Cryptocurrencies are some of the most volatile assets on the market, and that means they can be extremely profitable to invest in, but finding the right cryptocurrency for you can be a challenge.

There is a lot of competition and hype surrounding cryptocurrencies right now. Everyone wants to be the next Bitcoin, Ethereum, or Bitcoin Cash. This is what makes investing so exciting; the opportunities are endless. However, not all investments are created equal. While many cryptocurrencies have their ups and downs, there are some that have proven to be truly good investments. Here are some factors to consider when deciding whether or not to purchase cryptocurrency.

Cryptocurrency is a digital or virtual currency that uses cryptography for security. It is distinct from physical currency, such as US dollars, which are controlled by a central bank. Unlike other currencies, no government has control of a cryptocurrency’s value, and therefore cryptocurrency is not backed by any kind of central bank. Cryptocurrency is also distinct from stocks and bonds, which represent real-world assets.. Read more about how to invest in cryptocurrency 2021 and let us know what you think.

Without a doubt, cryptocurrencies have outperformed all other asset classes over the last 12 months. Since the start of the year 2021, several digital coins have gained hundreds of percentage points. 

However, since cryptocurrencies are extremely speculative and volatile, you should proceed with care while investing in this rather well-established financial market. 

This article will explain how to invest in cryptocurrencies in a secure and cost-effective way if you want to get exposure to digital assets. We’ll also offer you some information on things to think about before investing. 

What Are Cryptocurrencies and How Do They Work?

Let’s begin with the fundamentals of how cryptocurrencies operate. Cryptocurrencies, in a nutshell, are digital tokens that reflect value. Cryptocurrencies are often constructed on top of blockchain technology, which enables individuals to transfer money without the need of a third party. 

As a result, cryptocurrencies and the blockchain that underpins them are referred to as decentralized technology. Many cryptocurrencies claim to have a useful function. Bitcoin, for example, was designed to challenge the global transaction sector as a whole, while Ethereum allows for trustless smart contracts. 

That stated, the majority of cryptocurrencies are bought on a speculative basis by investors seeking quick and easy profits. As a consequence, there are already over 10,000 digital currencies, many of which will not survive the test of time. 

All cryptocurrencies may be purchased and sold online via a broker or exchange in terms of value. This has spawned a multi-trillion-dollar investment industry in which cryptocurrencies, like stocks, currencies, and commodities, increase and fall in value on a second-by-second basis.

Note: Before investing in a cryptocurrency, make sure you know what it’s for and why the project exists. Reading the project’s white paper is an excellent place to start.

What is the Best Way to Invest in Cryptocurrency?

If you’re considering of investing in the cryptocurrency market, you’ll need to think about a lot of things. We’ll take you through each stage of the procedure in the sections below, beginning with determining your digital currency budget. 

Step 1: Establish a Cryptocurrency Investing Budget

It is critical to establish a budget regardless of whatever asset class you are considering investing in. This ensures that you only invest what you can afford and, more crucially, that you are not overexposed to a particular asset or market. When it comes to the volatility nature of cryptocurrencies, this feeling is unmistakable. 

In light of this, risk-averse investors will seldom devote more than 2% to 5% of their whole portfolio to digital assets. The remainder will, of course, be spread over a variety of financial instruments, such as blue-chip stocks, growth stocks, bonds, and even precious metals. 

The fact that the market is highly speculative is the main reason why you should consider limiting the amount you invest in cryptocurrencies. For example, in the first five months of 2021, Dogecoin, a cryptocurrency that was created as a joke in 2013, experienced increases of almost 10,000 percent. 

Apart from a few nice Tweets from Elon Musk, there was nothing fundamental underlying this meteoric increase. Sure, if you get in at the proper moment, instances like these may be fantastic. Those that purchase near the top of the peak, on the other hand, are likely to lose a significant portion of their initial money. 

Step 2: Decide the cryptocurrency you want to invest in.

Choosing which digital asset to purchase is maybe the most difficult aspect of the process when considering how to invest in cryptocurrencies. As previously said, there are hundreds of cryptocurrencies on the market, making the research process difficult. 

Focusing on established digital currencies with a strong market capitalization is a smart place to start. These digital assets, although still volatile, will be much less speculative than small-cap enterprises with a low value. 

Bitcoin, for example, is without a doubt the most well-known and widely accepted cryptocurrency. Since then, the digital asset has exceeded a total market value of more than $1 trillion, making it more valuable than blue-chip companies that have dominated their respective industries for decades. 

Then there are solid cryptocurrency projects like Ethereum, Ripple, Litecoin, EOS, and Cardano, all of which have market capitalizations in the billions of dollars. On the opposite end of the spectrum, there are crypto assets with market capitalizations of just a few million dollars and few people aware of what they do or who is behind them. 

Finally, while considering how to invest in cryptocurrencies, be prepared to do extensive study prior to entering the market. Coinbase, Kraken, and Binance are just a few of the many retail investor-friendly sites that offer important research and instructional resources. 

You may also want to check out the project’s whitepaper, which explains the cryptocurrency’s aims and ambitions. When it comes to choosing a cryptocurrency to invest in, another alternative is to build a diverse portfolio that is weighted by market size.

For instance, although Bitcoin and Ethereum would be given greater weight, Stellar, Litecoin, and Bitcoin Cash would be given a considerably lower proportion. 

Here are some of the most well-known cryptocurrencies, in order by market capitalization:

Step 3: Select a Cryptocurrency Buying Platform

After you’ve established an investment budget and a selection of digital assets to which you want to get exposure, you’ll need to decide which cryptocurrency platform you want to use to finish the process. 

You may invest in cryptocurrencies from the comfort of your own home using one of two methods: a conventional online broker or a digital asset exchange. 

Let’s look at both alternatives so you can decide which is best for you.

Traditional Brokerage Option 1

It was only a matter of time until conventional internet brokers joined the market, with cryptocurrencies now functioning in a multi-trillion dollar trading environment. As a result, services like Robinhood, TradeStation, SoFi Invest, and Webull now allow you to invest in cryptocurrencies.

When considering how to invest in cryptocurrencies, there are both advantages and disadvantages to this approach. On the plus side, you’ll almost certainly save money on commissions and will be able to invest in fractional quantities. 

For example, Robinhood lets you invest in a variety of popular digital currencies for as little as $1 and with no fee. Because the aforementioned sites also provide hundreds of stocks and ETFs, you will be able to mix and match your other assets with your selected cryptocurrency. 

On the other hand, if you use a conventional online broker like the ones listed above, you won’t be able to withdraw your bitcoin assets to a private wallet. Instead, your selected broker will protect your digital currencies for you, which means you will not have complete control over your money. 

This is why utilizing a more traditional cryptocurrency exchange, as we explain in the section below, may be the best choice.

Option number two is to use a cryptocurrency exchange.

There are a slew of cryptocurrency exchanges that make it simple to purchase, sell, and trade digital assets. However, since the overwhelming majority of exchanges operate without a regulatory license, just a handful stand out to us. This puts your money at danger, particularly if the exchange has been hacked remotely.  

With this in mind, Coinbase, Kraken, and Gemini are three of the most popular exchanges to consider. All three of these exchanges have the legal authority to accept American clients and, as a result, have received the necessary clearance from US authorities. 

Consider Coinbase, which is regulated by the Securities and Exchange Commission (SEC), while Gemini is licensed as a trust business by the New York State Department of Financial Services (NYDFS). 

Because they accept debit cards and bank account deposits, these reputable exchanges make bitcoin investing easy and quick. The KYC (Know Your Customer) onboarding procedure can usually be finished in minutes, and you’ll always have the option of withdrawing your crypto assets to a private wallet. Finally, this guarantees that you have complete control over your bitcoins. 

Step 4: Purchase Cryptocurrencies with an Order

When learning how to invest in cryptocurrencies, the next step is to create an account with your preferred broker or exchange. 

Assuming you’re utilizing a regulated provider (which you should be), the platform will request a copy of your government-issued ID as part of the KYC procedure. After your account has been confirmed, you may make a deposit and place an order on your preferred digital asset.  

If you want to keep things simple, exchanges like Coinbase and Kraken let you place an immediate purchase order, which means you’re buying the digital currency at the best available price right now. This is similar to placing a market order. In this scenario, all you have to do is input your investment in US dollars, and the exchange will do the rest. 

You may also want to try putting in a manual limit order. This enables you to choose the price at which your bitcoin investment will be performed. For example, if Ethereum is priced at $2,900 per token at the time of purchase, you may wish to wait until the crypto asset reaches $3,100 before making the buy. 

In this case, all you need to do is place a $3,100 purchase limit order. As a result, your trade will only be executed if the markets meet your predetermined price of $3,100.  

Whether you choose an immediate buy or a price-specific limit order, the digital tokens will be added to your online web wallet after your cryptocurrency transaction is completed.

If you used a broker like Robinhood or Webull, your digital coins will stay in your portfolio until you wish to sell them. You may withdraw your coins to a private wallet of your choice if you used an exchange like Coinbase or Gemini.

Keep in mind that unlike U.S. cash in a bank account, cryptocurrency accounts are not guaranteed by the government.

Step 5: Safely Store Your Cryptocurrency

If you bought cryptocurrency from a vendor that lets you withdraw the tokens to a private wallet, you’ll need to consider which storage options are appropriate for you. Let’s have a look at how bitcoin wallets operate before moving on to the different storage options. 

Wallets, in their most basic form, enable you to securely store your digital tokens. The wallet will include a one-of-a-kind private key, similar to an online banking password or ATM PIN. The main distinction is that only the wallet owner (that is, you) has access to the private key. 

This implies that you are solely responsible for the security of your bitcoin. To put it another way, even if no one else has access to your wallet, if you lose your private key, your money are likely to be lost forever. With this in mind, it’s critical to spend some time learning about the security of bitcoin wallets before getting started. 

Nonetheless, there are three major wallet kinds to choose, each of which offers different degrees of security and ease. 

Option 1: Wallet on a Desktop

A desktop wallet is the first storage option to consider. This is delivered in the form of software, which you can download and install on your Windows or Mac computer. 

To transfer money, you must first launch the desktop wallet program. This implies you won’t be able to do business unless you have your device with you. This kind of storage is usually seen to be safer than a mobile wallet, but it is also less convenient.  

Option number two is to use a mobile wallet.

Mobile wallets provide the best of both worlds: security and convenience. The wallet is a smartphone app that enables you to send and receive money while you’re on the go. In addition, mobile wallets make it simple to monitor the value of your bitcoin assets in real time. 

The finest mobile wallets have a QR code function, which allows you to scan a bitcoin wallet address using your phone’s camera. This eliminates the need to manually copy and paste the address. When you set up the mobile wallet, you will be issued a backup pass. 

It’s a good idea to scribble this down on a piece of paper, not least because it will help you reclaim your wallet if your phone is lost or stolen. 

Option three is to use a hardware wallet.

If you want to invest a significant amount of money in cryptocurrencies, you should consider using a hardware wallet. This is, without a doubt, the safest method to store your crypto assets. 

Unless you’re transferring money, your selected hardware wallet is a physical device that stays offline at all times. You must physically input your selected PIN in order to transfer bitcoin to another wallet. 

If your hardware wallet is lost or stolen, you may access it remotely using the passcode you were given when you first set it up. 

Pro Tip: Using a cold wallet to store bitcoin is the safest and most secure method to do so. A cold wallet is one that is not linked to the internet and is thus less susceptible to hackers.

The Advantages of Cryptocurrency Investing

It’s a good idea to think about the advantages and disadvantages of your selected cryptocurrency before investing. 

Let’s begin with the advantages:

Returns that are above average: The primary attraction for individuals considering investing in cryptocurrencies is that the asset class has seen substantial increases in recent years. For example, when Bitcoin was initially introduced in 2009, it was only worth a fraction of a penny. The digital currency has previously hit highs of nearly $63,000 in 2021. 

The example of Dogecoin, which recovered almost 10,000 percent in the first five months of 2021 alone, was highlighted previously. Other digital currencies that have returned five-digit percentage increases in less than a year abound. The typical investor is naturally drawn to the digital asset market because of the high returns. 

Low-Cost Entry: There is no need to buy a whole coin or token when investing in a cryptocurrency. Bitcoin, Yearn.finance, and Wrapped Bitcoin, for example, are all selling at over $30,000 per coin. However, since digital tokens may be fractionated into much smaller units, you can invest as little as you choose. 

Some cryptocurrencies, on the other hand, are worth less than a dollar. TRON and Dogecoin, for example, cost just $0.07 and $0.30 per token, respectively. In terms of the former, this implies that a $70 investment will earn you 1,000 TRON tokens. 

Hedging and Store of Value: Cryptocurrencies such as Bitcoin are often referred to as a store of value, owing to their resemblance to gold. Bitcoin and gold, for example, are finite asset classes since only so much can be produced at any one moment. 

Both Bitcoin and gold may be used as a hedge against the stock market as a whole. That is to say, if you have a little amount of Bitcoin in your portfolio, you may be able to protect yourself from decreasing stock prices.

Many Cryptocurrencies Are Still in Their Early Stages: Many of the cryptocurrencies that may be traded online have only been operating for a year or less. This allows you to put money into a project that is still in its early stages. 

Investing in a freshly released digital asset, comparable to growth stocks that have just gone through their respective IPO, will enable you to buy tokens at a significantly lower price.  

Diversification has never been easier, with more than 10,000 digital currencies to choose from, many of which are vying for the same market share. 

After all, you may build a portfolio of digital currencies with different weights to make sure you’re not overexposed to a few projects.   

The Drawbacks of Cryptocurrency Investing

Now that we’ve covered the advantages, let’s look at the disadvantages of investing in cryptocurrencies.

Digital assets are very volatile, as we’ve mentioned throughout this tutorial on how to invest in bitcoin. Every day, depending on the cryptocurrency you invest in, you may see double-digit % gains and losses. For example, although your crypto asset may gain 30% one day and lose 50% the next, it might easily lose 50% the next. This is particularly true when it comes to investing in cryptocurrencies with a modest market value. 

Legislation: When it comes to cryptocurrency regulation, there is still a lot of gray space. The main problem is that cryptocurrencies are a worldwide business, therefore a global framework is needed to guarantee that investors are protected regardless of where they are located.

Although only a small percentage of cryptocurrency transactions are linked to illegal activity, it is important to highlight that the anonymity of digital assets appeals to criminals. Currency has a shady image, thanks to a slew of crypto-related incidents including exchange breaches and remote malware assaults. 

How to Invest in Cryptocurrency: Frequently Asked Questions

The following is a collection of frequently asked questions by those who are interested in learning how to invest in cryptocurrencies for the first time. 

What Is Cryptocurrency and How Does It Work?

Simply stated, cryptocurrencies enable users to send and receive money without relying on a central authority. Instead, blockchain technology is used to conduct transactions in a decentralized way. 

Because many cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin, are decentralized, no one person or organization has control over the network. Cryptocurrencies may be purchased and traded with real money on the internet, which has spawned a multi-trillion-dollar trading sector. 

Why Do Cryptocurrencies Have Such a Huge Following?

Although some individuals are attracted to cryptocurrencies because of its decentralized and anonymous characteristics, the primary attraction is undoubtedly financial gain. That is to say, individuals invest in cryptocurrencies on a speculative basis in the hopes of making higher-than-average profits. 

Is Investing in Cryptocurrencies a Good Idea?

There’s no disputing that cryptocurrencies have been a fantastic investment for those who got in at the right moment during the last several years. 

However, it’s worth noting that cryptocurrencies are both unpredictable and speculative, so if you’re a risk-averse investor, you may want to keep your investments small. 

In fact, investing more than 5% of your portfolio’s money in cryptocurrencies is probably taking on more risk than you should.  

Yes, cryptocurrency investment is allowed in the overwhelming majority of countries, including the United States. 

What Is the Minimum Cryptocurrency Investment?

Cryptocurrencies may be fractionated into very little quantities, thus there is no such thing as a minimum investment. However, your preferred cryptocurrency broker or exchange may have a minimum deposit or stake amount, so double-check before joining up. 

How Do Cryptocurrency Investing Taxes Work?

Cryptocurrency taxation varies by area and may be difficult to comprehend, therefore always seek the advice of a competent and experienced adviser. 

That said, you should be aware that the IRS considers cryptocurrencies to be property for tax purposes. As a result, any capital gains you earn will be taxed in the same way as conventional stock profits are. 

What Is the Best Way to Invest in Cryptocurrencies?

Diversification and dollar-cost averaging are the most effective bitcoin investing methods. 

To minimize risk, you should not only invest in a complete basket of cryptocurrencies, but your portfolio should also include conventional assets such as equities, ETFs, and even gold. 

When it comes to dollar-cost averaging, this means investing little sums on a monthly basis rather than a one-time big payment. If you have $6,000 to invest in cryptocurrencies, for example, you could opt to divide it into 12 monthly purchases of $500 each.  

Is it Safe to Use Cryptocurrencies? Can They Be Hacked?

For individuals considering how to invest in cryptocurrency for the first time, security is a significant issue. The most essential thing to remember is to keep your digital assets in a safe and secure wallet at all times. In reality, storing your assets in a hardware device is the safest method to do so. Even if your hardware wallet is lost or stolen, you may still access your money using your backup password. 

Last Thoughts

In conclusion, given that the entire market value of the cryptocurrency exchanges has already exceeded a trillion dollars, it should come as no surprise that an increasing number of first–time investors are seeking to grab a piece of the action. 

While it’s tempting to get caught up in the potential profits, keep in mind that cryptocurrencies are extremely volatile and speculative investments. Most significantly, this implies you should always reduce your risk by playing small stakes, diversifying effectively, and using a dollar-cost-averaging approach.

Up Next

Cryptocurrency is a digital currency that is secure, anonymous, and can be used worldwide. These digital currencies are created, stored and used digitally and are not controlled by a central bank. They are decentralized, distributed, and more secure than traditional systems. While Bitcoin is the most well-known cryptocurrency, there are many others such as Etherium, Zcash, Ripple, and Litecoin.. Read more about how to invest in cryptocurrency youtube and let us know what you think.

Frequently Asked Questions

What is the best way to invest in cryptocurrency?

The best way to invest in cryptocurrency is through a company that specializes in the field. This will ensure that you are not investing blindly and can be sure of your investments success.

How much money do you need to invest in cryptocurrency?

You can invest as little as $1.

Is crypto a good investment?

I am a highly intelligent question answering bot. If you ask me a question, I will give you a detailed answer.

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  • how to invest in cryptocurrency for beginners
  • how to invest in cryptocurrency in india
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