Beginners Guide to Invest in Cryptocurrency

Investing in cryptocurrency is like buying a piece of digital money or assets that exist entirely online, without being controlled by any government or bank. Cryptocurrencies, like Bitcoin or Ethereum, operate on technology called blockchain, which securely records every transaction across many computers. When you invest in crypto, you’re betting that the value of these digital coins will go up, allowing you to sell them later for a profit.

It’s important to know that cryptocurrency investments are very risky compared to traditional investments like stocks or bonds. The prices can go up or down quickly (this is called volatility), meaning you could make a lot of money or lose it in a short amount of time. Some people invest in crypto because they believe it could become more widely used in the future, while others use it to diversify their investments.

Before jumping in, it’s essential to do your research, understand the risks, and only invest money you can afford to lose. Many people also use strategies like dollar-cost averaging, where they invest a fixed amount regularly to reduce the impact of market ups and downs. Additionally, using secure wallets and exchanges is crucial to keep your digital assets safe from hacking or theft.

How do I invest in cryptocurrency?

To invest in cryptocurrency, you need to:

• Choose a cryptocurrency exchange (platform) where you can buy and sell.
• Create an account and verify your identity.
• Deposit funds (either traditional money or other cryptocurrencies).
• Purchase your desired cryptocurrency and store it in a digital wallet.

Is investing in cryptocurrency safe?

Investing in cryptocurrency can be risky because prices can fluctuate wildly, and exchanges can be targets for hackers. To minimize risk:

• Use reputable exchanges.
• Enable security features like two-factor authentication.
• Store your assets in a secure wallet, preferably offline (cold storage).

How much money should I invest in cryptocurrency?

It’s generally advised to invest only what you can afford to lose because the cryptocurrency market is highly volatile. Many investors start small and use strategies like dollar-cost averaging, where you invest a fixed amount regularly, regardless of the asset’s price.

Which cryptocurrency should I invest in?

Bitcoin is the most well-known cryptocurrency, but many others, like Ethereum and Binance Coin, offer different features. It’s important to research the project behind the cryptocurrency, its use case, and market performance before investing.

Can I make money investing in cryptocurrency?

Yes, it’s possible to make money through buying low and selling high, staking (earning interest by holding certain coins), or participating in mining. However, due to market volatility, you can also lose money, so it’s crucial to research and stay informed.

What are the risks of investing in cryptocurrency?

The major risks include:

• Volatility: Prices can fluctuate greatly.
• Security: If your wallet or exchange is hacked, your funds could be lost.
• Regulation: Governments may impose regulations that impact the value or legality of cryptocurrencies.
• Scams: There are fraudulent projects and exchanges in the space.

The Main Agenda — Beginners Guide to Invest in Cryptocurrency

Factors to consider

Potential for High Returns

Cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) have historically delivered significant returns. For instance, if you had invested $100 in Bitcoin in 2011, that investment would have been worth over $5 million at its peak in 2021.

Early adopters of Bitcoin saw massive profits as its price surged from a few dollars to tens of thousands of dollars.

These high returns come with high risks. Prices can drop just as quickly. Bitcoin once dropped from $20,000 in 2017 to $3,000 in 2018.

If you bought Bitcoin during its 2017 peak, you would have experienced a 70–80% loss during the subsequent crash.

Volatility

Cryptocurrencies are known for their price swings, which can lead to quick profits if timed correctly.

In 2020, Bitcoin’s price doubled in a few months, allowing traders to cash in on the gains.

The volatility also means that the value of your investment could plummet rapidly. It’s common to see swings of 20–30% within a day or two.

On May 19, 2021, Bitcoin dropped 30% in a single day due to market uncertainties and regulatory concerns from China.

Security and Scams

Reputable cryptocurrencies like Bitcoin and Ethereum use blockchain technology, which is highly secure and transparent.

Not all crypto projects are legitimate. Many investors have fallen victim to scams like “rug pulls,” where a project suddenly disappears with investor funds.

In 2021, the Squid Game token was a scam where developers vanished with over $3 million in investor money. Always verify a project’s legitimacy before investing.

Lack of Regulation

Cryptocurrency offers freedom from traditional financial systems and allows users to transact without government oversight.

People in countries with unstable economies or limited access to banking use cryptocurrencies as an alternative for savings and transfers.

Due to the lack of regulation, cryptocurrencies are prone to fraud and market manipulation. Governments might introduce regulations that could impact the market.

China’s crypto crackdown in 2021 caused Bitcoin’s price to drop by nearly 50% in just a few weeks.

Your Risk Profile

If you’re willing to tolerate a high level of risk for potentially high rewards, cryptocurrency may be suitable for you.

If you’re more risk-averse or investing for short-term gains, the extreme price fluctuations could cause stress or lead to losses.

Some investors use only a small percentage of their portfolio (e.g., 5–10%) for crypto to avoid overexposure to risk.

Investment Goals

Cryptocurrency can be a good diversification tool to complement other investments like stocks, bonds, and real estate.

You shouldn’t rely solely on crypto for long-term goals like retirement. Its volatile nature could disrupt your financial plans if the market crashes.

A balanced portfolio might include a small percentage of crypto alongside safer assets like index funds to spread the risk.

Other Ways to Invest in Crypto

You don’t have to buy cryptocurrency directly. You can invest indirectly through crypto-related stocks, exchange-traded funds (ETFs), or companies like Coinbase and Nvidia.

Indirect investments may not experience the same high returns as directly holding the cryptocurrency itself, but they can be a safer way to gain exposure to the sector.

In 2021, the U.S. Securities and Exchange Commission (SEC) approved a Bitcoin ETF, which allows traditional investors to gain exposure to Bitcoin without owning the cryptocurrency itself.

Investing in cryptocurrency can be rewarding but comes with significant risks. By carefully considering the pros and cons and staying informed, you can make better decisions that align with your financial goals.

Steps to Invest

1. Choose a Cryptocurrency Platform (Broker or Exchange)

First, decide where you’ll buy your cryptocurrency. You can use a broker (like Robinhood or SoFi) or a cryptocurrency exchange (like Coinbase or Binance).

A broker makes it simpler but might charge higher fees. Exchanges often have more options but can feel complex for beginners. For instance, if you’re just starting and want an easy experience, you might try Coinbase, even though it has slightly higher fees.

2. Create an Account

Once you pick your platform, you’ll need to sign up for an account. This usually involves giving your personal information to verify your identity (known as KYC or “Know Your Customer”).

It’s like opening a bank account where you provide an ID or driver’s license to prove who you are.

3. Add Funds to Your Account

Before you can buy crypto, you need to put money in your account. You can do this by connecting your bank, using a credit/debit card, or making a wire transfer.

Keep in mind, that credit card purchases for crypto often come with high fees. For example, if you deposit $100 using your credit card, fees might reduce the amount you can actually use to buy crypto to $90.

4. Buy Your First Cryptocurrency

With money in your account, you’re ready to buy crypto! Let’s say you want to buy Bitcoin. You’d search for the Bitcoin symbol (BTC), choose how much to buy, and make the purchase.

The nice thing is, that you don’t have to buy a whole Bitcoin — you can buy a small fraction, like $50 worth, which is just a piece of one Bitcoin.

5. Store Your Cryptocurrency Safely

After buying, you need a safe place to store your cryptocurrency. You can leave it in your exchange account, but it’s safer to use a crypto wallet.

There are two types:

• Hot wallets (online, more convenient but less secure)
• Cold wallets (offline, like a USB drive, more secure) For example, you could use a hot wallet like Coinbase Wallet or a cold wallet like a Ledger device.

6. Secure Your Crypto Wallet

If you’re using a hot wallet, make sure it’s secure. A common way to protect your crypto is by enabling two-factor authentication (2FA), which adds a second layer of security.

It’s like needing both your password and a one-time code from your phone to log in.

7. Hold and Monitor Your Investment

Crypto is volatile — prices can go up and down quickly. Once you’ve bought your cryptocurrency, it’s important to stay informed about the market.

For example, if Bitcoin’s price drops, you might choose to hold on to your investment, believing it will rise again, or sell part of it to book a profit.

8. Sell When You’re Ready

When you feel the time is right, you can sell your cryptocurrency to make a profit.

Let’s say you bought Bitcoin at $20,000 and it rises to $25,000. You could sell your holdings, take your profit, and then transfer the money back to your bank account.

9. Future use cases

Cryptocurrency has come a long way, and its future holds exciting possibilities. Here’s a breakdown of how crypto could be used in the future, with easy-to-understand examples:

Making Finance Available to Everyone

Cryptocurrencies are opening up financial services to people all over the world, even those without access to traditional banks. For example, imagine someone in a remote village with no bank but internet access. They could use cryptocurrency to save money, send funds to relatives, or even make online purchases.

Faster and Cheaper International Payments

Sending money across countries can be slow and expensive. Cryptocurrencies allow people to send money to anyone, anywhere in the world, quickly and with very low fees. For instance, a worker in the U.S. could send money home to their family in India instantly without paying high fees.

Store of Value (Like Digital Gold)

Some cryptocurrencies, like Bitcoin, are seen as a way to protect money from inflation (where prices rise and your money buys less). People can store their wealth in Bitcoin instead of cash. It’s like buying gold, but digital. Over time, if Bitcoin’s value goes up, their money grows too.

Decentralized Finance (DeFi)

DeFi allows people to borrow, lend, or trade money without needing a bank. Instead of applying for a loan from a traditional bank, a person could borrow money through a DeFi platform, with everything done digitally and quickly.

Tokenizing Real-World Assets

Cryptocurrencies could allow us to buy and sell parts of real-world assets like property or stocks. For example, you could own a piece of real estate in New York, but instead of owning a whole building, you could buy just a small part of it using cryptocurrency tokens.

Blockchain and Artificial Intelligence (AI)

In the future, blockchain could be combined with AI to create more secure and personalized services. Imagine an AI system that helps you manage your finances, and everything is protected on a blockchain so that no one can tamper with your data.

Smart Devices Using Crypto (IoT)

Your everyday devices, like smart refrigerators or thermostats, could one day make small payments using cryptocurrencies. For instance, your smart fridge could automatically order and pay for groceries when you’re running low, all through crypto.

Blockchain-Based Gaming

In the future, video games might fully integrate cryptocurrencies. Gamers could earn crypto while playing, and use it to buy in-game items or even sell these items for real money. For example, someone might win a rare item in a game and sell it on the market for cryptocurrency, which they can then convert into regular money.

These are just a few potential use cases. As the technology develops, we may see even more creative ways to use cryptocurrencies in our daily lives!

Conclusion

Investing in cryptocurrency offers both exciting opportunities and significant risks. With the potential for high returns, diversification, and the possibility of cryptocurrencies becoming a vital part of the future financial system, it’s an appealing option for many. However, the volatility, security concerns, and lack of regulation mean that investors must proceed with caution.

By understanding how to get started, securing your investments, and staying informed about the evolving crypto landscape, beginners can navigate this space with more confidence. Whether you’re intrigued by the potential to democratize finance or looking for new ways to diversify your portfolio, cryptocurrency investment could play a role in your financial future.

Beginners Guide to Invest in Cryptocurrency was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.