In this article, we discuss the ins and outs of investing in the cryptocurrency market. If you’re looking to invest in cryptocurrency for the first time – you will be entering a new and existing trading space that has since surpassed a market value of $3 trillion. In this beginner’s guide, we’ll teach you everything you need to know about investing in cryptocurrency. Key topics include how to choose a safe and low-cost cryptocurrency exchange, selecting the best digital currencies for your portfolio, and the steps required to invest in less than a few minutes.
How to Invest in Cryptocurrency for Beginners – 4 Easy Steps
In just four simple steps – you can invest in cryptocurrency via a regulated online broker in under five minutes. Best of all, when using eToro for this purpose – you can instantly pay for your cryptocurrency investment in US dollars without paying any transaction fees. Here’s a quick-fire overview of how to invest in cryptocurrency in easy steps at eToro:
- Step 1 – Open an Account with eToro: Opening an account with eToro is super easy as it’s just a case of providing the broker with some personal information. You’ll also need to upload a copy of your ID for anti-money laundering purposes.
- Step 2 – Deposit: You only need to deposit $10 into eToro when you first open an account, and no transaction fees are charged (US clients only). Choose from ACH, a debit/credit card, an e-wallet, and more.
- Step 3 – Search for Cryptocurrency: Now that you have a funded account, use the search bar to find the cryptocurrency that you want to invest in. If you’re unsure which digital asset takes your fancy, click on the ‘Discover’ button to browse the 60 digital currencies supported by eToro.
- Step 4 – Invest in Cryptocurrency: After clicking ‘Trade’ you will see an order box appear on your screen. Enter your investment stake in the ‘Amount’ box and click ‘Open Trade’ to invest in your chosen cryptocurrency.
5 Questions to Consider Before You Buy Crypto in 2023
1. Do you have an emergency fund?
Whether you’re buying crypto or investing in stocks, make sure you have a fully stocked emergency fund before you jump in. If you have three to six months’ worth of living expenses stashed away in a savings account, it will cushion you against unexpected crises such as a job loss or medical issue.
Crypto prices dropped dramatically in 2022. Many investors hope that prices will recover eventually. But if you’re forced to sell an asset when it’s worth 80% less than you paid for it, you won’t be able to benefit from any recovery. By building an emergency fund, the idea is that you’ll be able to tap your fund rather than resorting to selling your investments or taking on debt.
2. Are you in it for the long term?
There are no guarantees when it comes to investing, particularly with cryptocurrencies. However, if you invest with a 10 to 20 year window, you’ll be able to wait out even dramatic short-term dips such as the one we’ve seen this year. To do that, you need to believe in the long-term potential of blockchain technology and the individual projects you buy.
Investing for the long term means doing a lot of research and identifying the projects that are most likely to succeed. You might decide to stick to Bitcoin and Ethereum (ETH), which are the two biggest cryptos by market cap. If you get more experienced, you might branch out into projects you think have utility and a good chance of performing well in the coming decades.
3. Will your cryptocurrency be part of a diversified portfolio?
I am a big fan of cryptocurrencies and I hope the technology will transform the way we use money and manage our identities online. But right now, it is a risky and relatively unregulated industry that has some major hurdles to overcome. It may not be able to do so, and if it doesn’t, investors could lose everything.
Don’t go all in on crypto. Many experts recommend crypto make up no more than 5% of your investments, which is a sensible place to start. That way, you’ll be able to profit if the industry does succeed. But at the same time, if things go south, it won’t derail your finances.
4. Do you have a plan?
Be honest with yourself about why you’re buying crypto and what you hope to achieve. Many crypto investors who bought during the crypto frenzy of 2021 did so because they were scared of missing out or they wanted to make short-term profits. Unfortunately, that meant people bought close to the highs without fully understanding what they were buying.
Your plan should include the amount of money you’re willing to invest, the types of cryptocurrency you plan to buy, and how long you plan to hold them. It’s also crucial you know why you are investing — what is it that makes you believe blockchain technology could succeed? What triggers might cause you to change your hypothesis? That knowledge can help combat both panic selling and panic buying as it gives you a solid decision-making base.
5. Do you understand the risks?
Cryptocurrency investing is extremely risky. Those risks come with the potential for higher returns, but you need to understand what you’re getting yourself into. If you’re someone who might lose sleep over a 20% drop in a day, crypto investing may not be for you.
Here are some uncomfortable truths about crypto investing:
- Cryptocurrency prices are extremely volatile. Prices could fall dramatically in a matter of weeks, and may not return to their former highs.
- Individual cryptocurrencies could fail. If a crypto you own collapses or turns out to be a scam, you could lose everything.
- Crypto exchanges and platforms can fail. If the crypto exchange you use declares bankruptcy, you may not be able to get your money back, as there are few consumer protections in place.
There are ways to mitigate the risks, such as using a crypto wallet instead of leaving your assets on a crypto exchange. But you need to be willing to put the time into understanding how wallets work and learning how to keep yours secure, which not every investor will want to do.
The Bottom Line
When it comes to cryptocurrencies, one of the biggest challenges for investors is not getting caught up in the hype. Analysts continue to caution investors about the volatile nature and unpredictability of cryptocurrencies. If you’ve decided to invest in the cryptocurrency market, it’s important—same as with any other investment—to do your research. Consider why you’re interested in this particular investment vehicle, and familiarize yourself with cryptocurrencies and blockchain technology, to be more fully equipped to determine whether this type of investment opportunity is worthwhile for you.