Cryptocurrency 101: Where and How to Start
Investing in cryptocurrency is easy, and more investors are interested in it daily. All you have to do to become an investor is find an exchange you trust, start a wallet, and start buying crypto. Unfortunately, while the process is easy, being an investor is complex. As an investor, you likely have many questions about crypto, including what you need to know, how to buy it, and whether it’s safe. This guide will answer all the questions you have about investing in cryptocurrency. Let’s get started.
What You Should Know
Cryptocurrency investing isn’t new, but it’s newer than other types of investments, such as stocks and bonds, so you might have a few questions to help you decide whether you should invest. Here’s what you need to know about crypto.
It’s Volatile
Cryptocurrency is a high-risk investment because of its volatility. With stocks, even though major companies go through dips, you can still expect many of them to return to normal growth. However, with crypto, even the most popular crypto prices experience drastic highs and lows. For example, Bitcoin can drop over 30% or more in value in a week and then skyrocket in a single day.
Of course, Bitcoin is currently doing much better than it did when it first started in terms of volatility, but it’s still a higher-risk investment than almost all stocks. Cryptocurrency earnings are not stable or guaranteed, and many people lose all of their investments. If you want to start investing in crypto, it’s best to allocate only a small portion of your portfolio to it. Experts suggest having cryptocurrency make up less than 5% of your portfolio.
Holdings Are Not Insured
Your money is insured with other types of investments, such as a savings account. So, for example, if your bank goes bankrupt, you won’t lose a dime. However, if your crypto exchange gets hacked or closes down, there’s no way for you to get your money back.
You Must Pay Taxes
Everything you earn in crypto is taxed, but not in the same way income is taxed. The IRS taxes cryptocurrency as an asset, not a currency, so transactions from selling, using, and purchasing crypto are subject to capital gains taxes. Make sure to do your research, and maybe even consider working with an accountant to help you work through some of the logistics and technical financial language.
Buying Crypto
Many investors like having an investment that’s higher risk than the others. Ultimately, the higher the risk, the higher the reward if you’re savvy enough to know when to buy and sell crypto. So if you’ve decided you want to start investing, it’s time to figure out how to buy crypto.
Picking an Exchange
You can purchase and sell crypto through several exchanges, so it’s best to do your research before choosing one. An exchange is where you trade and store your crypto, so you need to ensure that it’s reputable. Since you want to ensure you pick the right platform, it can be helpful to utilize an app exchange platform like Salesforce’s to explore your options.
Luckily, there are many popular exchanges to choose from that people have been using for years. A few top exchanges include:
- Coinbase
- eToro
- Binance
When choosing which exchange to go with, consider security and fees.
The more hoops you have to jump through to create an exchange account, the better it is because it means they have heightened security which can help prevent cyberattacks. On the other hand, if it’s too easy to generate an account, the exchange might not be trustworthy or prone to breaches.
Additionally, you should be aware of any fees. For example, many exchanges include a transaction fee, which can be based on the transaction’s size or activity level. Ultimately, learning about the fees can help you determine if your investment would be affected at all. Additionally, you should expect the more popular exchanges to cost more because they have a trustworthy reputation.
You may also choose your exchange based on the cryptocurrency offerings because not all exchanges have the same currency available for trading, and it’s not uncommon for investors to use more than one exchange.
Choosing Your Cryptos
While Bitcoin is the most well-known cryptocurrency, it’s not the only player in the game. Most exchanges offer a dozen or more types of cryptocurrency, and there’s an option for everyone, depending on how much you want to spend. Cryptocurrency is speculative and volatile, so it can be hard to choose the right ones for your portfolio. Ultimately, you may just have to go for the one you trust the most.
Once you’ve determined the crypto you want to buy, you’ll need to decide how much to buy. An important rule of thumb is to never invest more than you’re willing to lose. As we’ve said multiple times already in this article, crypto is volatile. Additionally, if you lose access to your crypto wallet, there’s no way to get your investment back.
Other Types of Crypto Investments
If trading coins doesn’t sound like the right fit for you, there are other ways you can invest in crypto, including:
Crypto Stocks
Crypto stocks allow you to invest in cryptocurrency without having to trade coins. Instead, you can invest in the industry by purchasing company shares that focus on the future of cryptocurrency. For example, you can buy Coinbase stocks instead of trading crypto.
Blockchain
One of the most interesting parts about cryptocurrency isn’t the coins themselves; it’s the blockchain. Blockchain technology has been proven to have many uses because it’s secure and transparent. Many companies are working on ways to use blockchain technology, especially in the finance sector. You can invest in blockchain technology by researching companies utilizing it.
Getting Started With Crypto
Now that you understand how easy it is to start investing in crypto, it’s up to you to decide if the investment is worth it. Many experienced investors avoid crypto because of how unpredictable it is, while others enjoy taking on higher risks.
To determine if crypto investing is right for you, you must determine your level of risk tolerance. For example, if you’re too afraid of losing money, crypto is not right for you. However, if you’re someone who can handle high-risk investments and won’t ever invest more than they’re willing to lose, you can make good money investing in crypto.
