The Crypto Investing Guide: Getting Started

Investing in cryptocurrency is a hot topic, but it's also a risky and volatile business. Crypto is a decentralised digital currency, secured by blockchain technology, that operates outside the regulation of governments and central authorities. There are thousands of different cryptocurrencies, from the well-known, such as Bitcoin and Ethereum, to the obscure.

If you're thinking of investing in crypto, it's important to understand the risks. The value of cryptocurrencies can fluctuate wildly, and there's always the possibility that your investment could become worthless. It's also important to only invest what you can afford to lose, and to do your research before choosing a crypto exchange or broker.

Understand the risks

Investing in cryptocurrency is risky, so it's important to be aware of the potential pitfalls and only invest money you can afford to lose. Cryptocurrencies are enormously volatile, and their value can fluctuate dramatically in a matter of seconds. This volatility can be advantageous for sophisticated investors but can be a minefield for beginners.

The unregulated nature of cryptocurrencies also means that there is a high risk of scams and fraud. It's important to thoroughly research any potential investments and only use reputable exchanges and digital wallet providers.

Another risk to consider is the potential for regulatory changes. Cryptocurrencies are not currently subject to much government regulation, but this could change, and there is a possibility that cryptocurrency could become illegal and therefore worthless.

It's also worth noting that the value of cryptocurrencies depends on market perception and demand. If businesses and investors lose faith in a particular cryptocurrency, its value could plummet.

Finally, there is a risk of hacking and cybersecurity threats. While crypto blockchains are difficult to hack, individuals are susceptible to the same risks as with any other online activity.

Given these risks, it's crucial to approach cryptocurrency investing with caution and to only invest what you can afford to lose. Diversification is also key—spreading your investments across multiple cryptocurrencies and other asset classes can help to mitigate some of the risks.

Research the market

Researching the market is a crucial step when entering the world of cryptocurrency investing. Here are some detailed guidelines on how to research the crypto market effectively:

Start with the Basics

If you are new to crypto investing, it is advisable to begin with well-established cryptocurrencies such as Bitcoin and Ethereum. These currencies have a wealth of resources available online, and familiarising yourself with these resources will give you a strong foundation of knowledge. Reading the original Bitcoin Whitepaper by Satoshi Nakamoto and the book 'Mastering Bitcoin' by Andreas Antonopoulos are recommended starting points. By covering these basic resources, you will gain a clear understanding of wallets, addresses, private and public keys, and how transactions work on the Bitcoin blockchain.

Look Up Information on Project Websites and Read Whitepapers

For newer or smaller coins, information may not be as readily available as it is for established platforms. Therefore, it is crucial to conduct thorough research. Start by examining the project's website and whitepaper, checking for legitimacy, important information such as contact details and policies, content currency, functionality, and external citations. Be wary of poor grammar and spelling, as these could be red flags. You can also use sites like https://www.urlvoid.com/ to check a page's reputation and safety.

Understand the Project's Introduction, Industry, and Aim

It is essential to grasp what the crypto project is about, the industry it targets, and the issues it aims to address. Assess whether the project is aiming for a new or established market and consider the growth or challenges faced by businesses in that industry. Understand the role of blockchain technology in the project and how it helps people and businesses.

Evaluate the Coin's Problem-Solving Approach and Usefulness

Dig deeper into the project's approach to addressing challenges faced by businesses in the industry. Analyse if the project makes existing processes easier, faster, or more cost-effective. Based on your understanding of the project's aims and approach, conduct a SWOT analysis to identify the strengths, weaknesses, opportunities, and threats associated with the cryptocurrency.

Research the Team and Partners

It is vital to know who is behind a cryptocurrency project. Look beyond the names and titles on the website, and seek out detailed information about the team members' previous experiences, achievements, and qualifications. Utilise platforms like LinkedIn and Twitter to learn more about the team and check their activity levels and engagement. Reach out to the team with your questions, and assess their responsiveness and dedication. Additionally, established partners add credibility to a crypto project, so research the project's strategic partners and the nature of their cooperation.

Analyse the Roadmap and Community Engagement

Roadmaps help you understand a crypto project's goals and expected timeline. Keep in mind that software projects often face delays, so be prepared for potential setbacks. Assess the project's community engagement by checking their activity on social media platforms. A strong, supportive community is crucial for the growth of most cryptocurrencies. Observe the level of user engagement and the overall sentiment of the community.

Research Competitors and External Sources

Expand your research beyond the information provided by the developers, and look into the project's competitors and market conditions. Understand how your chosen project differs from its competitors and assess their respective strengths and weaknesses. Additionally, seek out information from external sources, including news websites, analysts, and other businesses. This will help you uncover any potential issues the project has faced, such as security breaches or team member departures.

By following these comprehensive steps, you will be well-equipped to make informed decisions when investing in the cryptocurrency market.

Choose a broker or exchange

When it comes to choosing a broker or exchange for crypto investing, there are several factors to consider. Here are some key points to help you make an informed decision:

Understanding the Differences

Firstly, it's important to understand the difference between a broker and an exchange. A cryptocurrency broker is a firm or individual that acts as an intermediary between buyers and sellers, offering a platform for users to exchange fiat money for cryptocurrencies. They set their own prices and fees, and they are regulated by financial authorities. On the other hand, a cryptocurrency exchange provides an online platform for direct trading between buyers and sellers based on current market prices. Exchanges typically act as the middleman and charge transaction fees.

Suitability for Beginners

If you're new to crypto investing, consider choosing a broker. Cryptocurrency brokers often provide a more suitable environment for beginners as they facilitate the exchange of fiat currencies for cryptocurrencies and offer user-friendly platforms. Brokers like Bitpanda are easy to navigate, taking the confusion out of the buying and selling process. Additionally, brokers usually allow users to buy and sell at prices set by the broker, making it a more straightforward option.

Range of Services

Cryptocurrency brokers may also offer a range of additional services. For example, some brokers provide educational resources and market analysis to help you make informed trading decisions. They may also offer trading advice and derivatives products, such as cryptocurrency futures and options. Furthermore, brokers can hold cryptocurrencies for their customers, providing an extra layer of convenience and security.

Deposits and Withdrawals

When it comes to deposits and withdrawals, brokers generally offer more flexibility and lower fees. Depositing fiat money to cryptocurrency exchanges can be challenging and expensive, and withdrawing funds in fiat currencies can be time-consuming. In contrast, brokers usually offer multiple deposit methods, including debit/credit cards and e-wallets, making the process simpler and more cost-effective.

Trading Features

Brokers typically provide a wider range of trading features and tools compared to exchanges. They offer technical analysis tools, extensions, and risk management strategies. This makes them a popular choice for those interested in cryptocurrency margin trading. However, exchanges may be preferable for those seeking direct crypto-to-crypto trading.

Safety and Security

Safety and security are crucial factors to consider. Cryptocurrency exchanges have been targeted by hackers in the past, resulting in significant losses. Trading on a regulated broker provides an extra layer of protection for your investments. Regulated brokers are audited, and clients can file complaints if there are any breaches. Additionally, brokers keep client funds in bank accounts, providing an additional guarantee.

Your Trading Goals

Ultimately, the decision between a broker and an exchange depends on your goals and preferences. If you're looking for a user-friendly platform to get started with crypto investing, a broker might be the right choice. If you prefer direct trading and a wider range of cryptocurrencies, an exchange may be more suitable. Remember to research the companies or exchanges you intend to use and choose a platform that aligns with your trading strategies and risk tolerance.

Set up an account

Setting up an account is the second step to investing in cryptocurrency, after you have picked a broker or cryptocurrency exchange. You will need to create an account by signing up and providing personal information to verify your identity, often known as know-your-customer (KYC) protocols. This may involve entering information from your driver's license or passport, and sometimes a photo of yourself or a form of identification.

Before you can begin investing in crypto, you must ensure funds are available in your account. You can add money to your account through various methods, including connecting it to your bank, initiating a wire transfer, or using a debit or credit card for payment. The time it takes for funds to become available in your account varies depending on the deposit method and the cryptocurrency broker or exchange chosen.

While some exchanges allow credit card deposits, these come with risks and additional costs. Credit card companies often categorise crypto purchases as cash advances, leading to higher interest rates and extra fees. Coupled with fees from both the credit card and the exchange, you could lose up to 10% of your crypto purchase.

Fund your account

Funding Your Account

Once you have chosen a cryptocurrency broker or exchange, you will need to create an account. Generally, this requires signing up and providing personal information to prove who you are, often known as know-your-customer (KYC) protocols. This may involve entering information from your driver's license or passport. Sometimes, you may need to provide a photo of yourself or a form of identification.

Before you can begin investing in crypto, you must ensure funds are available in your account. You can add money to your account through various methods, including connecting it to your bank, initiating a wire transfer, or using a debit or credit card for payment. The time it takes for funds to become available in your account varies depending on the deposit method and the cryptocurrency broker or exchange chosen.

While some exchanges allow credit card deposits, these come with risks and additional costs. Credit card companies often categorise crypto purchases as cash advances, leading to higher interest rates and extra fees. Coupled with fees from both the credit card and the exchange, you could lose up to 10% of your crypto purchase.

Therefore, it is important to look for a broker or exchange that minimises your fees. In fact, many so-called "free" brokers embed fees – called spread mark-ups – in the price you pay for your cryptocurrency.

If you want to invest in a cryptocurrency with a high value per coin, most exchanges allow you to invest on a dollar basis, rather than buying a whole coin. This means you don't need a huge amount of money to invest in something like Bitcoin. Focus on the total amount of money you want to invest, rather than the number of coins you want to buy.

Always remember, don't invest more than you can afford to lose.

Frequently asked questions