Josephine Norton
Cryptocurrency is a digital currency that is secured by blockchain technology. It is not backed by real assets or tangible securities and can be traded between consenting parties with no broker. There are thousands of cryptocurrencies, with Bitcoin being the most well-known. Cryptocurrency investing can take many forms, from buying crypto directly to investing in crypto funds and companies. To buy cryptocurrency, you can use a crypto exchange or broker-dealer, or certain payment services such as Cash App and PayPal. When investing in cryptocurrency, it is important to consider the risks, as the prices of cryptocurrencies are highly volatile and affected by news and regulatory changes.
| Characteristics | Values |
|---|---|
| Definition | A form of currency that exists solely in digital form |
| Use | Used to pay for purchases online without going through an intermediary, such as a bank, or it can be held as an investment |
| Transactions | Traded between consenting parties with no broker and tracked on digital ledgers |
| Blockchain | A distributed database that is shared and verified via a computer network |
| Volatility | Cryptocurrency prices are more speculative and affected by small events such as a celebrity's tweet |
| Risks | Cryptocurrencies are highly speculative assets with significant price swings; there is also the risk of scams and fraud |
| Buying | Can be bought through crypto exchanges, traditional brokers, payment services, or brokerages |
| Storage | Can be stored in a digital wallet, either hosted by the crypto exchange or an independent wallet provider |
What You'll Learn
Buy established cryptocurrencies like Bitcoin and Ethereum
Established cryptocurrencies like Bitcoin and Ethereum are among the most popular options when it comes to investing in digital assets. Here are some key things to know about investing in these established cryptocurrencies:
Bitcoin
Bitcoin (BTC) is often regarded as the original cryptocurrency, having debuted in 2009 and gained widespread popularity in 2017. It runs on a blockchain, a decentralised ledger system that ensures secure and transparent transactions. The price of Bitcoin has skyrocketed over the years, with a single Bitcoin costing around $59,125 as of September 3, 2024, reflecting a growth of 11,725% since May 2016.
Ethereum
Ethereum (ETH) is another well-known cryptocurrency and blockchain platform. It is favoured by program developers due to its potential applications, such as smart contracts and non-fungible tokens (NFTs). Ethereum has also experienced significant growth, with its price increasing by 22,675% between April 2016 and September 2024.
Where to Buy Established Cryptocurrencies
You can purchase established cryptocurrencies like Bitcoin and Ethereum through various platforms, including:
- Crypto exchanges: Major exchanges like Coinbase, Binance, and Kraken offer a wide selection of cryptocurrencies and are generally considered more secure.
- Traditional brokers: While brokers typically offer futures contracts rather than direct trading, they provide access to other securities and often commission-free Bitcoin ETFs.
- Payment services: Some payment platforms, such as Cash App and PayPal, also facilitate the buying and selling of popular cryptocurrencies.
Things to Consider
When investing in established cryptocurrencies like Bitcoin and Ethereum, it is important to:
- Do your research: Carefully study the whitepapers, roadmaps, and underlying technology of the cryptocurrency. Understand the problems it aims to solve and the team behind its development.
- Understand the risks: Cryptocurrencies are highly volatile and unregulated, making them risky investments. Regulatory changes and market sentiment can significantly impact their value.
- Consider transaction fees: Different cryptocurrencies and platforms have varying transaction fees, which can impact your overall profits.
- Diversify your portfolio: Avoid putting all your eggs in one basket. Invest in a variety of cryptocurrencies and other traditional assets to balance your risk.
- Store your crypto securely: Utilise secure digital wallets, preferably with two-factor authentication, to protect your cryptocurrency holdings from potential hackers and cyber-attacks.
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Invest in companies with a partial or total focus on cryptocurrency
Investing in companies with a partial or total focus on cryptocurrency is another way to gain exposure to the crypto market. This can include investing in cryptocurrency mining companies, mining hardware makers, or companies that support cryptocurrency, such as Robinhood Markets Inc. (HOOD) and PayPal Holdings Inc. (PYPL). You can also invest in companies that hold large amounts of cryptocurrency on their balance sheets, such as MicroStrategy Inc. (MSTR). These companies offer varying levels of crypto exposure, allowing you to choose an investment option that aligns with your risk tolerance and investment goals.
When investing in cryptocurrency companies, it is important to conduct thorough research and carefully evaluate the company's business model, financial health, and level of crypto exposure. Additionally, consider the regulatory environment and potential changes that could impact the company's operations and the value of your investment. Remember to diversify your investments and not put all your money into a single company, as the cryptocurrency market is highly volatile and subject to rapid changes.
Another option for investing in cryptocurrency-focused companies is to consider exchange-traded funds (ETFs). These ETFs typically hold a basket of companies with crypto-related businesses, giving you exposure to a range of companies in the industry. This can help reduce the risk associated with investing in a single company and provide a more diversified approach to investing in the crypto space.
Before investing in any cryptocurrency-related company, it is crucial to understand the risks involved. The cryptocurrency market is known for its high volatility, and the success of these companies can be heavily influenced by regulatory changes and market sentiment. Therefore, conducting due diligence and consulting with a financial advisor before making any investment decisions is highly recommended.
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Invest in a cryptocurrency-focused fund
Cryptocurrency-focused funds are similar to mutual funds/ETFs but contain a portfolio of digital tokens and cryptos instead of stocks, indices, or commodities. There are several types of cryptocurrency funds available, including:
- Cryptocurrency exchange-traded funds (ETFs): These pool investor funds and invest in a collection of assets, charging an expense ratio. ETFs are priced throughout the trading day, so the time you place a trade affects the price you pay. An example of a cryptocurrency ETF is the Bitwise 10 Crypto Index Fund, which tracks the top 10 cryptocurrencies by market cap.
- Cryptocurrency mutual funds: These are professionally managed portfolios that include a variety of assets, such as stocks, bonds, and other securities. An example of a cryptocurrency mutual fund is the Bitcoin Strategy ProFund, which invests in Bitcoin futures contracts.
- Cryptocurrency trusts: These are investment trusts that focus on cryptocurrencies. An example of a cryptocurrency trust is the Grayscale Bitcoin Trust, which tracks the performance of Bitcoin.
- Crypto-adjacent funds: These are mutual funds and ETFs that invest in companies that work with cryptocurrency in some way, giving you exposure to the crypto market without directly investing in it. An example of a crypto-adjacent fund is the Amplify Transformational Data Sharing ETF, which invests in companies involved in blockchain technology.
When choosing a cryptocurrency-focused fund, it's important to consider the fees involved, the level of risk, and the availability of the fund. Cryptocurrency funds are generally considered riskier than stock or bond index funds due to the volatile nature of the crypto market. It's also worth noting that there are currently very few cryptocurrency mutual funds and ETFs available to investors due to regulatory restrictions.
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Buy crypto through an exchange
If you want to invest in cryptocurrency directly, you can use a cryptocurrency exchange. Here's a step-by-step guide to buying crypto through an exchange:
Choose a Cryptocurrency Exchange
Your best bet is a reputable, well-known exchange with a large selection of currencies. Examples include Coinbase, Binance, Crypto.com, and Changelly.
Establish an Account
You will need to provide personal information and verify your identity to complete the registration process. This is also known as 'Know Your Customer' (KYC) procedures.
Fund Your Account
Before you can buy any crypto, you need to fund your exchange account with fiat money, such as US dollars. Some platforms also allow you to fund your account with another cryptocurrency.
Decide Which Cryptocurrency to Buy
You can choose to invest in one or many cryptocurrencies. Research your options to help you decide.
Place a Buy Order
Follow the steps required by the exchange to submit and complete a buy order for one or more cryptocurrencies.
Store Your Cryptocurrency
After your purchase is complete, you can store your cryptocurrency in a digital wallet. This can be hosted by the cryptocurrency exchange or an independent wallet provider.
It is important to perform proper research and choose a reputable platform to buy cryptocurrencies. Additionally, it is advisable to store cryptocurrencies securely in a wallet to protect your investment.
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Store your cryptocurrency in a digital wallet
Once you have purchased your chosen cryptocurrency, you will need to store it in a digital wallet. A crypto wallet is a device or program that stores your cryptocurrency keys and allows you to access your coins. It is similar to a physical wallet in that it is used to store your money, but instead of holding physical items, it stores the passkeys you use to sign for your cryptocurrency transactions.
There are several different types of wallets, each with its own features and levels of security. The two main types of wallets are custodial (or online wallets) and non-custodial wallets. Custodial wallets are hosted by a third party that stores your keys for you, such as a company that provides enterprise-level data security systems. Non-custodial wallets are wallets in which you take responsibility for securing your keys. This is the type that most cryptocurrency wallets on devices are.
There are also two subcategories of wallets: hot and cold. A hot wallet is connected to the internet or to a device that has an internet connection, while a cold wallet has no connection. There are also three types of wallets: software, hardware, and paper. Each of these types is considered either a hot or cold wallet. For example, a non-custodial software hot wallet or a custodial hardware cold wallet.
When choosing a wallet, it is important to consider the level of security you need and how accessible you want your cryptocurrency to be. Hot wallets are more susceptible to hacks but make accessing your crypto for transactions easier. Cold wallets are less susceptible to hacks but may not be as convenient for frequent transactions.
Some popular hot wallet providers include Guarda and Mycelium, while popular cold wallet providers include Trezor and Ledger.
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Frequently asked questions
You can buy new cryptocurrencies through crypto exchanges such as Coinbase, Kraken, Bitstamp, Gemini, Binance, and Bitfinex. You can also use apps such as Cash App or brokers.
Cryptocurrencies are highly speculative and volatile assets. They are also subject to evolving government regulations and potential scams and fraud.
Cryptocurrencies offer the potential for high returns. They can also act as an inflation hedge since there is no central bank involved that can print more money.
Consider the exchanges where the token is listed, as tokens featured on major exchanges generally offer better liquidity and attract larger investors. Also, do your due diligence to ensure the crypto project is legitimate and secure.
The cost depends on the specific crypto you are buying. Many small altcoins trade for a fraction of a cent, while a single bitcoin will cost tens of thousands of dollars. However, many exchanges and brokerages now allow fractional trading. There may also be fees associated with crypto wallets and accounts.
