Crypto Money: Smart Investment Strategies For Beginners

Investing in cryptocurrency is a hot topic, but it's a risky business. If you're thinking about investing, it's important to do your research and understand the market.

Cryptocurrency is a digital asset, which is verified and recorded on a decentralised blockchain system. It's not issued or backed by a central authority like a bank, and it has no physical form. Instead, it exists as tokens on a blockchain.

The most well-known cryptocurrency is Bitcoin, but there are thousands of others, including Ethereum, Cardano, Litecoin, and Dogecoin.

Before investing in cryptocurrency, it's important to understand the risks. The market is extremely volatile, and prices fluctuate unpredictably. It's also important to note that cryptocurrency is not widely accepted as a form of payment.

If you're considering investing in cryptocurrency, it's advisable to start by investing in stocks to understand your capacity for risk. It's also important to have enough liquid funds to cover at least six months' worth of expenses before investing. When selecting a cryptocurrency to invest in, it's crucial to do your research as the market is prone to scams.

There are several ways to purchase cryptocurrency, including through exchanges, from individuals, or through an ICO. It's also important to choose a secure cryptocurrency wallet to store your assets.

Overall, investing in cryptocurrency is a risky but potentially lucrative endeavour. It's important to thoroughly research and understand the market before investing any money.

Choose a crypto-trading service or venue

Choosing a crypto-trading service or venue is the first step to buying Bitcoin. There are many types of cryptocurrency exchanges, and some allow users to remain anonymous and are decentralised. However, popular exchanges in the U.S. are not decentralised and follow laws that require users to submit identifying documentation. These include Coinbase, Kraken, Gemini, and Binance, which offer Bitcoin and a growing number of altcoins.

When creating an account, it is important to use two-factor authentication and a long, unique password. It is also important to research the features and options offered by an exchange before signing up. For example, some exchanges offer advanced trading features like margin accounts and futures trading, while others have features like crypto staking or lending.

The number of cryptocurrencies available varies by exchange, and some offer a much wider range than others. For example, Coinbase offers more than 200 tradable cryptocurrencies, while BitMart allows users to buy, sell, and store over 1,500 digital currencies and tokens.

The fees charged by exchanges also vary. Some, like Robinhood, charge 0% commission for cryptocurrency trades and purchases, while others have tiered fee structures that reward high-volume traders. It is also important to consider the deposit and withdrawal methods and associated fees. For example, while most exchanges support wire transfers, some also allow you to buy crypto using credit or debit cards.

Other factors to consider when choosing a crypto-trading service or venue include the platform's security measures, customer service options, and educational resources.

Connect your exchange to a payment option

Once you have chosen a crypto-trading service or venue, you will need to connect your exchange to a payment option. Depending on the exchange, this may require personal identification. This could mean providing a picture of a driver's license or Social Security card, as well as information about your employer and source of funds. The process is similar to setting up a typical brokerage account.

At most exchanges, you can connect your bank account directly or link it to a debit or credit card. While it is possible to use a credit card to purchase cryptocurrency, it is worth noting that the cryptocurrency price volatility, combined with a credit card's interest charges, could inflate the overall cost of purchasing a token. Additionally, some banks may question or even stop deposits to crypto-related sites or exchanges.

Fees vary for deposits via bank account, debit, or credit card, and exchanges also charge fees per transaction. It is important to research these fees before choosing an exchange.

Choosing a Crypto Payment Gateway

When integrating a crypto payment solution, you have two options for the decentralised payment processor: pre-built integration or a white-label payment solution. A pre-built gateway is a ready-to-use system that you can plug into your website, while a white-label solution is customisable, allowing you to change the layout, improve the online payment experience, and add features like a scannable QR code.

Crypto Payment APIs

Crypto Payment APIs facilitate the transfer of cryptocurrencies between the buyer's and seller's decentralised wallets. They are triggered when a user chooses Bitcoin or another cryptocurrency as a payment option. Crypto payment processing companies use smart contracts and other tools that interact with the blockchain to validate and register the transaction on the public ledger.

Some processors also support credit card-to-crypto payment gateways, where the buyer's fiat money is converted to crypto before being sent to the seller. Crypto gateways are generally faster than traditional payment methods, but latency may occur due to blockchain congestion and activity levels.

Place an order

Once you've done your research and found an exchange that suits your needs, it's time to place an order. This is where you'll be buying your chosen cryptocurrency.

Different exchanges will have different processes for placing an order, but the general steps are the same. First, you'll need to navigate to the "Buy" or "Trade" section of the exchange. From there, you'll be able to select the cryptocurrency you want to buy and enter the amount you want to purchase. Keep in mind that you don't have to buy a whole coin; you can always buy a fraction of a token.

After selecting the amount, you'll need to choose your payment method. Most exchanges will allow you to connect your bank account or use a credit or debit card. Some may also offer alternative payment methods, such as PayPal or other digital wallets.

Once you've selected your payment method, review your order details carefully. Pay close attention to the price, fees, and total cost of the transaction. If everything looks good, confirm the order.

Depending on the exchange and your payment method, the transaction may be processed instantly or may take a few days. Once it's complete, the cryptocurrency you purchased will be deposited into your exchange wallet.

It's important to note that placing an order may come with fees. These fees can vary depending on the exchange and your payment method. Be sure to review the fee structure of the exchange before placing your order.

Additionally, remember that investing in cryptocurrency is a risky endeavour. The market is extremely volatile, and prices can fluctuate significantly. Always do your research, understand the risks, and only invest what you can afford to lose.

Understand the risks

Investing in cryptocurrencies is risky due to their volatile nature. They are high-risk and speculative, and their value can drop by hundreds or thousands of dollars in a short period. This volatility is caused by three main factors: sentiment, speculation, and market manipulation. Crypto exchanges, media owners, and influential investors can manipulate prices, and the unregulated and anonymous nature of digital asset markets makes this easier.

Another risk to consider is the potential loss of your private key. If you lose access to your private key, you will be unable to access your cryptocurrencies, and they will essentially be lost. If a third party acquires your private key, they can also gain access to your cryptocurrencies.

The unregulated nature of cryptocurrencies also poses risks. They are currently unregulated by governments and central banks, which means there is a high degree of uncertainty. This lack of regulation also means there is no official safeguard or insurance for your investments, and any rebates on lost investments are entirely dependent on the organisation you are dealing with.

Additionally, there are security risks. Cryptocurrencies are susceptible to hacking, and there is no perfect way to prevent technical glitches or human error. Significant incidents of theft have occurred on both personal wallets and exchanges, and mistaken transactions cannot be reversed.

Finally, there are risks associated with trading platforms and exchanges. These platforms are largely unregulated and provide limited transparency regarding their operations. This lack of regulation has led to cases of fraud, business failure, or security breaches, where investors could not be compensated for their losses.

Be aware of taxes and regulations

When investing in cryptocurrencies, it is important to be aware of the taxes and regulations that apply to this new asset class. In the United States, the Internal Revenue Service (IRS) considers cryptocurrencies like Bitcoin to be property for tax purposes. This means that you may be subject to capital gains taxes when you sell or trade your crypto, and you will need to report these transactions on your tax returns.

To ensure compliance with tax laws, it is crucial to keep detailed records of your crypto transactions, including the dates and amounts of purchases and sales, as well as the fair market value of the currency at the time of the transaction. This information will be necessary for calculating any capital gains or losses you may have incurred. Additionally, be mindful of any crypto received as income, as this will also need to be reported and will be taxed at your regular income tax rate.

In recent years, the IRS has increased its focus on crypto-related taxes, with new reporting rules being proposed in 2023. These rules would require crypto brokers, exchanges, and payment processors to report user transactions to the IRS, similar to the reporting requirements for stocks and bonds. The proposed rules are expected to take effect in 2025, with the first reports being sent to the IRS in 2026.

To avoid penalties and interest charges, it is important to accurately report all crypto-related activities on your tax returns. If you have not been reporting your crypto transactions in the past, consider amending your previous tax returns to include this information. While it may be tempting to take advantage of the privacy features of cryptocurrencies to avoid taxes, keep in mind that the IRS has methods to track down tax evaders, and the consequences of being caught can be severe.

In addition to taxes, it is important to be aware of any regulations specific to the country or region in which you reside. These regulations may impact the legality of purchasing, selling, or trading cryptocurrencies, as well as the types of crypto exchanges that are available to you. Before investing in cryptocurrencies, be sure to research the regulatory environment in your area to ensure compliance with the law.

Frequently asked questions