How to Invest in Cryptocurrency?

Investing in cryptocurrency is becoming increasingly popular as more people recognise the potential of this digital asset class. But before taking the plunge into investing in crypto, it’s important to understand the fundamentals of how cryptocurrency investments work and the risks associated with it.

In this article, we’ll take an in-depth look at how to invest in cryptocurrency, including how to purchase, store, and protect your cryptocurrency investments.

Step 1: Choose what cryptocurrency to invest in

The first step is to decide which cryptocurrency you would like to invest in. Not all cryptocurrencies are created equal, so it’s important to do your research and decide which cryptocurrency best suits your investment goals.

You may want to consider the cryptocurrency’s purpose, market capitalization, liquidity, and track record. For example, if you want to invest for the long term, it may be best to find an established cryptocurrency with a strong track record of consistent growth.

The most amount of gains tends to be found in the volatile altcoin markets, where you may find some promising projects with huge upside potential. However, these crypto investments can also be high risk, so it’s vital to conduct thorough research before investing.

Step 2: Register with a cryptocurrency exchange

Once you’ve decided which cryptocurrency to invest in, the next step is to find a reliable exchange where you can make your crypto investments. Cryptocurrency exchanges are online services that allow users to buy and sell digital assets.

Before choosing an exchange, make sure to research their background and evaluate their security measures. Look for 2-factor authentication, cold storage wallets, and 24/7 customer service. It’s also important to pay attention to the fees associated with each exchange, as they can vary drastically from one to the next.

Generally, all you require to register with a cryptocurrency exchange is an email address and some personal information. Once your account is approved, you’ll be able to make crypto investments from the comfort of your own home.

Step 3: Place your cryptocurrency order

After you’ve registered with the exchange and completed your verification process, you can purchase cryptocurrencies. Most exchanges will require you to deposit funds via bank transfer before being able to buy crypto, but some offer additional payment options, such as credit cards or PayPal.

With your account funded, look for the cryptocurrency you’d like to buy and set your order. For example, if you want to purchase ETH using USD, you should look for the ETH/USD trading pair in the spot market.

You’ll notice that there are two different types of orders: limit and market. Limit orders allow you to set the price at which you’d like to buy or sell a cryptocurrency, while market orders will execute your order at the current market prices.

Step 4: Prepare a digital wallet

After making your crypto investments, you’ll need to store them securely. To do so, you’ll need to prepare a digital wallet. These wallets store your private keys and public addresses, which are necessary for accessing your cryptocurrency stored on the blockchain.

There are two different types of crypto wallets: hot wallets (online) and cold wallets (offline). Hot wallets are connected to an internet connection and are typically easier to use, but they are less secure. Cold wallets are disconnected from the internet and provide much better security, but they can be more difficult to use.

All crypto wallets come with a public address and private key that you should keep safe. The public address is the address where you can receive cryptocurrency, while the private key is used to access your funds.

The number one rule of investing in cryptocurrency is to never share your private key with anyone. If someone gets access to your private key, they can transfer all of your funds away from you.

Some people keep their cryptocurrency on the same exchange they purchased it from, but this is not recommended as exchanges can be hacked or go out of business. That’s why the crypto community says “if it’s not your keys, it’s not your crypto”.

Step 5: Monitor your investment

Now that you know how to invest in cryptocurrency, the last step is to keep an eye on your cryptocurrency investments. Regularly check the prices of your chosen cryptocurrencies and monitor news about the cryptocurrency industry for any new developments.

It’s not uncommon for cryptocurrency projects to upgrade or update their technology, and this sometimes results in a token swap, which requires you to manually exchange your tokens for the new version. The old crypto is burned and ceases to exist, so you’ll need to swap your old tokens for the new ones to retain their value.

Keeping tabs on the markets can also help you identify new crypto investment opportunities, such as buying into a coin when it’s undervalued or selling when the price is high. Many people dollar-cost average for their cryptocurrency investments, meaning they buy at regular intervals to average out their price.

Cryptocurrency Investing FAQs

Investing in cryptocurrency can be a daunting task, so it’s natural to have questions. Here are some of the most common FAQs about cryptocurrency investments:

What to consider before investing in cryptocurrencies?

  • How cryptocurrency works
  • The risks associated with investing in crypto
  • How to securely store your digital assets
  • Tax obligations
  • The fees associated with each exchange

Is cryptocurrency a good investment?

That depends on your individual financial goals and risk tolerance. Cryptocurrency is a highly speculative asset, so it can be risky if you don’t understand the market and the underlying technology. That said, if you do your research and make well-informed decisions, cryptocurrencies can be a lucrative investment.

How much should you invest in cryptocurrency?

The amount you invest in cryptocurrency should be proportionate to your overall portfolio and personal risk tolerance. Investing more than you can afford to lose is not recommended, as there is no guarantee of returns. It’s best to start small and slowly build up your investments over time.

What are the best cryptocurrencies to invest in?

This depends on your individual goals and risk tolerance. Some of the most popular cryptocurrencies include Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Binance (BNB), and Polygon (MATIC). Generally, it is best to diversify your investments across multiple cryptos to hedge against the risks of investing in any one asset.

Where can I learn more about cryptocurrency investing?

There are a number of great resources available for learning about cryptocurrency investing, such as online courses, books, and blogs. Additionally, it’s important to stay up-to-date on news and developments in the industry, as this can affect market movements.

Will I be taxed for buying cryptocurrency in the UK?

In the United Kingdom, cryptocurrencies are viewed as assets rather than currencies. This implies that any money earned from trading cryptocurrencies will be subject to Capital Gains Tax, with the amount of tax owed based on the overall capital growth.

Therefore, it is important to keep track of your investments and report any profits to HMRC. The good news is that Cryptiony can be used to automate the whole process by syncing with your exchanges and generating a report for you to provide to HMRC.

Bottom line

Cryptocurrency investing can be a great way to diversify your portfolio and potentially benefit from the long-term growth potential of digital assets. However, it’s important to understand that cryptocurrencies are volatile investments and they come with unique risks.

Do your own research, understand the technology, invest responsibly, and monitor your crypto investments regularly to maximise your potential returns and minimise your losses. Good luck!

Disclaimer: This article should not be taken as financial advice and is only intended to provide general information. Speak with a qualified professional before making any investment decisions. Always do your own research, consult with a financial advisor, and never invest more than you can afford to lose.