How To Invest In Cryptocurrency – A Guide To What You Need To Know

Maybe you’ve heard the hype around cryptocurrency, and you are thinking about investing in it. The idea of a decentralized currency system where you don’t have to rely on financial institutions sounds appealing to you, and you want in. So now, you want to know how to invest in cryptocurrency. 

How do you invest in cryptocurrency? The way to invest in cryptocurrency is through a cryptocurrency exchange, trading platform, peer-to-peer transfers, or Bitcoin ATMs. However, with 2,000 cryptocurrencies available, it’s essential to know which ones are the best. 

If you are new to the whole cryptocurrency idea, it’s essential to know what exactly it is and more details on how to invest in it. You’ll also want to know what the best exchanges are to start with and what cryptocurrency to invest in. Read on for help with your cryptocurrency investing endeavor.

How To Invest In Cryptocurrency

What Is Cryptocurrency?

Before investing in anything, you should first understand it. To keep things simple: cryptocurrency is a digital asset. It is a virtual currency that you can exchange for goods. Think of it like virtual tokens. You exchange real money for these tokens, and with these tokens, you can buy stuff. 

There are 2,000 cryptocurrencies available. However, the top cryptocurrencies use blockchain technology. Blockchain technology is what allows for the decentralization of the currency, without regulation from the government. It also prevents counterfeit and keeps transactions transparent and available for everyone to see. 

Cryptocurrency Blockchain

However, one major disadvantage is that cryptocurrency is susceptible to theft by hackers and cybercriminals. 

Additionally, most cryptocurrencies have a finite supply, so inflation cannot occur as a result of printing more money (like governments do with regular currency). Because nothing is backing the value of cryptocurrency, like gold or the government, the value is created by its users. Therefore, the price is extremely volatile.

While some have made millions off of cryptocurrency, many people have lost money as well. Proceed with caution: “investing” in cryptocurrency is as close as it gets to gambling. Many financial advisors will not even endorse you investing in them. 

If you’ve read this far and are still interested in taking the gamble, keep reading to learn how to invest in cryptocurrency. 

How To Invest In Cryptocurrency

Cryptocurrency investing is not for the faint of heart. Prices can fluctuate drastically, which can cause panic amongst investors causing them to sell at a loss. If you are going to invest in cryptocurrency, it is a good idea only to invest extra money that you are willing to risk losing. Do not invest money that you desperately need to feed your family. To invest in cryptocurrency, you have the following options: exchanges and trading platforms, peer-to-peer transfers, and Bitcoin ATMs. 

Private Key

Before you can invest in cryptocurrency, you will need a private key that will authenticate your identity and allow you to exchange coins. The private key is necessary to protect you from theft and unauthorized use of your funds.  It is a random string of text consisting of numbers and letters that is generated for you.

Once you have that, you can buy, sell, and spend the cryptocurrency. If you don’t have a key, you won’t be able to convert or spend your cryptocurrency, which means it would be worthless. You need the key to access your funds.

Therefore, you must keep your private key in a safe and secure place. You might want to write it down and keep that stored in a safe place. You also have the option of a paper wallet, a hard wallet, and an offline software wallet. If you were to lose your private key, you wouldn’t be able to recover the coins you bought. 

Cryptocurrency Exchanges And Trading Platforms

One of the most popular ways to buy and sell cryptocurrency is on cryptocurrency exchanges. Exchanges are what is most often used by beginner investors. Some of the most popular exchanges include Coinbase, Bitfinex, GDAx, and Binance. The most popular one is Coinbase since it’s the easiest to use, and they have both a website and an app. You can make purchases of cryptocurrency with your debit card and other cryptocurrencies. Specific exchanges also allow you to trade cryptocurrency derivatives and track crypto indexes. 

It is important to note that exchanges may charge fees for conducting transactions (typically less than 1%).

You can also use certain more traditional investment platforms like Robinhood and TradeStation to trade crypto.

Cryptocurrency Exchanges

Peer-To-Peer Transfers

If you want to buy and sell cryptocurrency without any fees, you can look for people to interact with directly. LocalBitcoins is one website that allows you to do this. However, this method does take longer than using an exchange. Additionally, it’s riskier because you don’t know who is buying and selling, and you have no way of verifying if the cryptocurrency is real. 

You will typically have to do this with less popular cryptocurrencies. With this method, because there is no dedicated online exchange, you’ll usually have to exchange other cryptocurrencies (e.g., Bitcoin) for less popular cryptocurrencies. In layman’s terms: you can’t buy all cryptocurrency with cash.

This creates illiquidity, which ends up suppressing demand, and, therefore, the value of them.

Bitcoin ATMs

As mentioned previously, there are thousands of cryptocurrencies available. One of those is Bitcoin. While this only applies to Bitcoin, if you plan to invest in Bitcoin, you may want to take advantage of the Bitcoin ATMs that allow you to purchase Bitcoin and send them to your cryptocurrency wallet. There are more than 4,000 of them in 76 countries. 

What Is A Cryptocurrency Wallet?

Once you have bought your cryptocurrency, you’ll want to store it in a cryptocurrency wallet. You need this to save your cryptocurrency portfolio code securely. You have the option of a hardware wallet or a software one. 

Software wallets are downloadable programs that allow for active trading. If you use Coinbase, you automatically get a software wallet. Hardware wallets are like USB drives that store your cryptocurrency. Hardware wallets are more secure than software wallets. These are best for cryptocurrency that you don’t plan to trade actively (i.e., you won’t need quick access to it).

No matter how you store your cryptocurrency, you should also have a backup storage place. Backing up the wallet doesn’t double your cryptocurrency; it only records its existence and ownership details.

What Cryptocurrency Should You Invest In?

There are thousands of cryptocurrencies you can invest in, but the top three are Bitcoin, Ethereum, and Ripple. These three are the largest by market capitalization. The market caps for these three, respectively, are $128 billion, $19.4 billion, and $8.22 billion.

Cryptocurrency Ethereum

Ethereum and Ripple were created to build upon what Bitcoin was lacking, with a focus on increasing the speed of transactions and decentralization. Whichever coin you choose to invest in, you need to research to decide which one you feel has real-world value. You can research these coins by reading the white paper or articles about them. 

Some attempt to provide real-world value, but regardless, you must acknowledge the volatility of cryptocurrency. 

Bitcoin experienced huge swings in value in 2017 and 2018. It started close to around $900 in 2017 and ended up being valued at $20,000 at the end of the year. A few months later, it dropped back down to under $7,000 in value in April of 2018. 

People who purchased at its peak, thinking it was going to keep growing in value, lost a lot of money.

Analysts have wildly different ideas about where they see the value of cryptocurrency going. 

In support of cryptocurrency, some believe that, due to the pandemic, investors may be more willing to get into the cryptocurrency game. Because there is a limited supply of bigger-name cryptocurrencies, an increase in demand should lead to higher prices that, those who buy early, could benefit from. Additionally, some believe that as governments inject more stimulus into the economy, inflation will rise, which may drive more people to invest in cryptocurrency.

Regardless, there is no certainty on returns, so whatever money you decide to invest requires you to be willing to lose it. You will be taking a gamble. 

Why Do Some People Invest In Cryptocurrency?

They know the risks, so why do they do it? Why should you? While cryptocurrency is a risky investment, people invest in it because they believe in the benefits it provides. 

Cryptocurrency investors like the idea of their money not being regulated by the government. They like that the quality control of cryptocurrency is done by miners, who have a financial stake in maintaining accurate, up-to-date transaction records. They like the idea of a limited supply of money where government institutions can’t print money whenever they want, causing inflation and a lack of security with the value of regular cash. They also like the idea of being able to conduct transactions privately and anonymously. Additionally, the ability to engage in transactions internationally without extra fees is another appealing aspect. 

Tips For Investing In Cryptocurrency

As stated previously, only invest money that you are willing to “play” with, and make sure you are financially stable before investing. This “investment” does not pay interest or dividends and is not even considered a real investment

You will be solely relying on profiting off the price increasing. If you want to play it a little safer, make sure cryptocurrency is only a tiny percentage of your overall investment portfolio. The majority of your portfolio should be coming from stocks, bonds, and funds. 

Also, I’d recommend only investing in the more well-known cryptocurrencies. This is especially true if you don’t fully understand cryptocurrency from the tech standpoint. Some people have spent thousands upon thousands of dollars on cryptocurrencies they didn’t fully understand that resulted in them getting scammed.

The Bottom Line: Investing In Cryptocurrency

Now you know how to invest in cryptocurrency. You can either go with exchanges or trading platforms, peer-to-peer transfers, or Bitcoin ATMs. However, there is a lot of risk involved in investing in cryptocurrency. Plus, if you lose your private key, you could be in trouble. 

While no one seems to agree completely on where the future of cryptocurrency is going, noteworthy is that some retailers have already started accepting it. Additionally, France is a country that is leading the way in cryptocurrency transactions. They adopted a payment system that will allow around 25,000 retailers to start accepting crypto. If more and more countries begin to accept this medium of exchange, cryptocurrency may have real and substantial value in the future. However, with more acceptance may come more regulation, which would defeat the purpose of cryptocurrency. 

At this point, things are still up in the air. While cryptocurrency is meant to be theft-proof, the reality is that it’s still susceptible to fraud and cybercrimes. If you want to build financial wealth, there are other, less risky ways to do it. There are other investment options out there as well, such as investing in hedge funds, in private companies, or in municipal bonds. But if you genuinely believe in the future of cryptocurrency and don’t mind possibly losing money, then go ahead: take the risk. 

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Kevin Martin

Kevin is an ambitious entrepreneur that is obsessed with all things related to finance. From a young age, Kevin has always been involved with side hustles ranging from online selling to freelance work. Over the years, Kevin graduated from side hustles and started launching multiple online and offline businesses. Kevin is a serial entrepreneur who loves starting new businesses and exploring all things related to business and finance. He is constantly looking for new ways to save money, invest money, and create income streams.

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