A Beginner's Guide To Investing In Crypto In The Usa

Cryptocurrency is a digital asset that operates on a blockchain. This blockchain is a peer-to-peer medium of exchange without a central authority. It's important to note that investing in cryptocurrency is fraught with risk and volatility. If you're looking to invest in cryptocurrency in the USA, you'll need to open an account with a crypto exchange. There are around 500 exchanges to choose from, each with its own unique registration process. Some popular crypto exchanges in the USA include Coinbase, Gemini, and Kraken.

Choosing a crypto exchange

When choosing a crypto exchange, there are several factors to consider. Here are some of the most important ones:

• Security: The safety of your crypto assets is paramount. Choose an exchange with robust security protocols and safeguards in place to protect your investments. Prioritize exchanges that have a strong track record of preventing and addressing security breaches.
• Reputation: The crypto market is ever-evolving, and reputation plays a significant role. Opt for exchanges with a solid reputation and a proven track record of reliability and transparency.
• Available cryptocurrencies: Ensure that the exchange offers the cryptocurrencies you intend to invest in. Some platforms focus solely on major cryptocurrencies like Bitcoin and Ethereum, while others provide a diverse range of digital assets.
• Liquidity: Recent market downturns have exposed vulnerabilities in some exchanges. Choose an exchange with high liquidity to safeguard your investments and facilitate swift, low-slippage trades.
• User Interface: Consider your level of experience and choose an exchange with a suitable user interface. Some platforms cater to beginners with user-friendly interfaces, while others offer advanced features for seasoned traders.
• Fees: Trading fees and withdrawal fees vary across exchanges. Compare the fee structures to identify the most cost-effective option for your investment strategy.
• Customer Service: If you're new to crypto investing, look for an exchange with responsive and knowledgeable customer support to guide you through any issues.
• Regulation and Compliance: Due to the complex regulatory environment, many exchanges choose not to operate in certain states or countries. Ensure that the exchange you choose complies with the regulations in your jurisdiction.
• Reviews and Feedback: Research the exchange's reputation by reading customer reviews and testimonials. This can provide insights into the quality of their services, including security, user experience, and customer support.

Crypto wallets

Hot Wallets

Hot wallets are digital tools whose connection to the internet cannot be severed. Users can access these pieces of software from a phone or desktop computer to monitor their currencies and trade them. Some hot wallets are also accessible through the web or as browser extensions, meaning you can use them on a wide variety of devices.

The greatest advantage of hot wallets is their convenience. Your public and private keys are stored and encrypted on your wallet’s respective app or website, so unless they're limited to a specific device, you can access them anywhere with an online connection. This ease of access makes them ideal for those who trade more often and are considering spending bitcoins.

• Coinbase Wallet
• MetaMask
• TrustWallet
• Electrum
• BlueWallet
• Exodus
• Crypto.com
• Zengo

Cold Wallets

Cold wallets store your digital keys offline on a piece of hardware or sheet of paper. Hardware wallets usually come in the form of a USB drive, which lets you buy, sell, and trade crypto while it’s connected to a computer. With “paper” wallets, your keys may be accessible via print-out QR codes, written on a piece of paper, or engraved on some other material, such as metal.

Cold storage wallets are deliberately designed to be hard to hack. Unless the wallet owner falls for some sort of phishing attack, hackers have no way of obtaining the owner’s keys remotely. A thief would first have to obtain the USB drive used to access your crypto portfolio and then somehow crack its password.

This high level of security may lend itself to mistakes on the part of wallet owners. If you lose your USB drive or sheet of paper and don’t have your private key backed up somewhere, you’ve effectively lost access to your crypto. Compared to hot wallets, which make it possible to regain access through a seed phrase, recovering access on a cold wallet is impossible in most cases due to the two-key security system.

• KeepKey
• Ledger Nano S Plus
• SafePal

Risks of investing in crypto

Volatility

The value of cryptocurrencies is subject to high volatility, with prices fluctuating significantly in response to factors such as news, regulation, and the actions of large crypto investors. This makes it challenging for investors to build confidence and secure gains.

Market Manipulation

The unregulated and anonymous nature of the crypto markets makes them susceptible to price manipulation by exchanges, media owners, and influential investors. Common manipulation strategies include wash trading, dark pool trading, pump and dumps, and shilling.

Security and Custody

The storage of cryptocurrencies is risky due to the constant threat of hacking. Investors cannot recover assets that are lost or stolen, and mistaken transactions cannot be reversed. Additionally, crypto investments do not have the same official safeguards or insurance as traditional investments through banks or brokerages.

Regulatory and Tax Uncertainty

The lack of clear regulatory frameworks creates uncertainty for investors, including concerns about future restrictions and bans. The tax treatment of cryptocurrencies is also unclear, and investors may be unsure of their tax obligations and record-keeping requirements.

Peer-to-Peer Transactions

Digital currencies can be traded on unregulated platforms or through peer-to-peer transactions, which carry higher risks such as double-selling. In the event of fraud, business failure, or security breaches, investors may not receive compensation for their losses.

Loss of Private Key

Cryptocurrencies are typically stored in a digital wallet, and access is controlled by both a public and a private key. If the private key is lost, destroyed, or compromised, investors may lose access to their digital assets. If acquired by a third party, their crypto may be at risk.

Network Slow-Down

A high volume of transactions on the blockchain can lead to a slowdown in the network, impacting the verification of transactions and the creation of new units of cryptocurrency.

Dilution and Forks

Disagreements between users over protocols can result in a "fork," creating two separate networks and versions of the cryptocurrency. This can lead to dilution and impact the value of the original cryptocurrency.

Loss of Confidence

Most cryptocurrencies are not backed by central banks, national or international organizations, or assets, and their value is solely determined by market participants. A loss of confidence in digital currencies could lead to a collapse in trading activities and a sharp drop in value.

Currency-Conversion Risks

Policies or interruptions in the deposit or withdrawal of fiat currency on trading platforms can impact investors' ability to convert between fiat and digital currencies.

Taxation

There is a lack of clarity regarding the tax treatment of cryptocurrencies, which vary across jurisdictions. Investors in cryptocurrencies may face substantial uncertainty and require regular specific tax advice to ensure compliance.

How to make money with cryptocurrency

Cryptocurrency is a digital asset that operates on a blockchain. This blockchain is a peer-to-peer medium of exchange without a central authority.

There are several ways to make money with cryptocurrency:

Buy and Hold

You can buy cryptocurrencies and hold them over the long run, hoping these assets will gain in value.

Trade Crypto

Investors can also trade crypto and capitalize on price fluctuations. Some traders monitor price fluctuations throughout the day, while others set "good 'til canceled" orders to have trades executed once crypto reaches a set limit price.

Crypto Staking

Crypto staking is another way to earn money with "proof of stake" cryptocurrencies such as Ethereum and Cardano. It's similar to lending crypto to other investors that you can reclaim at any time. Staking allows crypto investors to participate in the validation of transactions on the blockchain. The yield you earn depends on the type of crypto you use. Less risky cryptocurrencies like Ethereum yield less, while you can earn more cash flow with altcoins like Cardano, Solana, and Dogecoin.

Crypto Savings Accounts

Crypto savings accounts pay up to 10% interest, but they come with risks similar to regular crypto investing.

Crypto Rewards Credit Cards

Some platforms, like Crypto.com, offer crypto rewards credit cards. Users can take advantage of Crypto.com's utility token Cronos (CRO) to pay fees on the platform and earn other benefits.

Crypto Loans

Some crypto exchanges allow users to lend out their cryptocurrency.

In-App Crypto Purchases

Some crypto apps, such as games, crypto wallets, or other online services that use blockchain technology, allow users to buy and sell digital assets directly within their app.

Crypto Mining

Crypto mining is the process of using specialized computer hardware to solve complex mathematical equations to validate blockchain transactions. Miners are rewarded with crypto tokens for their efforts.

NFTs

Non-fungible tokens (NFTs) are unique digital assets that can be bought, sold, or traded on blockchain platforms. NFTs can represent ownership of digital art, music, collectibles, and more.

Decentralized Finance (DeFi)

DeFi platforms allow users to borrow, lend, and invest in cryptocurrencies without traditional financial intermediaries like banks. By providing liquidity to these platforms, users can earn interest on their crypto holdings.

Remember, investing in cryptocurrency is risky and volatile, and it's important to do your own research before investing.

Best brokers for crypto trading

When it comes to crypto trading, there are several brokers available in the market. Here are some of the best brokers for crypto trading:

Robinhood

Robinhood is a great option for buying cryptocurrency directly. It offers commission-free trading, with a built-in spread markup. Robinhood's slick app makes trading easy, although those looking for a full-featured trading experience will be disappointed.

Interactive Brokers

Interactive Brokers lets you trade four cryptocurrencies through Paxos Trust Company and Zero Hash, including Bitcoin and Ethereum, for one of the lowest commissions in the market. Customers can also access 24/7 crypto trading through an associated app with Paxos.

Webull

Webull is a commission-free trading app that provides investors with a solid offering, including cryptocurrency trading. While it charges a built-in spread markup of 1% on either side of a trade, several cryptocurrencies are available for trading, including Bitcoin, Ethereum and Dogecoin.

Binance

Binance is a specialized trading platform that allows you to buy and sell digital currencies, including Bitcoin, Ethereum, and hundreds of other smaller coins. The commission structure at Binance is low and gets cheaper the more you trade. However, Binance's finances and operations have been scrutinized and criticized by the SEC.

Coinbase

Coinbase is a specialized cryptocurrency-focused platform that allows you to trade digital currencies directly, including Bitcoin, Ethereum, Solana, and Tether. You'll have access to more than 200 cryptocurrencies. The exchange's commission structure is steep, with fees starting at 0.6%. The SEC has also sued Coinbase, alleging it illegally operated as an exchange.

Kraken

Kraken is a cryptocurrency exchange that allows you to trade in more than 200 different digital currencies such as Bitcoin and Ethereum. Using the Kraken Pro tier, the initial trading fee ranges from 0.16% to 0.26% and then declines based on your 30-day trading volume. Kraken is not available to residents of New York and Washington state.

EToro

EToro is a social trading platform that allows you to mirror another trader's transactions. It offers a wide range of asset classes, including cryptocurrencies, with no commissions charged for trades. eToro provides a demo account option and educational resources, making it a good choice for beginners.

Plus500

Plus500 provides a diverse range of asset classes, including CFDs, shares, ETFs, and crypto. They aim for a simple trading experience by avoiding complex jargon and advanced technical tools. Plus500 also offers a Trading Academy with resources for traders of all levels.

Caleb & Brown

Caleb & Brown is a team of cryptocurrency brokers that offers support for all crypto account holders, especially newbies. They can facilitate large transactions, provide instant spot price information, and offer dedicated customer support. With over 300 assets to invest in, they provide a personalized path to building a crypto portfolio.

Frequently asked questions