How to Invest in Cryptocurrency 101: Full Guide for Beginners

In our capitalist world driven by economy and technology, it should come as no surprise that cryptocurrency has emerged as an enticing playground for investors. However, those who want to participate in this market have to go through a steep learning curve. As a result, many beginners still wonder how to invest in cryptocurrency.

A complex and volatile cryptocurrency market is spectacular and full of potential but can also appear intimidating to entry-level participants. That’s why we put together a comprehensive and beginner-friendly guide for crypto investors.

We will cover everything from what to consider before investing to how to buy cryptocurrency and what to do once you’ve acquired your assets. Without further ado, let’s get started!

What is Cryptocurrency?

In essence, cryptocurrency is a digital currency that uses cryptography for security. It offers a couple of benefits over traditional fiat money, such as:

• Security
• Privacy
• Decentralization
• Transparency
• Global accessibility

Cryptocurrencies are based on a technology called blockchain. All records and transactions are stored on a vast decentralized network, and everyone who wants to participate has access to it. This approach removes the need for a central governing authority and changes how crypto works compared to the traditional financial system.

Here are some of the key differences:

• Any user can become a miner or staker, handle transactions, and earn fees for their work.
• You are in complete control of your assets once you put them in a private crypto wallet.
• You can transfer funds anywhere in the world to anyone who has access to an internet connection.
• Cryptographic security makes cryptocurrencies hard or even impossible to manipulate.

All of these benefits, combined with the fact that the cryptocurrency market is still considered young, leave plenty of room for growth and many opportunities for investors. That’s why people have been wondering how to invest in cryptocurrency ever since Bitcoin appeared in 2009.

However, it’s important to note that there are risks involved with investing in cryptocurrencies. That’s why it’s crucial to know how to safely invest in cryptocurrency. Only then will you be able to take advantage of all the potential this new financial system offers.

Ways to Invest in Cryptocurrency

Investing in cryptocurrency has changed a lot over the years. Initially, the only way to obtain Bitcoin was through mining or peer-to-peer transactions. These methods either require a dose of technical know-how or specialized equipment.

While these mechanisms exist today as well, there are many others that cater to less experienced investors or those who want to be less involved in the process. Let’s examine some of the most popular ways to invest in cryptocurrency today.

#1. Directly Buying Cryptocurrency

One of the most straightforward ways to invest in cryptocurrency is to buy it directly. There are many ways to go about it. For instance, you can use a credit or debit card to swap fiat for crypto and perform a direct purchase on a centralized exchange. Keep in mind that most centralized exchanges require KYC verification before allowing users to perform transactions.

Users can also buy cryptocurrency through a decentralized exchange (DEX). DEXs are considered more private since they are peer-to-peer marketplaces. Moreover, they generally offer access to a wider variety of cryptocurrencies, often with high growth potential. However, buying crypto on a DEX requires more knowledge and is not suited for absolute beginners.

Crypto investors and enthusiasts can also perform transactions in person without the need for an exchange. You can always buy crypto by paying someone to send you assets from their wallet. Keep in mind that these transactions can be taxable events. Plus, you should only buy from reputable individuals to avoid being scammed.

#2. Buying Cryptocurrency Stocks

Buying cryptocurrency stocks is a great way to leverage the potential of the cryptocurrency market without buying crypto coins or tokens directly. In essence, you’re buying stocks in companies that have some degree of exposure to the cryptocurrency marketor blockchain technology.

For instance, instead of buying cryptocurrency on an exchange, you could buy shares in the exchange in question and participate in the crypto market indirectly. Some other types of companies to look into include crypto mining organizations and blockchain development companies.

In addition to crypto-first publicly traded companies, there are many other technology firms and financial institutions to invest in. For instance, there’s PayPal Holdings, Inc. (PYPL) and Interactive Brokers Group, Inc. (IBKR), which are among the most common stocks in the fiat market as well.

Buying cryptocurrency stocks is a great way to take advantage of their growth potential while taking a more traditional approach to investing. It’s the best option for those who are already versed in how the stock market works; they can start investing with little to no knowledge of cryptocurrencies or blockchain.

#3. Investing in Cryptocurrency Funds

Cryptocurrency funds exist as counterparts to traditional stock market mutual funds. They represent another beginner-friendly option for users who want exposure to crypto in a more traditional, hands-off manner.

Third parties are in charge of managing these funds and collecting assets from various investors to buy diversified portfolios. These portfolios consist of various cryptocurrencies and crypto-related assets, such as NFTs.

Some of the key advantages of cryptocurrency funds include:

• Diversification: Funds usually hold a number of different assets to reduce the risk associated with holding a single cryptocurrency
• Professional management: Cryptocurrency funds are often managed by investment professionals with years of experience
• Accessibility: Investors can participate in the crypto market without creating wallets or having in-depth knowledge of the technology.

Similarly to the traditional market, there are various types of funds to invest in, such as crypto hedge funds and investment funds.

And while an old crypto adage says, “Not your keys; not your crypto,” cryptocurrency funds remain an enticing option for traditional investors who want to take part in this dynamic world of digital currencies.

#4. Additional Ways to Invest in Cryptocurrency

Investing in cryptocurrencies can be as simple as obtaining assets and hodling them for an extended period. With that in mind, there are many additional ways to acquire cryptocurrencies, including:

• Mining or staking
• Trading
• Initial coin offerings (ICOs)
• Yield farming
• Liquidity providing
• Airdrops

How to Invest in Cryptocurrency: 5-Step Guide

We have prepared an easy-to-follow 5-step guide on how to invest in cryptocurrency for beginners. It will help you minimize risk and maximize the potential of your cryptocurrency investment.

#1. Choose a Cryptocurrency

Before buying crypto assets, you should do your own research and choose the cryptocurrency that suits you best. The cryptocurrency market has tens of thousands of different tokens and coins you can buy, and each of those is different. Because of this, you should consider various aspects, such as their utility, purpose, tokenomics, and more.

For instance, if you’re risk-averse, you’d likely want to invest in a cryptocurrency that has less potential for growth but also less chance of rapidly losing value. In that case, you can’t go wrong by starting with a minimum Bitcoin investment and going from there.

On the flip side, some investors are willing to take on bigger risks for potentially bigger gains. In that case, they might opt for a less established altcoin with a smaller market capitalization.

#2. Choose a Cryptocurrency Exchange

We’ve established that buying cryptocurrency on an exchange is one of the most straightforward ways to invest in crypto. However, there are many exchanges to choose from, each with a different set of features and requirements.

Most centralized exchanges require their users to pass KYC verification processes before buying or withdrawing cryptocurrencies. It’s important to know that these processes may require various government-issued documents and last anywhere from a couple of hours to a few days.

Several other aspects to consider when choosing a cryptocurrency exchange include:

• Trust and reliability, since there have been many issues with several exchanges in the past, ranging from hacks to scams
• Accessibility, where some exchanges set geographic limitations as to who can sign up with them
• Cryptocurrency availability, which varies from one exchange to another
• Additional features, such as staking, trading, crypto gambling, lending, crypto debit cards, etc.

#3. Pick a Storage Option

Anyone learning how to invest in cryptocurrency should know how to store their assets properly.

The private and secure nature of cryptocurrencies comes at the cost of self-governance. In essence, there’s usually no governing authority that can help you recover your investment in cases of fraud or asset mismanagement.

While crypto wallets and storage options are a vast topic, here are the two main types of wallets that beginners should know about:

1. Hot wallets are online wallets. They are connected to the internet, which gives them increased utility but lowered security. Hot wallets include software wallets and browser plug-ins. Keeping crypto on an exchange is also considered having it in a hot wallet.
2. Cold wallets are offline wallets, and setting them up requires more knowledge and effort. They are less convenient to use than hot wallets but represent some of the most secure options for storing your cryptocurrencies. Cold wallets include hardware wallets such as Ledger Nano X, paper wallets, and similar options.

#4. Decide on the Amount

Deciding on the amount to invest in cryptocurrencies is a crucial step toward building a healthy portfolio.

As a beginner, you should only invest the amount that you’re willing to lose. In fact, some financial experts recommend individuals invest no more than 1–5% of their net worth.

Of course, the exact amount you should invest in crypto depends on your situation and risk tolerance. Moreover, many consider investing in crypto a long-term process. As you gain more experience in the market, you’ll likely change how much you’ve invested. Once you start adjusting your investments, you might end up learning how to start trading crypto.

#5. Oversee & Track Your Investments

After buying and storing your investment, it’s crucial to keep track of it; that way, you’ll be able to make necessary adjustments based on market movements. This includes selling some assets, buying new ones, or adding more to an existing collection.

Overseeing your investments can be as simple as using a notebook or a spreadsheet to track your holdings and transactions. Keep in mind that the process becomes more challenging as you invest more and start diversifying your portfolio. Once that happens, you can look into specialized apps and servicesthat can help you track your investments.

What to Consider Before Investing in Cryptocurrency

Before investing in cryptocurrency, you should have at least a basic understanding of the technology behind it. That includes understanding what the blockchain is, how Bitcoin and some notable altcoins work, what crypto wallets are, and so on.

You should be aware of the market's high volatility and the fact that there’s a significant potential for loss as well as for gain. Furthermore, you should look into the security aspects of cryptocurrencies and familiarize yourself with scams and frauds, which are definitely not uncommon in this space.

Lastly, it’s also important to understand the regulations surrounding cryptocurrencies, as they can vary between countries, states, or regions. On top of that, there can be legal implications regarding buying, trading, storing, or selling cryptocurrencies, so not knowing about them can cost you in the form of considerable fines or penalties.

Is Cryptocurrency a Good Investment?

There are pros and cons to investing in cryptocurrency, and knowing what they are can help you become a better investor.

Pros of Investing in Cryptocurrency

Some of the biggest pros of investing in cryptocurrency include:

• The potential for high returns. It’s one of the main reasons why many investors come to the cryptocurrency market.
• Accessibility. Thisis another favorable aspect of crypto since anyone with an internet connection can buy, store, and sell assets.
• Independence from the traditional banking system. Cryptocurrencies can be a hedge against established monetary assets and policies.
• Diversification. Diversifying assets is vital when investing, and the cryptocurrency market is another way for experienced investors to expand their portfolios.

Cons of Investing in Cryptocurrency

However, it’s crucial to keep some of the cons of investing in cryptocurrency in mind. These cons include:

• The possibility of significant losses. This is due to the high volatility of the market.
• A lack of regulation. The cryptocurrency market generally has a larger number of scammers, fraudsters, and hackers compared to traditional markets.
• A steep learning curve. Studying blockchain technology, wallets, DeFi, and other crypto concepts can be challenging and it can put off many beginner investors.
• Market manipulation. Cryptocurrency markets are relatively small and less regulated, which makes them susceptible to manipulation by wealthy participants.

Key Takeaways

Cryptocurrencies represent a new frontier, perfect for both entry-level and experienced investors. As we’ve seen, it’s a complex landscape that offers plenty of opportunities to those willing to invest the time to understand it.

However, remember that knowing how to invest in cryptocurrency isn’t just about the technical aspects of buying and storing it. It’s vital to conduct thorough research, be mindful of market volatility, and consider the regulatory environment—just like with traditional investments.

Tread carefully into the world of cryptocurrencies, and it might transform your life the way it transformed the financial landscape. Happy investing!

How to Invest in Cryptocurrency FAQ

• How much should I invest in cryptocurrency?

  As a beginner, you should only invest the amount of moneythat you’re willing to lose. Financial experts recommend investing 1–5% of the user’s net worth. That’s in order to limit exposure to a highly volatile crypto market. Ultimately, the amount depends on the individual's situation and risk tolerance.

• What do I need to know before investing in cryptocurrency?

  Before investing in cryptocurrency, you should know all the risks and challenges associated with it. Furthermore, it can be highly beneficial to understand the fundamental concepts of cryptocurrencies, how they work, and the technology behind them. Lastly, like with traditional investing, diversification and risk management are essential.

• How can I invest in Bitcoin?

  One of the easiest ways to invest in Bitcoin is to buy it on an exchange and store it in a wallet. There are many exchanges out there, such as Binance, Coinbase, and Kraken. Notable hot wallets include Trust Wallet and MetaMask, with Ledger Nano X and Trezor Model One being popular cold wallets.

• What cryptocurrency is best for beginners?

  The best cryptocurrency for beginners to invest in is Bitcoin. Bitcoin is the first cryptocurrency, and it’s the most established one. As a result, it’s often the quickest and easiest to learn how to invest in Bitcoin and make money. Bitcoin is also considered the safest cryptocurrency, with less upside but also downside potential.