How to invest in cryptocurrency: Tips for beginners

If you are looking to buy your first cryptocurrency but aren’t sure where to start, this guide is for you. Read on to learn how to invest in cryptocurrency as a beginner.

What is cryptocurrency

Cryptocurrency stands as a digital form of currency facilitating direct online payments between individuals. Unlike national currencies, the value of cryptos isn’t derived from legislation or inherent worth but solely from market demand. Essentially, they’re valued as much as people are willing to pay for them. The most recognized cryptocurrencies are Bitcoin and Ethereum, each operating within this decentralized digital economy.

Why invest in cryptocurrency

Investing in cryptocurrency has many benefits, like decentralization, easy access, and diversification. Plus, lots of investors are excited about the big money potential. Cryptos like BTC and ETH have already shown they can bring in massive gains in a short time.

Steps to start: how to invest in crypto

Before you can invest in crypto assets, you need an investment plan, a cryptocurrency wallet, and an account on a crypto asset exchange.

Strategies for investing in cryptocurrency: an investment plan

Time to invest in crypto? There are two basic trading strategies to consider before you start trading. The first is the long-term approach, where you buy and hold onto your cryptocurrency for a while, maybe even months or years, with the aim of making a profit down the road. The other is a short-term strategy. It means more active trading, where you’re constantly speculating on crypto price movements.

An investment plan is a strategy detailing your investment goals and how to achieve them. Such a plan will help you make the right decisions and thus enhance the chances of generating a return on your investment.

You may create an investment plan with the assistance of a financial advisor. They will be able to help you build a strong strategy to invest in crypto that:

• Examines your current financial situation.
• Evaluates your risk tolerance.
• Helps you to select the cryptocurrencies you want to invest in.
• Establishes the outcome you expect to see and when you anticipate it to happen. 

A crypto wallet

A crypto wallet is necessary for storing the digital assets you purchase.

Crypto wallets can be hot or cold. The former refers to online wallets, while the latter encompasses offline wallets. Cold wallets are safe from online hacks, making them more secure than hot wallets. As such, they are considered ideal for long-term cryptocurrency storage. 

Examples of cold wallets include hardware wallets, such as Ledger, KeepKey, BitBox, and Trezor, as well as paper wallets. Wallets accessible via mobile apps, desktops, or web browsers are hot wallets. They include CryptoWallet, Trust Wallet, Exodus, and Guarda.

Depending on your needs, choose a cryptocurrency wallet that gives you the security, control, convenience, and user experience that you desire.

Where to invest in cryptocurrency: an account on a crypto exchange

Finally, you will need an account on a digital asset exchange to invest in crypto. Setting up an account is one of the first things you should do because verification approval on centralized crypto exchanges may take anywhere from several hours to one day or longer. Most crypto exchanges require users to verify their identities after registering an account. Only then will you be able to buy or sell crypto.

How to buy crypto on an exchange

Assuming you have found a suitable crypto exchange, created an account, and successfully completed the verification process, you can buy crypto assets by following these steps:

• Log into your account: Open the exchange website in your browser and log in. You can also log in via mobile app if the option is available.
• Fund your account by depositing fiat currency or connecting a debit or credit card: These funds will help you purchase crypto. You may want first to check the minimum deposit amount and the deposit fee. 
• Select the cryptocurrency you want to buy: Choose the crypto asset(s) you have already researched and settled on, and then place an order for the amount you want to purchase. The exchange will display the number of coins you’ll receive. Bear in mind that cryptocurrencies can be bought in fractions. So, you don’t necessarily have to acquire a full Bitcoin. For instance, you can buy 0.001 BTC instead of 1 BTC. It all depends on your preference and the capital you have at your disposal.
• Complete the transaction: Once you’ve completed the transaction, the exchange will send the digital asset to your account wallet.
• Securely store your crypto investment: Once you have made your purchase(s), it’s best to transfer your digital assets into a personal wallet you have complete control over. Let’s look at that next!

Managing your investments: how to securely store your cryptos

While cryptocurrencies give people freedom and control over their money thanks to the elimination of intermediaries, they also demand a lot of responsibility when it comes to security. The safety of your crypto investments mainly relies on you and you alone.

Here are measures you can take to store your crypto investments securely:

Back up your private key

Your wallet’s private key is presented as a secret phrase that helps you restore your wallet at any time. Without it, your assets may be lost forever. To avoid this, write down the passphrase that is given to you by the wallet on a piece of paper, put it in an envelope, and then store it in a secure place like a safe or a security deposit box.

Never share your private key

Your private key is confidential, and you should never share it with anyone except for crypto estate planning purposes. In the latter case, beneficiaries should only get access in the event of your death.

Take advantage of wallet security features

Boost the security of your cryptocurrency wallet with the security features provided by the wallet. These may include:

• App lock – The app automatically locks itself after a specified duration.
• Touch or face ID – The wallet opens with your fingerprint or face ID only.
• Multisignature – A wallet that requires two or more private keys for someone to spend coins.
• Wallet login – The wallet requires a login with a password or passcode that is different from the private key.

Adding any of these security features to your hot wallet will keep your digital assets safer from cyber theft. 

Don’t store your crypto on an exchange

You don’t have total control over the digital assets in your exchange because the platform holds users’ private keys. That means if the exchange is facing operational problems and withdrawals are suspended, you may not have access to your assets. Also, the crypto on an exchange account may be susceptible to hacker attacks and may have rights to your assets in case of bankruptcy.

Use a cold wallet for long-term storage

Cold wallets are offline devices. Hence, they represent one of the most secure ways to store crypto assets. Therefore, you may use them to store your crypto holdings long-term. 

Alternative crypto investment options

Besides buying crypto directly, you may consider the alternative crypto investment options below. Keep in mind, though, that while these investment products will provide you with exposure to crypto, they are not the same as owning actual cryptocurrency.

Crypto CFDs

A crypto contract for difference (CFD) is a contract between a trader and a broker. The trader doesn’t own the cryptocurrency in question. Rather, they will earn money from the digital asset’s price movements by speculating whether it will rise or drop.

If they predict correctly, they make a profit. However, they will make a loss if their prediction is wrong. This means they will pay the broker the difference (the change in asset value) and any fees demanded by the broker for the service provided. Plus500, eToro, and AvaTrade, for example, offer crypto CFD trading.

Crypto ETPs/ETNs

Crypto exchange-traded products (ETPs), which include exchange-traded notes (ETN) and index tracker certificates, are investment vehicles that trade on securities exchanges and track the price of an underlying crypto asset.

Crypto ETPs are often 100% “physically” backed (secured) by one or more crypto assets, typically secured in cold storage. Crypto ETPs are particularly popular on European securities exchanges.

Shares in crypto companies

Finally, you can also get indirect exposure to the crypto market by purchasing shares in publicly-traded companies that offer crypto services or have added crypto assets to their balance sheets.

Below are some examples:

• PayPal (NASDAQ:PYPL): PayPal allows US users to buy, sell, and transfer BTC, BCH, LTC, and ETH.
• MicroStrategy (NASDAQ:MSTR): MicroStrategy is one of the biggest corporate buyers of Bitcoin. As of June 28, 2022, the publicly-traded company owned 129,699 BTC. MicroStrategy is reportedly selling $500 million more in stock and may use the proceeds to purchase more crypto. 
• Coinbase (NASDAQ:COIN): Coinbase, a popular crypto exchange, went public in 2021. The platform allows users to buy, sell, transfer, and store a wide range of digital assets.

Understanding the risks

Investing in crypto is risky. Crypto prices can be highly volatile, and since government regulations are still evolving, there’s a lot of uncertainty. The possibility of losing money is just as real as the chance of turning a profit. Additionally, security is a concern, as not all cryptocurrency projects are reliable. Be careful to avoid scams.

FAQs