How to Invest in Cryptocurrency 2023 for Beginners
This article contains:
- What Is Cryptocurrency?
- How Does Cryptocurrency Work?
- What Do You Need To Invest In Cryptocurrency?
- How To Store Your Cryptocurrency Safely
- How To Invest In Cryptocurrency In 3 Steps
- How To Choose The Right Cryptocurrency To Invest In
- Which Option Is Best For You?
- Where Can I Buy Cryptocurrency In My Country?
With each passing year new exchanges, both online and offline, emerge and supersede their competitors. This epic bull run also led to the rise of several digital currencies like Dogecoin, Ripple, and Litecoin. The entire market capitalization saw a parabolic upward curve.
Over 2000 cryptocurrencies were created on Ethereum. Companies like ConsenSys also aim to create Decentralized Autonomous Organizations or the DAO that run on Smart Contracts powered by the Ethereum blockchain.
What Is Cryptocurrency?
In theory, cryptocurrency is a virtual currency that’s held and distributed online. In reality, it’s a digital asset that may gain or lose value in a similar fashion to stocks and bonds.
Whereas a cash currency incorporates paper bills and metal coins, a cryptocurrency uses a virtual “coin,” “token,” or “unit.” You can purchase a coin/token/unit from any company that facilitates cryptocurrency exchanges, and you can trade, buy, or sell with other people who own crypto—not unlike stock trading in corporate America.
What makes cryptocurrency distinct from standard currency (besides the fact there’s no physical cash) is that cryptocurrency is “decentralized.” There’s no central authority that governs the currency.
For example, the Federal Reserve manages the national currency of the United States, influencing prices, interest rates, and the overall supply of money being circulated in the economy. Cryptocurrency has no such oversight.
However, a cryptocurrency is generally maintained by a “system.” The system—which is managed by a cryptocurrency company—tracks all the units of cryptocurrency and their owners. The system will also determine when new crypto units can be created. All right, so that might sound a little bit like the Federal Reserve. But cryptocurrency systems have no central location or server where units are stored. There are no virtual banks.
Bitcoin is by far the largest and most popular cryptocurrency system in the world. In fact, some financial experts define any cryptocurrency that’s not Bitcoin as “altcoin.” That’s a testament to Bitcoin’s dominance.
How Does Cryptocurrency Work?
You might be wondering, “What gives a cryptocurrency unit its value?”
For most assets, the value is determined by market factors. Let’s take the real estate market, for example. What determines the value of a property? A property might be appraised higher if it’s in a desirable location, or if it’s more luxurious, or if it’s in a neighborhood that’s likely to see an increase in home prices.
What about stocks? Stock value is generally determined by the success of the company (or the impending success of the company). Higher profits mean higher dividends, which means higher stock prices.
Cryptocurrency values are also tied to the marketplace, but in a different way. There’s no physical asset that’s affected by the local economy. And the value isn’t tied to corporate profits. The value of a cryptocurrency unit is entirely dependent on whether or not people want to buy cryptocurrency units.
You read that correctly. The value of cryptocurrency is based on nothing but consumer interest in buying cryptocurrency. If lots of people are buying crypto, then the value will rise. If people stop buying crypto, then the value will fall.
This is a head-scratching concept for both beginning and veteran investors. But it’s not such a crazy idea to high-risk investors who frequently trade in volatile assets. A “volatile asset” is an asset that may experience large and rapid changes in value. Penny stocks are a common (and more “socially acceptable”) type of volatile asset. They often pose too much risk for the average investor, but they can yield extremely high returns to those wolves of Wall Street who carefully study marketplace activity.
In the same vein, cryptocurrency can yield high returns if an investor takes advantage of marketplace surges.
What Do You Need To Invest In Cryptocurrency?
While the idea of cryptocurrency can be daunting to beginner investors, the requirements to get started are minimal. If you want to learn how to invest in cryptocurrency, you only need:
- Personal identification documents
- Bank account information
- Secure internet connection
That’s it! It is possible to purchase cryptocurrency through a stockbroker as well. In this case, most of your personal and financial information will be on file already. Now that you have what you need, let’s start investing.
Tips to Know Before Investing in Cryptocurrency
Here are a couple of important things you should know before investing in cryptocurrency.
Capital Gains Tax: For tax purposes, cryptocurrency is considered an asset, like a stock or property. When you sell crypto and make a profit, you’ll have to pay capital gains tax on what you earned. Keep this in mind when you’re budgeting for the year and planning for taxes.
Short-Term Investing: Because cryptocurrency is a volatile asset, many investors would consider it to be a short-term investment rather than a long-term one. It’s possible that in the future, cryptocurrency may become a stable investment and that long-term holdings will yield significant profit. But that’s a big “if.”
Since cryptocurrency values have been decreasing, you might have a better chance of making a profit by timing the market. That’s incredibly risky, but crypto is high-risk. If you want your money to appreciate over a long period, you’re better off investing in long-term bonds, index funds, or IRAs.
How To Store Your Cryptocurrency Safely
Once you’ve chosen how and where to buy crypto, you’ll need somewhere to keep it. The number of blockchain wallets continues to rise, with well over 50 million currently in use.
These digital wallets support a range of cryptocurrencies, including stablecoins (which are pegged 1:1 with a fiat equivalent like the U.S. dollar), native blockchain assets such as BTC, and tokens based on ERC-20 and other standards.
Even when you have decided which cryptocurrencies that you want to accumulate, keeping them safe is another critical piece of the puzzle. There are dozens of storage options, each with its benefits and trade-offs.
If you are new to the world of cryptocurrency, you might be shocked at the number of wallet options at your disposal.
How To Invest In Cryptocurrency In 3 Steps
If you’ve decided that you’re willing to take a risk on crypto, you might be asking yourself, “How do I invest in cryptocurrency?”
Every cryptocurrency is a little bit different, but assuming you want to purchase for-profit, let’s cover the steps for how to start cryptocurrency investing for currencies like Bitcoin and Litecoin:
- Choose a cryptocurrency exchange
- Start purchasing cryptocurrency
- Store your cryptocurrency in a “wallet”
1. Choose A Cryptocurrency Exchange
First, you need to pick an exchange to buy from—like choosing a broker for stocks. After selecting which exchange you want to start investing in cryptocurrency with, you will be able to make an account with them. There are many options open to you, but the most popular crypto exchanges are:
2. Start Purchasing Cryptocurrency
These exchanges enable you to purchase crypto with your debit card. Typically you’re able to choose between different cryptocurrencies, like Bitcoin and Ethereum. A single coin might be valued at thousands of dollars. However, most exchanges allow you to buy a fraction of a coin, which is far more affordable for first-time investors. Just like a stockbroker, an exchange will charge fees for every transaction you make.
3. Store Your Cryptocurrency In A “Wallet”
Once you’ve purchased a unit of crypto, it’ll be added to your “wallet.” Not your actual wallet, of course, but a virtual wallet that you’ll receive when you open your account with an exchange. The wallet will hold the codes for all your cryptocurrency.
There are software wallets and hardware wallets. A software wallet is just a software program that holds your crypto. You need it for active trading, and you’ll typically get one when you open an account with an exchange.
A hardware wallet is a physical device that holds crypto. It looks like a USB drive, and it’s more secure than a software wallet, but it’s not necessary unless you’re buying a huge portion of crypto.
3 Best Cryptocurrencies For Beginner Investors
Before cryptocurrency investing, it is essential to know the types. There are many different types of cryptocurrency systems that you can invest in. Bitcoin is arguably the grandfather of all crypto. It has been around for over 10 years and it’s the largest cryptocurrency system in the world, with a market capitalization of about $128 billion. Here are some of the other cryptocurrency you can buy:
- Bitcoin: Bitcoin is a great starting place for any beginner. Every currency exchange supports Bitcoin, which means that you’ll know what you’re buying into. Bitcoin is merely a form of digital cash. You can use it as a means to exchange currency and value, which gives it a competitive advantage.
- Ether: It’s a cryptocurrency, but the main focus is on purchasing applications without having to pay a middleman (in other words, bypassing the Apple Store).
- Cardano: This cryptocurrency is primarily used to store private data. An alternative to Ehterium, it’s more energy-efficient and is thus less expensive.
How To Choose The Right Cryptocurrency To Invest In
It’s easy to jump on any bandwagon just because someone said it was a worthy investment. However, it would behoove you to conduct your own research. When you buy cryptocurrency, know that it holds zero intrinsic value. Instead, it represents ownership of a digital asset. It’s price is simply determined by public perception of its value, so you need to believe in the value of the cryptocurrency you choose to invest in. How do you develop these beliefs? By conducting your own research. Put in the work by reading white papers and come to an understanding of which cryptocurrencies may increase in value in the future before making an investment decision.
Which Option Is Best For You?
Cryptocurrency is precious. So is your crypto wallet. Do your research and choose a solution that balances security with accessibility. With the right digital wallet safeguarding your assets, you’ll sleep well and hodl for years.
The easiest way to get started – and arguably the most secure – is to rely on a custodial account with the familiarity of password protection that can be reset upon ID verification.
Where Can I Buy Cryptocurrency In My Country?
How to buy cryptocurrency in USA?
For the last two years, the U.S. Securities and Exchange Commission (US SEC) has been monitoring ICOs and protecting investors from scammers. They are definitely making it a safe place for retail investors with more regulation.
The USA is one of the few countries where purchasing cryptocurrency is as easy as shopping online. There are numerous ways to buy and sell cryptocurrencies. Coinbase is one of the easiest and safest methods to purchase Bitcoin and other cryptocurrencies online. LocalBitcoins, Walls of Coins and BitQuick are the most popular ways to purchase cryptocurrencies in cash and in a P2P fashion. Bitcoin ATMs are another popular medium to easily buy cryptocurrencies.
How to buy cryptocurrency in India?
Although buying cryptocurrency is not as easy in India as it is in the USA, there are still quite a few ways of procuring cryptocurrencies in this country. The best way to go about it is through online exchanges like BitBns and Unocoin. LocalBitcoins is also operational in India.
Indian exchange WazirX was recently acquired by Binance, adding it as an option to buy cryptocurrencies with Indian Rupees under the Binance Fiat Gateway model.
How to buy cryptocurrency in Canada?
Online exchanges like MyBitcoin.ca, Bitbuy, Coinsquare, Coinmama and Bitvo are the most trusted company in Canada. Bitcoin ATMs are also quite popular in Canada as the country is home to the most number of Bitcoin ATMs per capita!
P2P exchanges like LocalBitcoins and Walls of Coins are quite prevalently used in Canada.
How to buy cryptocurrency in Australia?
Coinbase is also the most popular and widely used cryptocurrency exchange in Australia. Exchanges like Coinmama, Coinbase Pro and the Australian based Independent Reserve are a few of the other preferred exchanges.
Bitcoin ATMs are also another popular method of purchasing Bitcoin and other digital currencies.