We are all looking for ways to make our money work for us. Investing has always been one of the best ways to make passive income, but for many years, people primarily invested in stocks, mutual funds, bonds, and real estate. Cryptocurrency is changing these trends and will be for many years to come.
The first decentralized cryptocurrency, Bitcoin, was created in 2009. However, only recently has cryptocurrency investing become less daunting and more accessible for anyone interested in getting their feet wet.
Whether you have $10 to play with or are looking to make some more significant investments, it’s never been easier to get started. Knowing what you’re getting into before opening accounts and blindly investing is important. Businesses and finance professionals should also make sure to have proper digital security and budget for the rising costs of cybersecurity insurance.
Understanding how crypto works and how to make the best strategic choices will help you better manage your expectations when it comes to your investments.
What is cryptocurrency, and how does it work?
Cryptocurrency is a digital currency that uses peer-to-peer technology to operate with no central authority or banks. There is no third party and no middleman. Instead, it’s supported by blockchain technology, a database that records all digital currency transactions and verifies the movement of currency transfers.
Data on the blockchain cannot be modified, so it’s incredibly secure and hard to hack. In addition, the blockchain is a public ledger, so anyone can access it and see transactions in real-time. In order to check up on your cryptocurrency, you need to have access to a digital wallet.
Most cryptocurrency trading platforms will have their own wallet system, so you won’t need to set up your own personal wallet. But for extra security, you can open your own wallet using a wallet app like Coinbase Wallet, Electrum, or the like.
When you set up a wallet, you’ll receive a wallet address, which is made up of a long series of numbers and letters. You can send money to your crypto wallet directly without a third party, meaning you don’t have to worry about the transaction getting hacked, which keeps your wallet and transactions safe and secure.
Remember That Crypto is Volatile
A huge piece of advice that you should keep in mind when you’re starting your crypto investing journey: Only invest as much as you’re willing to lose. Cryptocurrency is volatile, and it’s always a risk. Moreover, there is no guarantee that you will make money in the market because you never know how the market will change, regardless of predictions.
So, don’t set high expectations, and instead, approach your investments with cautious optimism.
Unless you’re planning on being a day trader, resist the temptation to constantly check the prices because they will inevitably go up and down. Something as simple as a rumor about a specific token, like a potentially significant investment, can be enough to change its demand and price completely. And that may never even materialize.
It’s not uncommon for beginner crypto investors to panic when their tokens drop in value, prompting many to sell low. But be patient and operate on the general rule of buying low and selling high (if you’re in the short-term game).
Choosing a Cryptocurrency Exchange Platform
The first step for any new cryptocurrency investor is to choose a cryptocurrency exchange/platform to use as your trading hub. There are tons of different options, which can be super overwhelming if you don’t know what you’re looking for. That’s why we’ve added some quick recommendations and advice below to help you in your search for the best platform.
Some platforms are better suited to beginners, so we recommend looking out for some key features that will make it easier for you to get started. For example, jumping into a platform like Binance will be very confusing since you won’t need access to the platform’s advanced tools (at least not right away).
A platform like Coinbase offers a simple, easy-to-use trading platform, with the option of moving to Coinbase Pro once you’re more comfortable. Or you can stay on the standard platform for ease of use. As a beginner, ease of use should be your top priority when choosing an exchange.
Because cryptocurrency exchanges are so decentralized, it can be challenging to get recompense if you feel you have been defrauded or unfairly treated. Suing a crypto exchange is more complicated than suing a person, so it is important to do your research before putting your trust and money into an exchange platform, especially if it is a new one.
Platform Fees
You’ll also want to consider the platform fees. Fees can vary dramatically by platform, with platforms like Coinbase charging a whopping 3.99% transaction fee. Still, others like Kraken only charge a fee of 0% to 0.26%, depending on currency and trading volume. Ideally, you want to find the perfect balance of ease of use and low fees.
You’ll see many platforms that operate as brokers and charge no fees. So, how do they make their money? Through the spread. They will buy the currency at a low price, sell it to you at a higher rate, and pocket the difference. But this system is ideal because it usually still ends up cheaper than paying high transaction fees out of pocket.
Also, keep in mind that the platforms you have access to depending on where you live and what fiat currency you want to use to fund your account. For example, Binance no longer operates in Ontario, Canada, and Coinbase doesn’t allow you to fund your account with CAD.
Our favorite picks of cryptocurrency exchanges for beginners include:
- Coinbase
- BitBuy (Canadians only)
- Crypto.com
- Gemini
How to Choose What Cryptocurrency to Invest In
Cryptocurrency is different from stocks. You can have tons of faith in a cryptocurrency token, but the only thing that drives the price increase and drop is supply and demand. The higher the demand for a token and the lower the supply, the higher the price. The lower the demand and the higher the supply, the lower the price. It’s that simple.
So, how do you know if there will be high demand for a token, so you can choose which one to invest in?
The first thing you need to look at is what could potentially increase demand for the token and how or if the supply increases. Some digital tokens have been thoroughly mined, meaning the supply will never increase.
Some others are still mining new tokens, so it is essential to do your research. There are thousands of digital tokens that you can invest in, with more appearing every day. Since you’re new to the world of cryptocurrency, the whole idea can be confusing and daunting (unless you’re incredibly tech-savvy).
Should you choose high-priced, popular coins or low-priced altcoins?
The price of more popular coins like Bitcoin, Ethereum, and Litecoin are already really high. But altcoins give new investors the chance to buy in at much lower prices and therefore have more potential for drastic growth. This potential is never guaranteed, so it’s good to have some more stable coins like Bitcoin and Ethereum in your portfolio.
You should also include lower-priced altcoins in your portfolio, but do your research on them before investing funds. Every digital currency project will publish a white paper meant to attract interest and tell potential investors everything they need to know about a project, so be sure to check these out for your individual interests.
Some of the information in these white papers might not mean much to beginner investors, but they are a great way to learn more about crypto and get a feel for what sparks demand. They will detail the experts behind the digital currency, what problems the currency project will solve and how it will do so. If you think it sounds interesting or could provide value, you might want to invest in the project.
Of course, you can pick at random, but we wouldn’t advise that. Instead, rely on experts who have done the research for you and have read about the projects in detail.
How much money should you invest in cryptocurrency?
How much money should you start with when you’re ready to invest in cryptocurrency? Some cryptocurrency exchanges have a minimum trade amount, but most will be quite low (like $5 or $10). But some are even lower, with the Crypto.com having a minimum purchase of only $1. Though this could be your starting point, it doesn’t really make sense only to invest $1 into crypto.
This is especially true if you’re trading on a platform that has high fees since you’ll lose a large portion of your investment to the fee.
The amount of money you should be investing depends on what you’ve got to work with. The best advice we can give is to repeat: Only invest as much as you’re willing to lose. Keep in mind that the market can dip pretty heavily, and you could lose a lot of money.
That’s not to say it won’t go back up over time, but it’s better to think of investing as a marathon, not a sprint. If you’re looking for a get-rich-quick scheme, then cryptocurrency isn’t it.
Some people have experienced huge gains from buying altcoins at a low price and then selling when the value skyrockets. And while we all hope for that same luck, it’s better to manage your expectations when you’re entering the market.
The Importance of Diversifying
Even though you’re just getting started and might be tempted to allocate all your funds into Bitcoin, it’s better not to put all your eggs in one basket. As previously mentioned, crypto is volatile.
If all your investments are in one cryptocurrency and it experiences a massive drop in value, you have no backup. Purchasing smaller amounts of various digital tokens means that even if some drop in value, others will go up. By diversifying your cryptocurrency portfolio, you can help to limit the risk, which is similar to how you should treat your standard investment portfolio.
Get Started Investing in Cryptocurrency
There has never been a better time to start investing in cryptocurrency. Cryptocurrency exchange platforms are making it super simple to invest with the click of a button. And with minimum investments as low as $1, you can manage your risk and only invest the amount you’re comfortable with, so what are you waiting for?
About the Author:
Passionate about personal finance and financial technology, Arthur Dubois is a writer and SEO specialist at Hardbacon.ca. Since his arrival in Canada, he’s built his credit score from nothing and is dedicated to helping others manage their personal finances and investments, to help everyone reach financial independence.