If you are searching for how to start investing in cryptocurrency, then chances are that you already know what it is. Recently, cryptocurrency has risen to become an asset class that’s providing people with a chance to invest and earn substantial returns.
Even though it lacks the backing of any government, crypto has grown in popularity over the years. It has served as both a short-term and long-term investment for many smart investors. Today, more and more people are also joining the crypto bandwagon. Do you want to start investing in cryptos too? Here is how to get started.
Steps to Investing In Cryptocurrency
1. Understand what you are investing in
This is the place to start. Just like with other types of investments like stocks and bonds, in which you carefully read the prospectus and analyze the companies thoroughly, you should take time to understand cryptocurrency before you invest, too.
There are thousands of cryptocurrencies, and they all function differently. Unlike some other investment types like stock, crypto relies on the market becoming optimistic and bullish for you to profit.
Understand the particular cryptocurrency you want to invest in and know how it works. Some common cryptos are Bitcoin, Ethereum, Cardano, Dogecoin, and Ripple. Once you know which of them you are going for, then proceed to the next step.
2. Choose a crypto exchange or broker
To buy your cryptocurrency, you will first need to choose a crypto exchange or broker. Although both of them allow you to buy cryptocurrencies, they are not exactly the same.
Crypto exchanges are platforms where buyers and sellers meet to trade cryptocurrencies. These platforms often charge a relatively low fee, but they may not be best for a beginner because they tend to have a more complex interface with multiple trade types and advanced performance chats.
Some of the most common cryptocurrency exchanges out there include Coinbase, Finance.US, and Gemini. On the other hand, crypto brokers tend to offer a more simplified means of buying cryptocurrencies. Even beginners can relate well to the platform without having any troubles. They offer more easy-to-use interfaces than exchanges, but at higher fees. Some popular brokers you can trust are Anycoin Direct, Robinhood, and SoFi.
3. Create and verify your account
Now that you know which exchange or broker you are going with, you should sign up to open an account with them. Some platforms will require you to verify your account before you buy your cryptocurrency. It is an essential step to meet federal regulatory requirements and prevent fraud.
To verify, you may need to submit a copy of your passport or driver’s license. Sometimes, you may also be asked to upload a selfie to confirm you are the real owner of the documents you submitted.
4. Deposit cash into your account
Deposit cash into your account so you can buy your cryptocurrency. Depending on the platform you choose to use, you can do a wire transfer or buy with your credit or debit card. When your deposit is received, then you can go ahead to buy any crypto of your choice.
Nevertheless, while some exchanges or brokers will allow you to buy cryptocurrencies with your credit card, you should know that option is extremely risky and expensive. Your payment will be processed as cash advances, which can incur high interest – far more than your regular purchases. So if possible, you can use other payment options aside from your credit card.
5. Place your cryptocurrency order
Once you have your money in your account, you can go ahead to place your order. Choose the crypto you want to buy – sometimes indicated by their representative symbols. For instance, Bitcoin is represented as BTC and Ethereum as ETH.
Then state how many coins you would like to buy – you can buy any fraction you like.
6. Select where you want to store your crypto
Once you buy your cryptocurrencies, you will need a place to store them. While some exchanges allow you to store your cryptos on their platform, it is a very risky move. If such an exchange is hacked or become compromised, you may lose all your investments. So it’s important to have a more secure place to store your cryptocurrencies.
Some options you can use are either cold wallets or hot wallets. Hot crypto wallets are online wallets and so require an internet connection to use them. They are convenient but also have a higher risk of theft since they are connected to the internet.
Cold wallets, on the other hand, are more secure because they need internet connections to run. They take the form of external devices like a hard drive or USB drive. However, cold wallets are more expensive and once you lose the code associated with your wallet, you may not be able to gain access to your cryptocurrencies again.
Things to Bear In Mind When Investing In Cryptocurrency
Watch the volatility
Cryptocurrency is one of the most volatile assets ever known. Their price regularly fluctuates – they can quickly drop just because of a rumor that ends up proving baseless. So as a beginner, you need to guide your heart against this. Learn to invest like some sophisticated investors. Buy low and sell high, instead of being tempted to do otherwise.
Manage your risk
Most investors trade cryptocurrency on a short-term basis. And because crypto is a very volatile asset, it is important you learn how to manage your risk and develop a process that helps you mitigate losses. For a long-term investment, that may mean never selling your cryptos regardless of the price.
For a short-term investor, risk management can mean setting strict rules on when you sell your cryptocurrency. For instance, you may decide never to sell your investment unless it drops by 10%. That way, you won’t be tempted to sell at a relatively small decline.
Don’t invest more than you can afford to lose
This is a crucial tip every beginner traders need to take seriously. You shouldn’t invest all your money in cryptocurrency. If you can’t afford to lose the money, then you shouldn’t put it into risky assets such as cryptocurrency.
If you think you will be needing the money in the next few years – whether it is a down payment for a house or money to make an important upcoming purchase, don’t invest it in cryptocurrency. You should put such money in a saving account.
Final Note on How to Start Investing In Cryptocurrency
Cryptocurrency is presently having lots of buzz around it, and many people are already taking advantage of it. However, know that cryptocurrency is a highly volatile and speculative investment so you need to get all the knowledge you need before you begin.
In this post, we have given you the steps you need to follow to start investing in cryptocurrency. However, as a beginner, don’t forget to start small and only use the money you can afford to lose. Choose the right broker or exchange, and guide your investment by choosing a reliable storage method and being careful with your wallet information, especially if you choose to use a hit wallet.