Crypto investments are rising in popularity, mainly due to the constant support decentralized finance (DeFi) is getting from the world’s billionaires and tech minds. Today, investors can use exchanges like Bybit to buy and acquire crypto. If you plan on investing in currencies, you should only dive in with the understanding that crypto is a high-risk/high-reward investment.
Since cryptocurrencies are volatile, you can experience significant monetary losses if you start investing when uninformed. In this guide, we discuss how to invest in cryptocurrency for beginners and share some beginner investing tips to keep you out of harm’s way.
How to Invest in Cryptocurrency for Beginners
As a beginner, you can invest in cryptocurrency by choosing a crypto exchange or broker, creating and verifying your account, depositing a fiat currency for investment, placing your crypto order and selecting a storage mETHod, such as a wallet.
Choose a Cryptocurrency Exchange or Broker
Before anything else, you need to select a broker or a cryptocurrency exchange. Each one lets you purchase cryptocurrency, but the two have specific differences.
Cryptocurrency Exchange
A cryptocurrency exchange is a place for you to trade cryptocurrency with other buyers and sellers. The fees on these platforms are typically low. However, they have multiple trade types and interfaces that beginners might find hard to comprehend at first. Some popular cryptocurrency exchanges include Coinbase, Bybit, and Gemini.
When choosing a cryptocurrency exchange, make sure you select one that allows you to buy crypto with a fiat currency, such as U.S. dollars. Some exchanges only take crypto, which means you will need one cryptocurrency to buy another.
As a beginner, you may not have any cryptocurrency. If so, you’ll need an exchange that accepts a fiat currency in order to purchase your crypto.
Cryptocurrency Broker
A cryptocurrency broker makes the crypto trade much simpler and straightforward than an exchange. The interface is easy to use, although the fees may at times be higher. Two popular cryptocurrency brokers are SoFi and Robinhood.
As we move along in this article, the importance of crypto wallets will become apparent. Some advanced crypto enthusiasts also prefer keeping their holdings in hardware wallets. That being said, it’s vital to keep in mind that not all brokers let you move your holdings from their platforms.
For instance, both SoFi and Robinhood don’t let you transfer your holdings to a wallet, or anywhere out of your account. If you want to keep your cryptocurrency in a secure wallet at any time in the future, consider this when choosing a broker.
Create an Account
After choosing an exchange or broker, the next step is to sign up on the platform. Platforms require you to verify your identity through different mETHods. This is essential for preventing fraudulent activities.
For verification, you may have to submit a scanned picture of your passport or driver’s license. The platform will then ask you to upload a selfie to match your face with your driver’s license or passport photo.
Deposit Cash
To buy crypto from either an exchange or broker, you must have a fiat currency in your account. You can deposit money into it through a wire transfer or your debit/credit card. After you’ve deposited the funds, it will take a few days for you to use that money to buy crypto. The duration depends on the platform you’re using.
Pro Tip: While you can use your credit card to deposit funds on some cryptocurrency exchange platforms, we don’t advise it. Your credit card company will process this purchase as a cash advance. Typically, cash advances incur a higher interest rate and come with a cash advance fee. Thus, you may have to pay a certain percentage of the transaction as the cash advance fee.
Choose a Cryptocurrency to Buy
Once the money you’ve deposited is available for use, you can choose from hundreds, if not thousands, of cryptocurrencies. Some popular ones include ETHereum and Bitcoin.
You can identify a cryptocurrency by its “ticker” symbol, which is sort of like a nickname. For instance, BTC is the ticker symbol for Bitcoin. Here are the tickers for some popular cryptocurrencies:
- Bitcoin (BTC)
- TETHer (USDT)
- ETHereum (ETH)
- Binance Coin (BNB)
- Cardano (ADA)
Depending on the cryptocurrency you choose, it may not be possible for you to buy a whole coin due to its exorbitant price. Fortunately, many exchanges let you buy fractional shares.
Instead of buying 1 BTC, which of late has stayed in the $50,000 to $60,000 range, you can buy one-hundredth or any other subunit of a Bitcoin.
Choose a Storage METHod
Your bank may be insured by the FDIC, but a crypto exchange is not. Crypto exchanges are at risk of hacking, and you can lose your money if you don’t keep your investments secure.
As we’ve already discussed, if you’re buying crypto from a broker, you’ll probably have no choice but to keep it in your account. But if you purchase crypto from an exchange, you can transfer your money to a hot or cold wallet.
Hot Wallet
A hot wallet runs on computers, tablets, phones and other devices connected to the Internet. Your money will be stored online in a hot wallet. While this storage mETHod is convenient, it exposes your funds to the risk of hacking and theft due to its constant Internet connection.
Cold Wallet
A cold wallet isn’t connected to the Internet. You can “’carry” your cold or hardware wallet with you in the form of a hard drive or USB. However, you need to be careful when using a cold wallet. If you lose the private key to the wallet, you may never be able to regain access to your cryptocurrency. Likewise, if the device malfunctions or breaks, you can lose your money.
Tips for Investing in Cryptocurrency
When investing in cryptocurrencies, you have to be careful since one dip in the market can put you at a loss. Below are some beginner investing tips to keep in mind.
Read the White Paper
Any list containing crucial beginner investing tips will tell you to always do your own research before committing to an investment. The white paper of any crypto project is a guide or report that tells you all you need to know about that currency. It describes in detail the philosophy behind the crypto and how it works.
Reading the white paper will provide two benefits: One, you’ll be familiar with the intricacies of a particular cryptocurrency. Two, you can judge a project by the white paper. If it’s poorly written, you know the project isn’t worth the investment.
For instance, Baby Doge Coin’s white paper and road map talk about starting a new religion and a whole lot of other non-crypto things. While Baby Doge Coin appeals to some investors for its charitable contributions, no amount of hype will make it a good investment in the long run.
Avoid Timing the Market
It’s nearly impossible to enter or exit the market safely without experiencing any losses. When you step into the crypto investment world, you have to be prepared for its ups and downs. It’s best to avoid timing the market, since that will eat up a lot of your time and leave you stressed. Instead, invest in the market and exit when it gets too volatile.
After all, you’re not only investing in cryptocurrency, are you? You have other things to do as well. To actually keep track of the market, you have to read long reports and financial statements, which can get tedious after a while.
Moreover, if you’re always watching the market, you’ll be on an emotional roller coaster all the time. As a result, you’re likely to sway from your trading plan.
Only Invest What You Can Afford to Lose
One of the best beginner investing tips is to invest only what you can afford to lose. Don’t let your emotions get the best of you. When you let distractions – such as sensational headlines and tweets from billionaires – drive your investment decisions, you end up losing money.
New crypto investors often invest in a particular cryptocurrency just because everyone else is doing so. Yes, the idea might be enticing, but how does it hold up in the long run? Is the currency just being hyped at the moment – or does it have future potential as well?
Don’t cave to pressure simply because everyone around you seems to be investing in a particular meme coin. Instead, do your research, stick to your trading plan and make sure you size up your buys.
Be Wary of Cryptocurrency Scams
When people are first getting into cryptocurrency, they often make the mistake of not being educated about scams and how to avoid them.
The Federal Trade Commission recently announced that over 7,000 crypto investors lost a total of more than $80 million in scams between October 2020 and March 2021. Since interest in crypto investment and blockchain technology is increasing, more and more people are entering the market without doing any preliminary research. Because of this, they become easy targets for scammers.
Some of these scammers trick investors by pretending to be government agents or celebrities – Elon Musk is not going to offer you money for sending him cryptocurrency. Meanwhile, others will give you “investing tips” in exchange for money or crypto. Don’t fall for these scams. As a rule of thumb when it comes to beginner investing tips, don’t trust anyone claiming to make you a ridiculous amount of money for performing simple tasks.
Research and Due Diligence
Just as with stocks, fundamental analysis is critical when investing in crypto. Simply put, due diligence is a comprehensive appraisal of the crypto market – especially the particular currency in which you want to invest – in order to establish commercial potential while minimizing losses.
When you go in with proper research, it increases your conviction in your purchase and safeguards you from distractions and news scares. For instance, a cryptocurrency’s developers may run aggressive campaigns and get celebrity endorsements to create hype when their new crypto is launched.
As a result, many investors will blindly jump in without doing any research. Once the hype dies, they’re left with nothing. Of the many beginner investing tips to keep in mind, one of the most basic rules is to not be impulsive or act on FOMO. Instead, take your time. Do your research, read the white paper, go through expert analysis, and then decide if you want to invest in a particular cryptocurrency.
Don’t simply trust any random source when doing your research. You can listen to licensed financial advisors but always double-check every piece of information you see or hear online. More importantly, perform due diligence before you invest in a cryptocurrency.
Keep Your Keys Safe
Crypto wallet keys aren’t like car or house keys that you can copy. If you lose your key, you lose access to your wallet – and the money in it. Although you can get your money back in some cases, the process is long and tedious. Instead, do yourself a favor and try not to lose your crypto key.
It’s equally important to keep your key safe from prying eyes. Don’t leave your wallet open or store the key anywhere easily accessible to others.
Closing Thoughts
We’ve discussed the basics of how to invest in cryptocurrency for beginners in this guide. To sum up: do your research well, stick to your trading plan, don’t pay heed to your emotions or wannabe crypto experts, and get your information from credible sources. Hopefully, these beginner investing tips will prepare you for what to expect in the world of cryptocurrencies.
