Crypto Investment Guide: Getting Started In Cryptocurrency

Cryptocurrency, or crypto, is a digital currency that can be used to buy goods and services or traded for a profit. It is a virtual currency that, like cash, is a source of purchasing power. It is secured by blockchain technology and is not issued, backed, or regulated by a central authority like the U.S. government. Bitcoin, founded in 2009, was the first cryptocurrency and remains the best known and most commonly traded today.

Investing in cryptocurrency can take many forms, from buying it directly to investing in crypto funds and companies. You can buy cryptocurrency using a crypto exchange or through certain broker-dealers. Once you own it, you can store, manage, and even buy or sell your crypto in a wallet.

If you're looking to invest in cryptocurrency, it's important to do your research and understand the unique characteristics of each crypto you're considering. The crypto market is highly volatile, so it's a good idea to only invest what you can afford to lose.

What is crypto?

Cryptocurrency, also known as crypto, is a digital or virtual currency that uses cryptographic techniques to secure transactions. It exists solely in electronic form and operates on decentralised networks, such as blockchain technology.

Crypto is a peer-to-peer system that enables anyone, anywhere, to send and receive payments without the need for banks to verify transactions. Instead of being physical money, cryptocurrency payments exist as digital entries in an online database that records transactions in a public ledger. Cryptocurrency is stored in digital wallets, which can be software-based in the cloud or on a computer or mobile device.

The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the most well-known and commonly traded. Other popular cryptocurrencies include Ethereum, Tether, and Solana.

Cryptocurrency is considered a risky investment due to its volatility and lack of regulatory protection. However, it offers several benefits, including low transaction fees, fast global transfers, privacy, and security.

How to buy crypto

There are typically three steps to buying cryptocurrency:

• Choose a platform: You can either use a traditional broker, such as Coinbase, or a dedicated cryptocurrency exchange. Traditional brokers offer lower trading costs but fewer crypto features. Exchanges offer a wider range of cryptocurrencies, wallet storage, and interest-bearing account options.
• Fund your account: Most crypto exchanges allow users to purchase crypto using fiat currencies, such as the US dollar, via their debit or credit cards. However, crypto purchases with credit cards are considered risky, and some exchanges and credit card companies don't support them.
• Place an order: You can place an order via your broker's or exchange's web or mobile platform. Select "buy", choose the order type, enter the amount of cryptocurrency you want to purchase, and confirm the order.

There are also other ways to invest in crypto, including:

• Payment services: PayPal, Cash App, and Venmo allow users to buy, sell, or hold cryptocurrencies.
• Bitcoin trusts: You can buy shares of Bitcoin trusts with a regular brokerage account, giving you exposure to crypto through the stock market.
• Bitcoin mutual funds: You can invest in Bitcoin ETFs and Bitcoin mutual funds.
• Blockchain stocks or ETFs: You can invest indirectly in crypto through blockchain companies that specialize in the technology behind crypto transactions.

Where to Buy Crypto

• Crypto exchanges: Coinbase, Kraken, Binance, Bitstamp, Gemini, and Bitfinex.
• Traditional brokers: Interactive Brokers and Robinhood.
• Financial apps: Robinhood, Webull, PayPal, Venmo, and Cash App.

When buying crypto, there are a few different fees to consider, including potential deposit and withdrawal transaction fees, trading fees, and asset-based fees. These fees will vary by payment method and platform, so it's important to research the costs associated with your chosen payment method and platform before proceeding.

Crypto wallets

Hot Wallets

Hot wallets are digital tools that are always connected to the internet. They can be accessed from a phone or desktop computer, or through the web or as browser extensions. Hot wallets are more susceptible to cyberattacks but offer greater convenience and ease of access. Examples of hot wallets include:

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

Cold Wallets

Cold wallets store your digital keys offline, either on a piece of hardware or a sheet of paper. They are deliberately designed to be hard to hack and provide a higher level of security than hot wallets. Examples of cold wallets include:

• Ledger Nano S Plus
• KeepKey
• SafePal
• Ellipal Titan

When choosing a crypto wallet, it is important to consider factors such as security, functionality, and cost, as well as the types of cryptocurrencies supported. It is also crucial to understand the risks involved in investing in cryptocurrencies and to carefully research any digital coin before making a purchase.

Crypto investment strategies

Understand the Basics

Firstly, it's important to understand what cryptocurrency is and how it works. Cryptocurrency is a digital currency that uses cryptography to secure transactions. It is not issued, backed, or regulated by a central authority like a government, but by a decentralized system. The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the most well-known and commonly traded.

Do Your Research

Before investing in any cryptocurrency, it is crucial to thoroughly research and understand its unique characteristics. Some key things to consider include the investment case, potential upside and downside, and whether the currency is backed by assets or cash flow. Beginning investors may also want to explore more established currencies, as there is a wealth of information available about their performance over time.

Diversify Your Investments

Diversification is a fundamental investment strategy. In the context of crypto, this means spreading your investments across several different currencies rather than putting all your money into one. There are thousands of cryptocurrencies to choose from, each with its own unique features and risks.

Manage Risk

Crypto is a highly volatile asset class, and managing risk is essential when investing. This can include setting strict rules on when to sell, such as selling when an investment has fallen by a certain percentage. Another strategy is to only invest a small portion of your portfolio in crypto, with some experts recommending no more than 1-5% of your net worth.

Stay Informed

The cryptocurrency market is rapidly evolving, so it's important to stay up to date on new developments that may affect your holdings. This includes keeping an eye on regulatory changes, as the legal status of crypto can impact its value.

Choose a Reputable Exchange

When buying or selling cryptocurrency, it's crucial to use a reputable exchange or broker that offers strong security features and low fees. Examples include Coinbase, Binance, and Kraken.

Secure Your Crypto

Finally, it's important to take steps to secure your crypto investments from potential hacks or theft. This can include using a crypto wallet, either a "hot" wallet that is accessible via the internet or a "cold" wallet that is a physical device to store your crypto offline.

Crypto risks

Cryptocurrency is a relatively new technology, and it is important to understand the risks involved before investing. Here are some of the key risks associated with investing in cryptocurrency:

• Price volatility: The price of crypto is extremely volatile, meaning it can change quickly and frequently, showing high highs and low lows. This makes it a risky investment, as there is no guarantee that the value of your investment will increase.
• Regulatory uncertainties: Government regulations around crypto are constantly evolving and may differ based on your location. A sudden regulatory crackdown could make it challenging to sell cryptocurrencies or cause a market-wide price drop.
• Scams and security: Cryptocurrency exchanges and wallets have been hacked over the years, resulting in the theft of millions of dollars worth of coins. There is also the risk of scams and fraudulent activities, with no protection or insurance for lost or stolen cryptocurrencies.
• User risk: Unlike traditional finance, cryptocurrency transactions cannot be reversed or cancelled once sent. If you lose your private key or your wallet is corrupted, you may lose your funds entirely.
• Counterparty risks: Many investors rely on exchanges or custodians to store their cryptocurrency. Theft or loss by these third parties could result in losing your entire investment.
• Management risks: Due to the lack of coherent regulations, there are few protections against deceptive or unethical management practices.
• Programming risks: Many investment platforms use automated smart contracts, and a bug or exploit in these programs could result in the loss of investments.
• Tax consequences: Cryptocurrencies are taxed differently than traditional currencies, and there can be tax implications when buying, selling, or using crypto to make purchases.
• Environmental impact: The energy consumption and environmental impact of mining cryptocurrencies, particularly Bitcoin, have been widely criticized.
• Market manipulation: Market manipulation remains a substantial problem in the cryptocurrency market, with influential people, organizations, and exchanges acting unethically.

Frequently asked questions