How to Invest in Crypto: What Investors Should Know
Investing in cryptocurrency has become a popular way to diversify portfolios and potentially achieve returns. However, the volatility and complexity of the crypto market make it essential for investors to approach it with caution and knowledge. Understanding the fundamentals, risks, and strategies involved is crucial to navigating this rapidly evolving space.
In this guide, we’ll explore key factors to consider, from choosing cryptocurrency to managing risk, and provide insights on how to make informed investment decisions.
What is cryptocurrency
Cryptocurrency (also know as "crypto") is a digital currency that operates on a decentralized network, without a central authority like a bank or government, typically based on blockchain technology. Blockchain is a distributed ledger that records all transactions across a network of computers, ensuring transparency and security without a central authority like a bank.
Popular cryptocurrencies include Bitcoin, Ethereum, and Ripple. These digital currencies can be used for various purposes, such as online purchases, investments, or as a store of value, but their volatility and regulatory uncertainty make them a high-risk asset class.
Types of cryptocurrency investments
Cryptocurrency spot
Cryptocurrency spot investments refer to the direct purchase of cryptocurrency for immediate delivery and settlement; the transaction occurs "on the spot."
In a spot investment, the investor buys the actual cryptocurrency (like Bitcoin, Ethereum, Altcoins, and ETFs) and takes immediate ownership of it. The transaction is settled right away, with the cryptocurrency being transferred from the seller’s wallet to the buyer’s wallet.
Cryptocurrency derivatives
Cryptocurrency derivatives are financial contracts that derive their value from an underlying cryptocurrency, such as Bitcoin, Ethereum, or other digital assets. Rather than directly owning the cryptocurrency, investors trade these contracts, allowing them to speculate on the price movements of the underlying asset without actually buying or selling the asset itself.
Cryptocurrency derivatives can be used for a variety of purposes, including hedging, speculation, and enhancing portfolio exposure. This can include crypto pair, crypto options and crypto futures.
Considerations before investing in cryptocurrency
Before investing in cryptocurrency, you should carefully consider your risk tolerance, thoroughly research the specific cryptocurrency you're looking at, understand the technology behind it. You should also only invest money you can afford to lose, be aware of the high volatility of the market and the potential to lose your entire investment, and stay informed about regulations and news impacting the crypto space.
How to buy cryptocurrency
As cryptocurrency becomes more mainstream, buying it has become easier over the years as there are several ways to acquire digital assets. Here's a step-by-step guide on how to buy cryptocurrency:
Decide on which cryptocurrency to purchase
Investors and traders have many cryptocurrency options to choose from for purchase.
Before you make a purchase, take time to research the coin you're interested in and ensure it aligns with your investment strategy and risk profile.
Choose a platform for trading crypto
A cryptocurrency exchange is a platform where you can buy, sell, and trade cryptocurrencies. Some of the most popular exchanges include Coinbase, Binance, Kraken, Gemini, and eToro.
When making a selection, consider factors such as the exchange’s reputation, supported cryptocurrencies, fees, security features, and ease of use. Some exchanges cater to beginners (e.g., Coinbase), while others offer more advanced features for experienced traders (e.g., Binance).
Consider paying cash or digital wallet options
Most exchanges allow you to deposit funds via bank transfer, credit/debit cards, or PayPal (depending on the exchange). Some exchanges may support wire transfers or even cash deposits.
You’ll also need to deposit traditional currency (such as USD, EUR, or GBP) into your exchange account before buying cryptocurrency.
Decide how much to invest and place an order
Similar to any investment you make, determine the amount you want to invest. When placing an order, consider the type of order that is most appropriate for you. With a market order, this will allow you to buy the cryptocurrency at the current market price. It’s the quickest way to purchase. Through a limit order, you set a specific price at which you're willing to buy. If the market price reaches that price, your order is executed.
When placing an order, you'll also need to specify the amount of cryptocurrency you want to buy, either in the number of coins or the fiat amount you wish to invest.
Store and manage your cryptocurrency
After your purchase, the cryptocurrency will be stored in the exchange's wallet. However, exchange wallets are generally considered less secure than private wallets.
For added security, you can transfer your crypto into a personal wallet. There are two types of wallets: hot wallets which are connected to the internet and are more convenient. There's also cold wallets, which are offline storage options (e.g., hardware wallets like Ledger or Trezor) that are much more secure for long-term storage.
Potential benefits and risks of investing in crypto
Investing in cryptocurrency offers both benefits and notable risks. Understanding these factors is essential for making informed decisions.
Potential benefits include:
High potential for returns
Portfolio diversification
Decentralization and control
24/7 market access
Liquidity and global market access
Innovative blockchain technology
Potential risks include:
High potential for loss
High volatility and price swings
Regulatory uncertainty and potential government crackdowns
Security risks, including hacking and theft
Lack of consumer protection
Market manipulation and pump-and-dump schemes
Limited adoption and use cases
Technological risks, including scalability and network congestion
Environmental concerns related to energy consumption
FAQs about buying crypto
What should investors and traders know before purchasing cryptocurrency?
Consider whether crypto fits your portfolio goals, risk profile, and personal convictions before buying. Crypto is highly volatile, and does not have the same regulatory protections as registered securities. It's also not insured by the FDIC or SIPC.
How much do I need to start investing in crypto?
The amount you need to start investing in cryptocurrency depends on your investment goals, the cryptocurrency you're interested in, and the platform you're using.
Is crypto real money?
Cryptocurrencies are considered a type of money, but they are not as widely accepted as traditional currencies. The IRS taxes cryptocurrencies as property or financial assets.
Cryptocurrency can be considered real money when used in specific contexts, especially for transactions and as an investment. However, its volatility, limited acceptance, and regulatory challenges mean it’s not a replacement for traditional fiat currencies in the broader economy—at least not yet. It’s still evolving and finding its place in the global financial system.
What are the largest cryptocurrencies by USD market cap?
As of February 12, 2025, the largest cryptocurrencies by market capitalization are:
Bitcoin (BTC): Approximately $1.90 trillion
Ethereum (ETH): Approximately $316.05 billion
Tether (USDT): Approximately $141.93 billion
XRP (XRP): Approximately $139.42 billion
USD Coin (USDC): Approximately $55.00 billion
How do you pull your money out of crypto?
You can cash out your crypto by selling it for fiat currency, such as US dollars, through a crypto exchange, brokerage account, or Bitcoin ATM. You can also use a crypto debit card.
