How to Invest in Cryptocurrency: A Step-by-Step Guide

So, you’re interested in investing in cryptocurrency, but you don’t really know how to invest in cryptocurrency. This is a common story. Considering its explosive cultural relevance and emerging markets, it’s no wonder there are so many newcomers to the industry! 

That said, because of the decentralized nature of cryptocurrency, it can be difficult to get the information you need to start buying and selling coins. Online resources are helpful, but the sheer amount of information can be overwhelming and hard to digest. Not to worry; we’re here to clear the air and help get you started with crypto. In this brief guide, we’ll go through the very first steps you’ll take on your journey to becoming a knowledgeable crypto enthusiast. Keep reading to discover four steps to investing in cryptocurrency! 

Crypto Investment in 5 Steps

1. Educate Yourself About Crypto Investment
2. Decide What Crypto to Invest in
3. Set Up Your Crypto Wallet
4. Select a Reputable Exchange or Crypto ATM
5. Diversify your Crypto Portfolio

Before venturing into the world of cryptocurrency investing, it's essential to lay a strong foundation of knowledge. Cryptocurrencies are built on blockchain technology, a decentralized and transparent digital ledger that records transactions. Understanding this technology's functioning, along with the mechanisms behind cryptocurrencies like Bitcoin, Ethereum, and others, is vital.

Explore the basics of how cryptocurrencies are mined, validated, and secured using cryptographic techniques. Grasp concepts like crypto wallets, public and private keys, and the significance of blockchain consensus mechanisms. Delve into the various types of cryptocurrencies, including utility tokens, security tokens, and stablecoins, each serving distinct purposes within the digital economy.

Moreover, comprehending the market dynamics is crucial. Cryptocurrency prices are renowned for their extreme volatility, influenced by factors like market sentiment, regulatory changes, technological advancements, and macroeconomic trends. Stay informed about major developments, industry trends, and potential risks.

Once you’ve identified your reasons for investing in cryptocurrency and have outlined your general goals, it’s time to get a little more granular. Specifically, you’ll have to identify which coin(s) you want to invest in, how much money you want to invest and your game plan for investment.

Types of cryptocurrencies

As a beginner, you need to be aware of the best altcoins that would offer you the highest return on your investment. Here are the top 10 popular cryptocurrencies in the market that also have the highest market caps:

• Bitcoin (BTC)
• Ethereum (ETH)
• Binance Coin (BNB)
• Cardano (ADA)
• Solana (SOL)
• XRP (XRP)
• Polkadot (DOT)
• Dogecoin (DOGE)
• USD Coin (USDC)
• Avalanche (AVAX)

Some of the most defining features of a coin that can help you identify if you feel confident making an investment into its future include: 

• The purpose behind the coin’s creation: What goals do the creators hope to achieve with this coin? 
• The market capitalization: How big or small is the coin, relatively?
• The coin’s history of volatility: What is the coin’s track record like? 
• The technology behind the coin: Blockchain, smart contracts, etc. 
• Offline applications of the coin and utility: Can this coin be used for your desired purposes? 

Quick Crypto Tip: Starting your crypto investments with Bitcoin and/or Ether can make it easier for you to buy altcoins in the future, as some of these coins can only be purchased with Bitcoin or Ether and not fiat currency. 

Get an Expert Opinion and Educate Yourself! 

As popular as it is becoming, cryptocurrency is still very much in its infancy. A whole host of factors drive the increase and decrease of crypto coin prices, making the markets rather volatile and speculative. Due to their decentralized, unregulated nature, the future of cryptocurrency can be difficult to predict, but seeking out expert opinions and insights can help you make more confident decisions. 

Experts say that cryptocurrency regulation will likely continue to be a topic of discussion going forward, which will undeniably influence cryptocurrency markets. Many experts believe that regulation will help make crypto safer, but the way the markets will react to regulation is still up in the air. For example, in September 2021 when China made cryptocurrency illegal, the prices of many crypto coins actually increased, to the surprise of many. Other factors such as crypto ETFs coming to the USA and the further adoption of cryptocurrency in everyday transactions, are sure to impact crypto markets as well. 

All of this is to say that crypto coin markets are still volatile; that’s why it’s often recommended by experts to keep your cryptocurrency investments at 5% or less of your overall investment portfolio.

With your plan of action in place, you’ll need a device and a crypto wallet so that you can make transactions and store your crypto coins safely. A crypto wallet can be a physical device or a program on a website or app. You’ll need one to store the public keys (address) and private keys required to access, buy and sell coins.

When making transactions with decentralized coins that use a public ledger, your wallet address will appear on that ledger with the amount of coins that were transferred. Not to worry, though, this address is not tied to your identity and it’s not the same as the private key needed to access your coins. 

For more information on crypto wallets, the transaction process and more, consult our guide here! 

Quick Crypto Tip: It’s important to note that physical wallets disconnected from the internet are generally thought to be safer from cybersecurity threats. 

Cryptocurrency exchanges and crypto ATMs are platforms where you can buy, sell, and trade cryptocurrencies. When choosing an exchange, consider factors like security, fees, available cryptocurrencies, and user reviews.

Crypto ATMs are physical machines that allow you to buy cryptocurrencies using cash or credit/debit cards, offering a convenient way to enter the market. They can be considered safe, but it's still essential to ensure the ATM provider is reputable and follows security best practices.

When it comes to investing in cryptocurrency, the adage "don't put all your eggs in one basket" holds exceptional significance. Diversifying your cryptocurrency portfolio involves spreading your investments across a range of different cryptocurrencies rather than concentrating all your funds in a single asset.

Diversification serves as a risk management strategy. Cryptocurrency markets are notorious for their volatility, with prices capable of experiencing rapid and substantial fluctuations. By holding a variety of cryptocurrencies, you can potentially offset losses in one asset with gains in another. This strategy minimizes the impact of poor performance in a single cryptocurrency on your overall investment.

However, diversification requires careful consideration. Research the projects, teams, and real-world use cases behind each cryptocurrency you intend to include in your portfolio. Strive for a balance between well-established cryptocurrencies and newer, potentially high-growth tokens. Remember that diversification doesn't eliminate all risks but aims to provide a more stable investment environment amid the inherent uncertainty of the cryptocurrency market.

Alternatives Ways for Investment in Cryptocurrency

In addition to direct investment in individual cryptocurrencies, there are several other ways to invest in the cryptocurrency space:

Crypto Futures and Derivatives:

Crypto futures and derivatives enable investors to speculate on the future price movements of cryptocurrencies without owning the actual assets. These contracts allow you to go long (betting on price increase) or short (betting on price decrease) on various cryptocurrencies. While they offer potential for significant profits, they also carry higher risks due to leverage and market volatility.

Crypto Funds:

Crypto funds pool together investors' capital to invest in a diversified portfolio of cryptocurrencies. These funds can be managed actively by professionals or passively track the performance of a specific index. Crypto funds offer exposure to multiple cryptocurrencies without the need to manage them individually, making them suitable for investors seeking diversification.

Blockchain ETFs:

Exchange-Traded Funds (ETFs) that focus on blockchain and cryptocurrency-related companies offer exposure to the broader blockchain ecosystem without directly investing in cryptocurrencies. These ETFs include stocks of companies involved in blockchain technology, mining, or other crypto-related services. They can be a way to invest in the industry's growth without holding actual digital assets.

Initial Coin Offerings (ICOs) and Token Sales:

ICOs and token sales involve investing in new cryptocurrency projects by purchasing their tokens during their fundraising phase. However, these investments are highly speculative and come with substantial risks, as the success of the project is uncertain and regulatory concerns can arise.

Staking and Yield Farming:

Some cryptocurrencies allow you to earn rewards by staking (holding) them in wallets to support the network's operations. Yield farming involves providing liquidity to decentralized finance (DeFi) platforms in exchange for interest or rewards. Both methods offer ways to earn passive income through your crypto holdings.

Pros of Investing in Cryptocurrency

High Potential Returns:

Cryptocurrencies have shown the potential for exponential growth. Bitcoin, for instance, experienced substantial appreciation in value over the years, making early investors significant profits.

Decentralization:

Cryptocurrencies operate on blockchain technology, which is inherently decentralized. This means they are not controlled by a central authority, such as a government or bank. This can be appealing to those who value financial independence and privacy.

Accessibility:

Cryptocurrencies are accessible to anyone with an internet connection and a digital wallet. This opens up investment opportunities to people who might not have access to traditional financial markets.

24/7 Market:

Unlike traditional stock markets that have set trading hours, cryptocurrency markets are open 24/7, allowing for continuous trading and flexibility.

Diversification:

Cryptocurrencies can be a valuable addition to a diversified investment portfolio. They have a low correlation with traditional asset classes like stocks and bonds, which means they can provide a hedge against economic downturns.

Innovation Potential: Beyond their role as digital currencies, cryptocurrencies also represent technological innovation. Many blockchain projects are exploring use cases beyond finance, such as supply chain management, healthcare, and voting systems.

Cons of Investing in Cryptocurrency

Volatility:

Cryptocurrency prices are notoriously volatile. While this volatility can lead to rapid gains, it also poses a significant risk of substantial losses. Prices can swing dramatically over a short period.

Lack of Regulation:

The decentralized nature of cryptocurrencies means they are not subject to the same level of regulation as traditional financial markets. This can make them susceptible to fraud, scams, and market manipulation.

Security Concerns:

Digital wallets and cryptocurrency exchanges can be vulnerable to hacking and security breaches. If your assets are not properly secured, you could lose your investment.

Legal and Tax Implications:

Cryptocurrency regulations vary by country and can change rapidly. Investors need to be aware of tax implications and ensure they are in compliance with local laws.

Environmental Concerns:

The energy consumption associated with some cryptocurrencies, especially Bitcoin, has raised environmental concerns due to their proof-of-work mining process.

Frequently Asked Questions (FAQs)

What is the best crypto to buy right now?

The "best" cryptocurrency to buy depends on your investment goals and risk tolerance. It's essential to research and consider factors like market trends, technology, and adoption before making a decision. Popular choices include Bitcoin and Ethereum, but diversification is often recommended.

How much money do I need to start investing in cryptocurrency?

You can start investing in cryptocurrency with as little as a few dollars. The amount you need depends on the cryptocurrency you choose and the platform you use. It's essential to budget wisely, start with an amount you can afford to lose, and consider transaction fees.

How can I invest in Bitcoin?

To invest in Bitcoin, follow these steps:

1. Choose a reputable cryptocurrency exchange.
2. Create an account and complete the required identity verification.
3. Deposit funds (usually in fiat currency) into your exchange account.
4. Place an order to buy Bitcoin.
5. Consider transferring your Bitcoin to a secure wallet for added security.

Buy and Sell Cryptocurrency With Localcoin!

Localcoin ATMs offer an accessible, user-friendly and secure way for anyone to buy and sell cryptocurrencies in their communities. This is especially meaningful for beginners who are seeking a hassle-free way to dive into the world of digital currency with confidence! Plus, by reading this beginner's guide on "how to invest in cryptocurrency" you will have fewer misunderstandings regarding the crypto investment process.

Newcomers and experts alike can easily access Localcoin ATMs when and where they need to. As Canada’s largest Bitcoin ATM network with more than 700+ terminals across Canada and the U.S, it’s never been more convenient to buy and sell cryptocurrency.

Note: Information provided on this Site is for general educational purposes only and is not intended to constitute investment or other advice on financial products. Such information is not, and should not be read as, an offer or recommendation to buy or sell or a solicitation of an offer or recommendation to buy or sell any particular digital asset or to use any particular investment strategy.

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