Did you know that there are almost 29,000 social media posts about Bitcoin posted online daily? This means that a post on Bitcoin surfaces on a social media platform every three seconds.
It’s no secret that Bitcoin is the most popular cryptocurrency, but there are other digital currencies for people to invest in. Whether you are already an investor or new to investing in general, crypto investments are a bit different.
If you’re wondering how to start investing in cryptocurrency, this guide is for you. Keep reading to learn all you need to know.
What Is Cryptocurrency?
Cryptocurrency, or crypto, is a payment form that circulates without the need of a central monetary authority like a bank or the government. Cryptocurrencies can be bought, sold, or traded securely using cryptographic techniques.
Cryptocurrency can be exchanged for goods and services as well. However, they are more commonly used for investment opportunities.
Cryptocurrency is a key part of the operation in some decentralized financial networks. Digital tokens in these networks are important for carrying out transactions.
Bitcoin is the most popular cryptocurrency but it comes at a volatile price. Last year, it hit an all-time high before dwindling back down.
How to Start Investing in Cryptocurrency
Learning how to start investing in cryptocurrency takes a few steps. Here’s what you’ll need to do:
Join a Cryptocurrency Exchange
The first step to investing in cryptocurrency is to join an exchange. There’s no official company because cryptocurrency is an open-source technology.
If you want to make a Bitcoin purchase, make sure the exchange you choose offers Bitcoin. Luckily, since it is the most popular cryptocurrency, Bitcoin is on most exchanges.
Exchanges act as a middleman for cryptocurrency investing kind of like a stock brokerage. Some of the top exchanges currently include the following:
- Coinbase
- Binance
- Kraken
- Gemini
- Bitfinex
The hardest part of investing is choosing an exchange because of the different options available. Research each exchange to decide which is right for you.
Get a Cryptocurrency Wallet
Crypto technology has made it easier to make safe transactions. As a beginner, you might not understand the need for a crypto wallet, but if your exchange doesn’t hold coins for you, you’ll need one.
When you purchase coins, they are stored in a wallet with all of your other cryptocurrencies. The two types of wallets are hot and cold wallets.
A hot wallet is operated through the cryptocurrency exchange you choose or a different provider. A different provider will allow you to access coins through a software program or the internet.
Hot wallets are more convenient but not as secure as cold wallets. Because a hot wallet is online, the provider might be hacked risking your coin information.
Desktop wallets, web wallets, and mobile wallets are all types of hot wallets.
A cold wallet is a safer storage method for your coins. These wallets are actual hardware that stores your coins, usually in a portable device. A cold wallet is often similar to a flash drive.
There are also paper wallets, another type of cold wallet, but these aren’t as secure as other forms of cold wallets. A paper wallet has your information on a piece of paper.
If you lose this paper, you risk your crypto account getting hacked.
It’s recommended for traders who purchase large amounts of coins to use a cold wallet. As a new crypto investor, you’ll probably purchase small amounts of coins and be okay with using a hot wallet that is insured by the provider.
Connect Your Bank Account
Once you have your exchange and wallet chosen, you’ll need to link it to your bank account. With this information set, you’ll be able to buy and sell coins.
Your bank account should be linked to both your exchange account and crypto wallet if they are two separate entities.
Place a Cryptocurrency Order
After finishing the above steps, you’ll be ready to purchase cryptocurrency. Your exchange will have everything you need to buy and sell.
There are over 16,600 different cryptocurrencies that are publicly traded. The largest trading cryptocurrencies by market capitalization are:
- Bitcoin
- Ethereum
- Tether
- Binance Coin
- USD Coin
- Solana
- Cardano
Some coins cost thousands of dollars, but some exchanges allow you to buy a fraction of a coin rather than the whole thing.
Bitcoin is one of the riskiest coins to purchase because the market is so volatile. Before investing in this coin, determine how much you can risk.
Manage Your Investments
Once you’ve made a purchase, you can do the following with your cryptocurrency:
- Use your coins to make online transactions
- Hold your coins until they appreciate in value
- Perform day trading (buying and selling coins)
Not all cryptocurrencies allow you to make online transactions, but Bitcoin does. You can also use a Byte Federal Bitcoin ATM to convert crypto to cash or cash to crypto. This is something you can’t do with other cryptocurrencies.
Why Are Cryptocurrencies Popular?
It seems like cryptocurrencies came out of nowhere and haven’t slowed down in popularity since. People invest in cryptocurrency for multiple reasons, but the main one is to hopefully make money through investment.
Those who support cryptocurrency see it as the currency of the future, Bitcoin especially. People want to buy them now before they become too valuable and unaffordable for most people.
The popularity of cryptocurrencies also comes from the fact that crypto doesn’t use central banks to manage the money supply. Banks tend to reduce monetary values through inflation but can’t do that with cryptocurrency.
The technology behind cryptocurrencies, the blockchain, is decentralized making it a more secure system than traditional payments.
Are Cryptocurrencies Legal?
In the United States, cryptocurrency is legal but this is not the case for every country. For example, China has banned the use of cryptocurrency.
Whether cryptocurrency is legal or not depends on the individual country. Along with China, crypto is fully banned in these countries among others:
- Egypt
- Iraq
- Algeria
- Bangladesh
- Bolivia
The governments in these countries ban the use of crypto because they believe the rise of crypto can destabilize their financial systems.
How to Choose a Cryptocurrency to Invest In
What many new investors fail to realize is that picking good crypto to invest in is not the same as choosing a good stock. A stock represents partial ownership in a company that makes a profit, or the profit potential, for shareholders.
In contrast, owning a cryptocurrency relates to the ownership of a digital asset with no intrinsic value. Cryptocurrency increases or decreases in price depending on supply and demand.
When there is an increase in demand with limited supply, the price rises. When supply heightens, the price goes down.
When evaluating a cryptocurrency, figure out what will drive demand for the coin and how supply increases. Crypto teams publish white papers that can provide you with this information.
You can learn if anything might spark an increase in demand by keeping up with research and news. If you can find one, join a community of people investing in the same cryptocurrency as you.
Consider how much money has flowed into cryptocurrency. If the market cap is high, there won’t be much potential for growth left. Yet, Bitcoin is different because it is extremely volatile.
In November, Bitcoin reached a new all-time high of over $68,000. The previous high was a month earlier at $67,000.
Before the highs, there were some lows. Bitcoin continues to go up and down and even saw a drop below $30,000 in July.
At the time of writing this article, Bitcoin’s price is just below $43,000.
Pros of Investing in Cryptocurrency
There are multiple advantages of investing in cryptocurrency, the most prominent being return potential. We’ll discuss a little about each benefit now.
Inflation Protection
Inflation has caused multiple currencies to decline in value with time. Almost every cryptocurrency is released with a specific quantity in mind.
For example, there are only 21 million Bitcoins released in the world. When the demand for cryptocurrency increases, the value will as well. This can maintain the market and, in the long run, prevent inflation.
Part of the reason cryptocurrency has strong returns is because of the prevention of inflation. For some, an expected return for crypto is more than a return for stocks.
Self-Governed and Managed
We’ve brushed over it already, but one of the main benefits of investing in crypto is that these transactions are stored by miners and developers on their hardware.
With any other currency, governance and maintenance are two factors for development.
Miners keep their transaction fees and decentralize the records. These individuals will keep records up to date and accurate to keep the integrity of the crypto.
Since crypto is self-governed, it is not correlated with bonds, stocks, or other asset prices. In simpler terms, the price of cryptocurrencies is unrelated to the price of traditional assets.
Decentralization
Cryptocurrencies are mainly decentralized as they are controlled by the developers. Along with the developers, those who have enough coins help control it before releasing them into the market.
Decentralization help keep the currency free of monopoly so that no one can determine the flow or worth of a coin. This helps keep crypto secure and stable and uncontrolled by the government.
Cost-Effective Transactions
Some people use cryptocurrencies to send money across borders. Transaction fees are reduced or nonexistent through this form of sending money.
Because these transactions eliminate the need for third parties, it removes the transaction fee requirements. Plus, cryptocurrency transaction requires less time to process making them a faster option.
Private and Secure
Crypto technology is more private and secure than investors are aware of. The blockchain ledger relies on mathematical techniques that are hard to decode.
Compared to ordinary electronic transactions, cryptocurrency is a safer method. The pseudonyms used are unconnected to users and their profiles.
Cons of Investing in Cryptocurrency
As with anything that has pros, some cons come with it. The cons of investing in cryptocurrency don’t outweigh the pros, but these disadvantages are things to consider:
No Cancellation or Refund
Once you send a coin, it cannot be retrieved. Be careful to avoid sending funds to the wrong wallet address.
A dispute between parties might be another reason you want a cancellation or refund, but you cannot request one.
Since there are no refunds, be wary of where you spend your crypto in exchange for services and goods. Some people want to cheat you out of your money by offering an exchange that doesn’t exist.
Because there is limited regulation of cryptocurrencies, you won’t have the same protections you would if you were to invest in the stock market. The stock market is heavily regulated and can help investors avoid scams.
Hacking Vulnerability
Cryptocurrencies alone are secure, but exchanges are a different story. Exchanges that store the wallet data of users can have that data stolen by hackers.
Once a hacker has access to one or multiple accounts, they can transfer funds and there is often no way to get those funds back.
Nowadays, most exchanges are secure enough to avoid this problem. Others offer insurance to offset the risk of a possible hack.
If you don’t feel comfortable with exchanging storage for your coins, opt for a third-party wallet instead. As stated before, hot and cold wallets are more secure than exchanges with cold wallets being the most secure overall.
High Volatility
Cryptocurrency prices can change daily and sometimes change multiple times in a day. The massive price swings make investing in crypto risky. However, the returns are often much more because of the high volatility rate.
Increasing Your Investment Portfolio with Cryptocurrencies
Learning how to start investing in cryptocurrency is an easy process. Making the right investment decisions once you’ve joined an exchange isn’t as easy.
Investments of any kind require you to research before you can diversify your investment portfolio. For new crypto investors, this guide can help with the basics of cryptocurrency.
Once you research different cryptos, you’ll find returns are higher than most returns in other asset classes. Our website covers a variety of topics including cryptocurrency. Come back for new weekly content!