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Crypto

How to Invest in Cryptocurrency

Bitcoin was considered nothing more than an interesting phenomenon when it first came out in 2009. Technicians and futurists could see the future potential of cryptocurrency in general, but it wasn’t drawing much interest as an investment. Many didn’t know how to invest in Cryptocurrency and what really is its potential.

But as the years have passed and hundreds of more cryptocurrencies have come and gone, Bitcoin has emerged as the standard-bearer of the currency. This point hasn’t been missed by investors and speculators. Some are now coming to see cryptocurrency as an alternative global currency that will eventually replace sovereign currencies such as the U.S. dollar and the euro.

But the trading activity has also drawn a large number of speculators. They’re betting on cryptocurrencies — Bitcoin trading in particular — rocketing all the way to the moon. Speculators are rarely seriously concerned with fundamentals. They see a sudden and dramatic price rise, and whatever the asset, it draws their attention.

This article isn’t meant to be an endorsement of Bitcoin or any other cryptocurrency. Instead, it’s a general guide for anyone who wants to start investing in cryptocurrency. It is entirely possible cryptocurrencies will continue their march forward over the next few years. And if you’re betting on that outcome, we hope this information will help.

What Are Cryptocurrencies and How Do They Work?

Cryptocurrency is based on blockchain technology. That’s a chain of information registration and distribution that is not controlled by any single institution. Instead, it works as a record of digital transactions that are independent of central banks.

There are all kinds of technical details related to blockchain technology that may be worth investigating if it doesn’t drive you into a technological coma. But essentially, it eliminates the middleman — such as a bank — and allows buyers and sellers to transact business directly between each other. That should also serve to lower or even eliminate transaction fees, which is a major part of the attraction of cryptocurrency.

The most popular cryptocurrency is Bitcoin, whose price is regularly tracked in the major financial media questioning- should you invest in bitcoin?. But there are actually hundreds of cryptocurrencies, including many that have already come and gone.

What are the Main Attractions of Cryptocurrency

What you need to invest in cryptocurrencyAt the moment, it seems as if the two primary attractions of cryptocurrency are:

  1. You can own and use it anonymously, and
  2. It’s subject to price explosions that can make it look and feel like an investment.

And for those who bought cryptocurrency prior to the price explosion in 2017 or the most recent price increase in 2021, it’s probably been the best investment in a lot of portfolios.

So what should you do if you want to get in on the cryptocurrency action?

How to Invest in Cryptocurrency — Step By Step Guide

As you might imagine, you can’t go to a local bank or even a brokerage firm (there is one exception we’ll discuss later) and buy cryptocurrency. It’s still seen as something exotic in the world of financial institutions. Since it’s not well understood and is virtually unregulated, most financial institutions don’t want to deal with it. For that reason, it tends to function within its own network.

Read our tips if you want to start investing in cryptocurrencies.

1. Allocate Only a Small Percentage of Your Portfolio to Cryptocurrencies

Cryptocurrency investment PortfoliosYou’ll have to decide in advance how much of your portfolio you want to allocate to cryptocurrency. With recent advances, particularly in the price of Bitcoin, it can be difficult to make a rational decision. All invesments ruled by a combination of greed and fear, and it may be hard to keep the greed part under control given the advances cryptos have shown in recent years.

  • No matter what, cryptocurrency should occupy only a very small part of your portfolio. Exactly how much is completely up to you. But you should be wary of investing more than 10% or even 5%.
  • Understand that cryptocurrency isn’t an investment in the same way a stock is. Much like investing in gold and silver, it doesn’t pay interest or dividends. To the degree that cryptocurrency will be a good investment all depends entirely upon its price increasing significantly – and staying there for a while.
  • Cryptocurrencies weren’t designed to be investments. They are mediums of exchange. They’ve widely been seen as an alternative to sovereign currencies, like the dollar, yen and euro. It’s been thought that they’ll ultimately represent a more efficient means of commerce, particularly on the web. That’s because its value determined strictly by the market and not by manipulation as sovereign currencies tend to be.
  • But at least up to this point, cryptocurrencies haven’t satisfactorily filled the role of being a medium of exchange. Only a very limited number of merchants accept them, so most trading is taking place between individuals.

Up to this point, both the current uses and the future of cryptocurrencies are uncertain.

2. Choose Your Cryptocurrency

How to know which cryptocurrency to investThis is one of the real complications of cryptocurrency. There isn’t just one, but hundreds. Maybe even more than a thousand.

Complicating the issue is that more are coming online all the time. That has to be counterbalanced by the reality that hundreds of cryptocurrencies have come and gone already. And the whole concept of cryptocurrency started only about a decade ago.

Bitcoin is the Most Dominant Cryptocurrency as for September

Right now, the largest cryptocurrency is Bitcoin. It’s also the crypto that’s drawing the most attention and investment dollars. In a very distant second position is Ethereum, and there are others like Zcash, Dash,  and Ripple.

Given its dominant position, Bitcoin seems to be the most reliable among all the many cryptocurrencies available. In fact, Bitcoin has become practically synonymous with “cryptocurrency.” What’s interesting about the connection is that while the media has been carefully following the price action of Bitcoin, some cryptocurrencies have performed even better.

Because of the dominant position of Bitcoin, your cryptocurrency position should be mainly in this crypto. Other cryptocurrencies should occupy a much smaller position in your portfolio. And if Bitcoin as the bellwether of cryptocurrency is speculation, any other cryptocurrency you hold should see as even more speculative.

This assumption should not underestimate. Most of the cryptocurrencies that have come on the market in the past decade have either flatlined or disappeared completely. That means any investment you make could go all the way to zero. And given the price volatility that’s common with cryptocurrencies, your investment could disappear completely with very little notice. This makes the traders constantly looking for the next big thing (one example is NFTs, read about it here).

3. Choose a Platform to Buy Cryptocurrencies

Choose the right Crypto Investing ExchangeOne of the disadvantages of buying cryptocurrencies is that you can’t get them in all the usual financial places. Banks don’t offer them and neither do investment brokerage firms.

For the most part, you’ll limit to buying, holding, and selling cryptocurrencies on dedicated cryptocurrency exchanges.

Some of the largest of these exchanges include:

eToro

eToro is one of the most advanced crypto investment platforms. It offers unique investment options like its CopyTrader Technology. With this feature, you can copy the more successful crypto traders’ investment strategies on the platform. It also offers CopyPortfolios, which are something like crypto robo advisors, providing professional portfolio management. And to help you learn the ropes of investing in bitcoin, it offers virtual portfolios where you can trade up to $100,000 in a paper account without risking any of your own money.

Coinbase

Coinbase started in 2012 with the radical idea that anyone, anywhere, should be able to easily and securely send and receive Bitcoin. Today, Coinbase offers a trusted and easy-to-use platform for accessing the broader crypto economy.

Gemini

Gemini — Besides trading cryptocurrencies, Gemini allows users to store crypto in a digital wallet. They also offer extensive crypto research and tools. And you can earn up to 7.4% APY interest on select cryptocurrencies just for holding them in your Gemini account.

Unifimoney

Unifimoney— With Unifimoney you can keep your banking, investing, and finances all in one place. And you can even trade and store 33 cryptos through their partner crypto exchange Gemini. If you tired of having a different app for every trading platform and banking service you use, then Unifimoney is worth looking into.

Binance.US

Biance.US is the American arm of parent company Biance. It has lower trading fees than most other exchanges. It doesn’t offer as many trading pairs between different cryptocurrencies as it’s parent company but it’s still on par with other leading exchanges. And while you can use your bank to deposit money, they do have a ACH deposit limit of $5,000.

Robinhood: A Broker to Consider

There is one exception among investment brokers that do make cryptocurrencies available, and that’s Robinhood. This is hardly surprising given that Robinhood is a certified disruptor in the investment broker space. This disruption starts with commissions: Robinhood doesn’t charge any. You can buy stocks, options, exchange-traded funds (ETFs), and, yes, cryptocurrencies commission-free.

Cryptocurrencies available through Robinhood include bitcoin, bitcoin cash, ethereum, ethereum classic, litecoin, and dogecoin. This may be a less expensive and more convenient way to hold cryptocurrency, especially if you plan to hold it only as an investment and not as a medium of exchange.

Apart from Robinhood and the various cryptocurrency exchanges, you may also be able to buy and sell cryptocurrency directly with individuals who also hold them. But to do that, you’ll need a special way to store them.