User and Management Risks

User risk is inherent in crypto transactions, as there is no way to reverse or cancel a transaction once sent. Additionally, there are limited protections against deceptive or unethical management practices, and investors may lose large sums due to failed products or unreliable teams.

Counterparty and Programming Risks

Many investors rely on exchanges or custodians to store their crypto. In the event of theft or loss by these third parties, investors could lose their entire investment. Furthermore, the use of automated smart contracts on investment and lending platforms poses the risk of bugs or exploits that may result in the loss of investments.

Market Manipulation

Market manipulation remains a significant issue in the crypto space, with influential people, organizations, and exchanges acting unethically.

Frequently asked questions