Updated April 12, 2022

How to Invest in Cryptocurrency

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Interested in investing in cryptocurrency for the first time, but not quite sure how to go about it? Look no further than this helpful step-by-step guide.

Everyone was new to crypto at one point or another. And if you're feeling a little lost right now, don't worry.

Luckily, buying cryptocurrency has gotten a lot easier in the last couple of years. With adoption increasing day by day, it's only going to get easier.

In this easy-to-follow guide, we'll walk you through the simple steps to get you started as a crypto investor.

How to Choose a Cryptocurrency Exchange

If you're looking to invest in cryptocurrency, your first task is to choose an exchange or broker.

You've probably heard of a few: Coinbase, eToro, Binance, and Robinhood are all noteworthy examples.

Exchanges perform a simple function: connecting people who want to sell cryptocurrency to those who want to buy it. A broker is similar, but they buy and sell from users directly, giving them more control over setting prices.

As a new investor, you'll likely be using an exchange, whereas high-volume or short-term investors typically use brokers.

So how do you pick an exchange, and how do they differ?
There are a few important factors to consider when choosing your first exchange. These are:

  • Ease of use
  • Availability in your region / accepted currencies
  • Available coins
  • Fees
  • Security
  • Additional features
  • Customer service

Let's take a brief look at some of the most popular options so you can see how they differ.

1. Coinbase

Coinbase is a popular crypto exchange, especially with beginners. Due to their popularity, they are frequently adding new features.

Coinbase is known for being extremely easy to use, but it also has some of the highest fees among popular trading platforms. If ease-of-use is your absolute number one priority, choose Coinbase. Otherwise, you'll do better with one of the alternatives.

2. eToro

eToro is another beginner-friendly trading platform, but for a different reason. Where eToro shines is in their CopyTrading and Smart Portfolios features.

CopyTrading allows you to automatically mimic the trades of other investors, who you can select from a list of popular candidates based on their trading history and risk score.

Smart Portfolios lets you buy preselected groups of cryptocurrencies, taking out some of the stress of choosing for those who don't have much to go on.

As a social trading platform, eToro also allows you to connect and discuss strategy with other investors.

3. Binance and Binance.US

Binance and Binance.US (its American branch) regularly rank as some of the highest-volume exchanges in the world. Binance offers some of the lowest fees available in crypto trading, making it an appealing choice.

Binance's app might be intimidating to beginners, but with a little effort, most new traders should be able to manage it. They also offer one of the widest selections of coins, so if you're interested in trading altcoins, Binance may be for you.

4. Robinhood

Robinhood is a commission-free trading app that lets you invest in both crypto and stocks. New crypto traders may find their fee-free trading structure appealing, but keep in mind that you can't withdraw your coins from the Robinhood platform.

That means that, while you can benefit from the change in value of the coins you purchase, you don't actually own them.

For those interested in crypto as a purely speculative instrument, Robinhood can be a cost-effective option. But for those actually interested in participating in a crypto economy, look elsewhere.

Check out our detailed comparison of Robinhood and Coinbase here.

5. Webull

Webull is another trading platform that offers a wide range of investing options to its users, which may appeal to investors trying to keep everything in one place.

In addition to crypto, you can trade stocks, options, and ETFs. Webull has lower fees than Coinbase, for example, but their selection of cryptocurrencies is far more limited.

Like Robinhood, you won't be able to transfer it off the platform, either.

6. SoFi Invest

SoFi Invest is another option for new investors who are interested in a wide range of assets, including crypto.

It has relatively low fees, but a limited number of cryptocurrencies, and like some of the other platforms mentioned, you won't be able to transfer crypto off the platform.

Looking for more beginner-friendly crypto platforms? Our guide to the best cryptocurrency apps for beginners is worth checking out.

How to Set Up a Crypto Wallet

Once you've chosen an exchange, you'll need somewhere to keep your crypto safe, i.e. a wallet.

We won't go too deeply into the technical details of wallets here. All you really need to know is that a wallet is where you keep the crypto that you personally own. It's generally considered safer than leaving your crypto on the exchange where you purchased it.

Depending on your preferences, you'll need to choose what kind of wallet you want. You can find a detailed explanation of various wallets here, but in simple terms, you'll be picking between a hardware (cold) and a software (hot) wallet.

Best Cold Wallets for New Crypto Investors

Cold wallets are considered the safest way to store your crypto, but they have downsides too. They are typically more expensive, and they may have storage limitations regarding the number of cryptocurrencies you can keep.
And they tend to be less convenient than hot wallets.

Choose a cold wallet if: A significant portion of your finances is invested in crypto, security is your primary concern, and/or you expect to hold your crypto for long periods.

  • Ledger Nano X
    Cost: $149
    Ledger's high-end hardware wallet has a certified secure chip, supports over 5,500 coins and tokens, and you can install up to 100 apps, depending on their size. You can connect via Bluetooth, and it's compatible with MacOS, iOS, Android, Windows, and Linux. It pairs with Ledger Live app.

  • Ledger Nano S
    Cost: $59
    Ledger's affordable hardware wallet also has a certified secure chip and supports major coins. Users can install up to 3 apps, and it connects via USB.

    It's compatible with MacOS, iOS, Android, Windows, Linux, and pairs with Ledger Live app.

  • Trezor Model T
    Cost: $215
    Trezor's high-end hardware wallet is CE and RoHS certified, supports more than 1,200 coins, and has a full-color touch-screen display. It connects via USB, functions as a password manager and Universal-Two Factor device.

    It's compatible with MacOS, Android, Windows, and Linux.

  • Trezor Model One
    Cost: $70
    Trezor's affordable hardware wallet is also CE and RoHS certified. It supports more than 1,000 coins. It has a bright OLED display, connects via USB, and also functions as a password manager and Universal-Two Factor device.

    It's compatible with MacOS, Android, Windows, and Linux.

Best Hot Wallets for Beginner Crypto Investors

While not as secure as cold wallets, hot wallets are still plenty secure. Most are also free to download and free to use. You can get started with one immediately, rather than waiting for it to come in the mail.

They typically don't have storage limitations other than which coins they support. And since you can access them from several devices and the web, they are usually more convenient than cold wallets.

  • Exodus
    This free wallet has mobile and desktop versions, supports over 150 different coins, and offers biometric login. Users can send and receive coins via QR code. There's no registration required, they have 24/7 live support, and it's hardware wallet compatible.

  • Mycelium
    This open-source wallet is also free. It supports Bitcoin, Ethereum, and Ethereum-based tokens, has an in-app exchange, and allows you to set your own gas fees. There's no registration required, and it's hardware wallet compatible.

  • Coinbase Wallet
    Coinbase's free wallet has mobile and desktop versions, supports over 4,000 different coins, and lets you store NFTs as well. It works with Coinbase exchange, supports DApps (Decentralized Apps), and is noncustodial.

  • Trust Wallet
    Despite being free, Trust Wallet supports 1M+ assets and 53 blockchains, has its own crypto exchange, offers staking, and is the hot wallet recommended by Binance. It's iOS and Android compatible, and supports DApps and NFTs.

  • Guarda Wallet
    Another free wallet, Guarda has versions for desktop, mobile, and a Chrome extension. It's compatible with Windows, MacOS, or Ubuntu, Google, Apple, and Huawei devices, supports 400,000 coins and 50+ blockchains, has a connected exchange, and supports staking.

    It's also hardware wallet compatible.

Choosing which Cryptocurrency to Invest In

All right. You've picked an exchange, you've got a crypto wallet. Now, what to buy?

Let's start out by saying that no one knows for sure what the crypto market is going to do from one day to the next. Anyone who tells you otherwise is either lying to you or to themselves.

Ultimately, while expert opinion is valuable, it's best if you make up your own mind about what to invest in, and most importantly, never invest money you can't afford to lose.

That said, there are cryptocurrencies worth knowing about. We'll look at the biggest. The top coins at time of writing by market cap according to CoinMarketCap are:

  1. Bitcoin
  2. Ethereum
  3. Tether
  4. BNB
  5. Solana
  6. USD Coin
  7. Cardano
  8. XRP
  9. Terra
  10. Polkadot

Let's take a brief look at each one.

1. Bitcoin

You already know Bitcoin (BTC), the first cryptocurrency. It dates back to 2009 and is the most valuable, widely-traded coin. Whether Bitcoin stays on top is really up in the air.

The main issue with Bitcoin is the mining process. The essence of the problem is this: mining Bitcoin consumes significant amounts of energy. It is not the most efficient cryptocurrency, nor the fastest.

And so, while it served as an effective proof of concept for cryptocurrency, some believe its fundamental flaws make it a poor candidate for widespread adoption.

On the other hand, Bitcoin has momentum. It has name recognition. And that may prove the deciding factor in the end, because crypto is a currency, and the success of currencies depends on trust.

2. Ethereum

Ethereum (ETH) is number two, vying for first place in the crypto-sphere.

While it started out using a proof-of-work protocol (mining)[1] like Bitcoin, the developers behind it are shifting to proof-of-stake (staking).[2]

This would solve many of the energy issues associated with Bitcoin, and reward users for holding the currency, potentially adding stability to the market.

Ethereum is also the basis for a large number of other widely-used coins, such as Basic Attention Token (BAT), Bancor (BNT), OmiseGO (OMG), Status (SNT), TenX (PAY), and many, many more.

People have been predicting that ETH will overtake BTC in value for some time. It hasn't happened yet, but it's a real possibility.

3. Tether

Tether (USDT) is a stablecoin. This means it's a cryptocurrency whose value is pegged to that of a fiat currency, in this case, USD. One USDT is worth $1.00.

While there's far too much to go into here, suffice it to say that the future of Tether will have a big impact on the world of crypto, and likely the financial system as a whole.

And due to its status as the most widely-used stablecoin, there is a lot of controversy around this particular coin.

Since its price is fixed, this coin is more favorable to those seeking stability, rather than gains.

More Cryptocurrencies Worth Checking Out

BNB, or Binance Token, is a coin created specifically by the exchange Binance. Its primary use is paying fees on the Binance platform, and staking. Binance users are incentivized by reduced rates for paying with BNB. Even so, it is the fourth-largest coin by market cap.

Solana (SOL) is a blockchain designed for decentralized applications (DApps), and it was designed for speed and efficiency. As such, it has faster transaction times and lower fees than competitors like Ethereum.

USD Coin (USDC) is a stablecoin tied to the USD, just like Tether.

Cardano (ADA) is another cryptocurrency like Solana, built for efficiency, speed, interoperability, and sustainability in the crypto ecosystem. Its position on this list suggests that many believe it is well-designed.

XRP, or Ripple, is a cryptocurrency used for transactions by banks and other financial institutions around the world. Due to regulatory concerns in the U.S., many platforms don't offer it, but these may be resolved soon.

Terra (LUNA) is the native coin of the Terra Network, and is used for mining and governance on that platform.

Polkadot (DOT) is a token used for sending data between incompatible blockchains, such as the BTC and ETH chain.

And there are literally thousands more beyond those. When choosing coins to invest in, market cap is a good indicator of adoption. If you have the time to do the research, utility is a good point to consider. What applications might a coin have? Who will use it? Does it have potential yet to be realized?

With good information, you can make good decisions. Just remember that nothing is a guarantee.

How to Buy Crypto

The process of buying crypto will vary slightly from one platform to another, but it's generally straightforward.

In fact, you don't need a wallet to complete this step, unless you're using a non-custodial exchange like Coinmama. It's perfectly reasonable to skip the wallet for now and sign up for one once you've got a little investing done.

Here's what to expect:

  1. The first step in buying crypto will be signing up for an exchange.
    That means downloading the app, or visiting the desktop site, and creating an account. They'll ask for contact details and personal information which they'll need to comply with KYC (know your customer) and anti-money laundering regulations. It's all perfectly normal.

  2. Then, you'll likely need to verify your account. The platform should provide detailed instructions on how to do this, and it can take anywhere from a few minutes to a few days, depending on which platform you use.

  3. Next, you'll set up a payment method. There are several ways to pay for crypto on most platforms, but your best bet is usually via ACH Bank Transfer if you can manage it. This option frequently has the lowest fees.

    Other potential payment methods are wire transfer and, occasionally, credit card, which is usually the most expensive.

  4. Finally, you'll be ready to make your purchase. Simply find the currency you're interested in buying, enter the amount, either in coins or in dollars, and preview your purchase.

This will give you a look at the true cost, with all the fees applied. If everything looks satisfactory, just click Buy, and you'll have successfully bought your first coins.

What's next?

Now that you've bought your crypto, consider setting up a wallet if you haven't already done so, and transferring it over if you have.

Now that you know what you're doing, you're free to buy and sell as you please. Just remember, there are tax implications involved with cryptocurrency trading, so more sales and trades may mean a higher tax bill come next year.

Consider holding your coins for longer periods (at least a year) to minimize the impact on your taxes.

Bottom Line

There you have it. A step-by-step guide on buying crypto for the first time.

There's still plenty more to learn, and you may decide that the decisions you made starting out weren't the right ones—whether the trading platform you chose, or the crypto you bought—but as long as you follow safe investing practices, you should be all right.

References

  1. ^ "Proof of Work": Ethereum, 2022.
  2. ^ "Proof of Stake": Ethereum, 2022.

Jeremy Harshman is a creative assistant at CreditDonkey, a crypto comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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