How to Invest in Cryptocurrencies (Step-by-Step)

Written by Sean GraytokUpdated: 1st Oct 2021
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Investing in cryptocurrencies seems awfully complex and troublesome. Barred by a layer of technology that scares most non-technical users off, becoming a part of the crypto market might look like an impossible feat to achieve. But is that really the case, or is it simply fear taking over?

If the opening statement is your true belief, then facts are not on your side. Cryptocurrency investing is not only simpler than how it used to be, but it also became so easy that everyone can do it.

Naturally, investing successfully is an accomplishment that only a few people have. However, enough studying and persistence can go a long way.

So, why not start on time and at least learn about the basics? In this guide, we will do exactly that showing you how to invest in cryptocurrencies.

>> More: Compare the Best Crypto Exchanges 

What is Cryptocurrency?

Before diving straight into investing, you should first fundamentally understand what a cryptocurrency is.

Simply put, cryptocurrencies are virtual currencies that you can use to digitally transfer value or to make payments. From an investing perspective, they are also digital assets due to their speculative value.

In 2021, the global cryptocurrency market is worth $930 billion. Cryptocurrencies have reached a stage of popularity like the last bull run in 2017, and many assets have reached new all-time highs.

How Does Cryptocurrency Work?

Cryptocurrencies are supported by blockchain technology, which makes them decentralized, public, and anonymous.

Specifically, cryptocurrencies are hosted on a blockchain network. These networks represent an immutable and decentralized digital ledger that collects and permanently records all transactions.

Bitcoin is the first cryptocurrency ever to be created. It was introduced in 2008 by an anonymous developer called Satoshi Nakamoto. Nakamoto launched Bitcoin a year later.

While Bitcoin is the most popular cryptocurrency, there are otheraltcoins worth considering as well. Leaderboards based on market cap show that Bitcoin, Ethereum, Tether, Polkadot, XRP, Cardano, Chainlink, Litecoin, Bitcoin Cash, and Binance coin are the top 10 cryptocurrencies.

How Do I Start Investing in Cryptocurrency?

To start investing in cryptocurrencies, you need persistence, patience, and motivation. A strong and disciplined personality is all that you really need, but there are obviously material objects that you need as well.

Before you start investing, make sure that you have a good amount of investing capital. Make sure to set up a cryptocurrency wallet and memorize the password and seed phrases needed to access the wallet.

Finally, you will need an account on a cryptocurrency exchange on which you can invest and even trade.

To summarize, you will need:

  • A software or hardware cryptocurrency wallet
  • Investing capital
  • Crypto exchange wallet, or access to a crypto vendor

How to Invest in Cryptocurrencies (Step-by-Step)

Moving your capital to an exchange and buying the first cryptocurrency that you see is pretty simple. But that is not what investing is all about.

In the following sections, we will discuss the step-by-step process of investing in cryptocurrencies and what you should do.

Step #1: Decide How Much to Invest in Crypto

This might be your first time investing in crypto. For some, it might even be the first investment that they have ever done.

Because of that, it is important to talk about your capital and explain how much money you should really spend.

An old crypto adage states that you should not invest more than you can afford to lose. This is true not only for the crypto market but for all other facets of life as well. Never use investing as your last resort, or as a way to get rich quick overnight.

No matter what kind of asset you buy, investing is always a slow process that takes time. As a result, start calmly and steadily. This goes for your capital as well, which you will need to control to stay profitable.

Before making your first investment, determine exactly how much you can afford to lose. It does not matter if it is only a couple of thousands of dollars or even a few hundred dollars. As long as it is a normal figure that will not make a hole in your pocket, you will be alright.

Investing is a learning experience, so make sure that you do not spend too much on the first day. If you lose everything or burnout after a few months, your journey will be over just like that.

Step #2: Choose Your Cryptocurrency

Choosing your cryptocurrency is perhaps the hardest step in this entire guide. Analyzing projects and determining their value is incredibly difficult, even for the market’s older veterans.

As such, take your time and do as much reading as you can. Familiarize yourself with all the use cases and niches in this market. For starters, you can read about the following categories:

  • Utility tokens
  • Governance tokens
  • Security tokens
  • Synthetic assets
  • Decentralized oracles

If you plan to diversify your portfolio, your best move would be to invest in the best protocol in each of these respective categories. Figure out which project dominates within a niche and if any competitors may overthrow the leading project.

It would be wise to account for risk as well. Cryptocurrencies with a higher market capitalizationusually move slower and offer fewer risks for your investments.

Projects which only have a market cap worth only a few millions are so small that even retail traders can cause severe volatility. Therefore, think well before investing in a particular cryptocurrency.

It is important to note that since Bitcoin is the most popular cryptocurrency, it is also easiest to buy and sell.

>> More:How to Buy Bitcoin

Step #3. Sign Up for a Cryptocurrency Exchange

Have you picked a number of cryptocurrencies that you wish to buy? Perfect! All you have to do now is set up an account on a crypto exchange and start investing. But which exchange should you choose?

Not all trading platforms are great. Nevertheless, there is still a list of reputable companies with which you can never go wrong.

#1. Coinbase

Coinbase is a cryptocurrency exchange created in 2012, headquartered in the United States. It is probably the safest exchange in the entire market. Coinbase meets all federal regulations, and it strictly picks the cryptocurrencies that it lists.

The trading platform hosts tons of liquidity and trading volume, which even institutional investors make use of.

However, their trading fees are significantly higher than their competitors. As a result, choose Coinbase only if you want to purchase an asset and hold it for years.

>> More: Coinbase Review

#2. Gemini

Founded by the famous Winklevoss brothers, Geminiis a unique cryptocurrency exchange and custodian based in New York that offers numerous cryptocurrencies.

Known for its elegant design and proven security features, Gemini is a platform that never fails to deliver great services and products.

While Gemini might seem too advanced, it is fit for beginners as well. The exchange is one of the rare crypto companies regulated by the New York Department of Financial Services (NYDFS). If you favor security and regulations, Gemini is the perfect solution.

>> More: Gemini Review

#3. Robinhood

Do you have previous experience trading or investing in stocks? Then Robinhood is definitely the best option.

Apart from their usual lineup of stocks, Robinhood features crypto products as well. This company is also based in the U.S., and it only supports a few countries.

While it is definitely easier to invest in crypto on Robinhood, there is one problem that might turn into a deal breaker. The crypto assets that you purchase on Robinhood are not directly owned by you in the traditional sense.

Robinhood’s crypto selection functions much like a CFD. You cannot transfer or own the assets as you would do on a normal crypto exchange. If you are in the market for the long haul, it would be smarter to pick another platform.

>> More: Robinhood Review

Step #4: Securely Store Your Cryptocurrency

If you do not want to store your investments on exchanges, start thinking about downloading and setting up a crypto wallet. Crypto wallets act just like normal wallets, they store your money.

They come in all shapes and sizes. To quickly summarize all the different formats:

Hot wallets are software wallets that you download on your desktop. Hardware walletsare physical wallets that store your assets far more securely. Mobile wallets are the same as software wallets, except that you can install them on smartphones.

Down below, you will find a list of popular wallets for each category:

  • Hot Wallets: Exodus, Electrum, and MyEtherWallet
  • Cold Wallets: Trezor and Ledger
  • Mobile Wallets: Argent, Mycelium, and Crypronator

Step #5: Monitor Your Digital Asset

By this point, you have already completed and secured your investment. All that is left to do is monitor your portfolio from afar and keep track of its progress.

Keep in mind that crypto markets are inherently volatile and that they are prone to swift changes. If prices suddenly change in a bearish direction, you should not be worried, as long as the trend does not last for months.

Since everything is new, try not to fall into a trap and obsess about the market. Cryptocurrencies and blockchain technology are pretty interesting, but they should not get into the way of level headed investing.

Can You Get Rich Investing in Cryptocurrency?

The very first thing that attracts new crypto investors is the possibility of attaining large sums of wealth in a short period. While cryptocurrencies are more volatile than stocks, they still carry incredible risk.

If you have joined the crypto market only to get rich, you are probably making a mistake. The truth is that you can certainly get rich in just a few years by buying cryptocurrencies, but not everyone makes it till the end.

Your crypto investment journey should primarily focus on becoming independent and learning about innovative technologies.

If you really want to get rich, try not to think about it too much and turn cryptocurrencies into a hobby rather than a get rich overnight scheme.

Is it Safe to Invest in Cryptocurrency?

Contrary to popular belief, cryptocurrencies are definitely safeto invest in. As long as you safely store your assets on a protected and secure wallet, there is no way for a hacker to steal your money.

The dangerous aspects of investing in cryptocurrency should rather be the projects you choose and the people you trust.

Certain projects are outright scams, and their number one goal is to steal your crypto. Therefore, do not trust everyone and think thoroughly before making a decision.

Watch Out for Cryptocurrency Scams

As we have previously mentioned, you should watch out for scams and malicious actors. The combined anonymity of both the internet and cryptocurrencies provide scammers with a safe haven for their activities.

On that account, it would be best to think twice before falling for someone’s lies. Your best bet to survive in this market is to not believe in anything that sounds too good to be true. Moreover, do not fall for giveaways andmalicious links.

Bottom Line: How to Invest in Cryptocurrencies

The crypto market is a harsh environment filled with many risks and potential mishaps. But with the right knowledge, tools, and mindset, you can enrich your life and discover numerous opportunities.

This article explains how to invest in cryptocurrency and which steps to take to become a successful investor. The journey is not easy, but there will be nothing to fret about if you carefully read our guide.

For a quick recap, all you need to succeed in the crypto market is patience, a robust strategy, and the willingness to learn. Take the time to research each coin and weigh the risks.

But apart from a strong and disciplined personality, you also require sizable investment capital. Do not invest more than you can risk losing and always think carefully before buying a cryptocurrency.

To start, create an account and set up a crypto wallet. After conducting your research diligently, buy an asset and keep it safely stored. At that point, all you have to do is sit back, relax, and monitor your portfolio.

Sounds easy enough, doesn’t it?

More Cryptocurrency Resources:

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, financial management, and Bitcoin. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and companies who are driving technological innovation.