How to Invest in Crypto: A Comprehensive Guide for Beginners
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The crypto market is still small relative to big-name stocks like Apple, Microsoft, and Nvidia, but many believe that shows that there is room for growth with crypto investments. However, unlike traditional investments, investing in crypto follows a different process, using exchanges rather than brokers. The good news is that it’s not difficult to get started. In this guide, we’ll learn how to invest in crypto safely and discuss cryptocurrencies to consider when building your portfolio.
We’ll also touch on risks and ways to mitigate them as well as how to set up a crypto wallet to keep your funds safe. Let’s learn how to invest in cryptocurrency (for beginners), starting with the basics.
What is Cryptocurrency?
Cryptocurrencies are digital assets that can be a store of value or even serve a utility function on a blockchain. Coins like Bitcoin have a fixed maximum supply, making them an attractive store of value. If adoption increases, the limited supply makes these coins more valuable. By contrast, traditional currencies have an unlimited supply, making inflation a problem in many parts of the world.
Although there were virtual currency projects before Bitcoin, when Bitcoin launched in January 2009, it started a financial revolution that’s still underway. Following the launch of several Bitcoin forks, including Litecoin and Dogecoin, Ethereum launched in 2015, revolutionizing the crypto industry again. Ethereum introduced full support for smart contracts, which are computer programs that run on the blockchain network. With this change came the ability to run applications using conditional switches: if this happens, then do that. This has opened up a world of Decentralized Finance (DeFi) where transactions can be carried out without a middleman or intermediary such as a bank.
Cryptocurrencies are used as “fuel” for their respective blockchains in many cases. For example, Bitcoin transactions are paid with Bitcoin (BTC), and Ethereum transactions are paid with ether (ETH). However, Ethereum also introduced the concept of tokens. Tokens can range from NFTs (non-fungible tokens), including art collections, to utility tokens that serve a specific purpose, or even meme coins.
The versatility of cryptocurrencies and blockchain technology makes cryptocurrencies an attractive asset class to invest in. However, not all cryptocurrencies and tokens will see the same level of success enjoyed by Bitcoin and Ethereum. Most won’t survive. Of the more than 24,000 cryptocurrencies tracked by CoinGecko, a leading crypto data aggregator, over half have failed. In later sections of this guide on how to invest in crypto, we’ll discuss ways to choose a starting portfolio and ways to reduce risk.
Key Types of Cryptocurrencies to Consider
With a market capitalization of over $1 trillion, Bitcoin is the largest cryptocurrency, with nearly four times the market value of its closest crypto competitor, Ethereum. Many first-time crypto buyers start with one of these blue chip cryptocurrencies or sometimes both. Let’s look at these two leading crypto assets alongside some emerging competitors.
Bitcoin (BTC)
Bitcoin launched as a peer-to-peer payment system. In short, Bitcoin’s creator intended bitcoins to be used as money. The proof-of-work that secures transactions on the Bitcoin blockchain uses a clever mix of incentives and disincentives to keep node operators honest and prevent double-spending. Bitcoin’s security helped propel it to worldwide notoriety, while its scarcity sent the price of Bitcoin soaring. At its highs in early 2024, BTC traded above $70,000, and many believe this is just the beginning for the digital currency.
Ethereum (ETH)
Initially, Ethereum shared many similarities with Bitcoin, although taking crypto in a new direction with support for smart contracts. These are computer programs that run on the blockchain and allow conditional transactions, i.e., if X happens, then do Y.
Developers quickly put smart contracts to work in projects ranging from metaverse games to decentralized finance (DeFi) applications, such as lending platforms and decentralized exchanges. Today, Ethereum remains the leading smart contract network, and its gas token (ETH) is used on the Ethereum chain as well as several Layer 2 blockchains.
Solana (SOL)
The Solana blockchain launched in 2020 as a faster and cheaper alternative to Ethereum. While the Solana blockchain supports smart contracts, the programming languages and runtime environment differ, leading to a separate ecosystem of decentralized applications (dApps). Many speculate that Solana could become as popular as Ethereum. However, even this relatively new cryptocurrency faces competition from freshly launched platforms like SUI.
SUI (SUI)
Similar to Solana, the SUI network, which launched in 2023, brings faster transaction speeds with its ability to process transactions in parallel. SUI also changed the traditional structure of blockchain programming, centering builds around objects rather than accounts (which are used with Ethereum). This object-based structure helps SUI avoid the transaction bottlenecks seen on Ethereum during peak demand.
Avalanche (AVAX)
The Avalanche network uses a three-blockchain structure, one of which offers compatibility with the Ethereum Virtual Machine (EVM). This makes it easy for developers to deploy dApps used on other EVM chains. Where Avalanche differs is in its structure. Rather than use a chain built of transaction blocks, Avalanche uses a Directed Acyclic Graph (DAG), which prioritizes the relationships between transactions rather than the order in which they occur. The result is a speedy network that also supports specialized chains called subnets.
Chainlink (LINK)
Smart contracts only read information from the blockchain. So, what if you want to build an application that triggers transactions based on the price of Bitcoin? That’s where Chainlink fits into the puzzle. Chainlink runs a worldwide network of trusted nodes that bring in information from the outside world. Suddenly, DeFi projects become extremely powerful, allowing automated lending and borrowing markets. Developers who want to use Chainlink’s Oracles must pay with the LINK token.
Reputable exchanges like Coinbase offer hundreds of other cryptocurrencies. However, it’s often safer to focus on top-10 or top-20 projects to build a diversified portfolio.
How to Invest in Cryptocurrency: A Step-by-Step Guide
Exchanges like Coinbase and brokers like eToro serve as a common first step in crypto investing. These platforms allow you to buy cryptocurrency with traditional currencies like the US dollar. When you sell, you can withdraw in your local currency.
Although platforms differ, cryptocurrency investing for beginners often follows a similar blueprint. First, you’ll want to research the cryptocurrency you’re considering. Then, if it’s a fit for your cryptocurrency investment goals, choose a crypto exchange and set up an account.
Step 1: Choose the Right Cryptocurrency to Invest In
As a new crypto investor, your first step is to choose which cryptocurrencies are right for you. This decision may guide your choice of crypto exchange. While Bitcoin and Ethereum are available through nearly every exchange, newer cryptocurrencies like Kaspa (KAS) or The Open Network (TON) may not be widely available.
Try to match your purchases to your risk tolerance. Even the most established cryptocurrencies can still be extremely volatile. However, digital assets like BTC and ETH are less likely to lose 100% of their value compared to a new chain’s token or a meme coin. Blue chip cryptos make safer investments.
However, blue chip cryptos may not see the same level of growth they experienced in the runup from pennies to thousands or tens of thousands of dollars per coin. A diversified portfolio allows blue chips to anchor your portfolio’s value while more speculative plays can drive growth, assuming they perform.
Always do your own research (DYOR) for each cryptocurrency project you’re considering, and don’t be swayed by hype or marketing. Nearly every large project has published a whitepaper detailing how the project works and the problems it solves. For example, you can start with the Bitcoin Whitepaper or Ethereum Whitepaper. Then, use the whitepaper as a launchpad for new research questions.
Step 2: Select a Reliable Cryptocurrency Exchange
You’ll have several exchanges to choose from based on the type of cryptocurrencies you want to buy. The next task is to find an exchange that meets your needs. Things to consider as a new trader typically center on security and ease of use. However, fees may be an important factor as well, depending on how often you trade and the amounts you expect to trade.
- Security and Stability: Exchanges serve as on and off-ramps for crypto purchases. However, dozens of exchanges have failed during crypto’s relatively short history. You’ll want to choose an exchange with proven security and staying power. Bitstamp is the longest-running crypto exchange. Coinbase and Kraken were both founded during the same time period, from 2011 to 2012.
- Ease of Use: Many crypto exchanges offer basic trades using a point-and-click widget in addition to advanced trading. For example, Coinbase Simple Trade caters to beginners, whereas Coinbase Advanced offers more order types, such as limit orders and take-profit or stop-loss orders.
- Trading Fees: Whenever you buy or sell a cryptocurrency, the exchange takes a small amount of the transaction as a trading fee. Simple trading platforms charge higher fees and also use a markup called a spread to lock in a price quote. If you expect to trade frequently or in large amounts, invest some time in learning how to use an advanced trading platform to save on fees.
Step 3: Set Up Your Account and Secure Your Wallet
Once you’ve selected an exchange you want to use, you’ll need to open a trading account. Expect to provide your email address, a phone number in many cases, and basic information such as your name and address. Choose a strong password you don’t use elsewhere.
Most crypto exchanges now require customers to complete Know Your Customer (KYC) identity verification. To complete verification, you’ll upload a copy of your government-issued identification, such as a driver’s license or passport. KYC can take as little as 10 minutes to complete or as long as two days.
In a later step, you’ll add a funding source. Your exchange account also acts as a custodial crypto wallet for the cryptocurrencies you buy. While reputable exchanges make significant investments in security, they still make attractive targets. Look for two-factor authentication (2FA) options that require you to confirm logins and withdrawals on a device you physically control, like a mobile phone.
Many crypto investors also create a self-custody wallet, which allows them to withdraw their crypto from the exchange in between trades as an extra safeguard against hackers or even exchange failures.
Step 4: Fund Your Account and Make Your First Purchase
Once you’ve made your account, completed KYC, and set up 2FA, it’s time to fund your account to make your first crypto purchase. Many larger exchanges like Coinbase and Kraken support linking a bank account or debit card. Generally, bank account-funded purchases bring lower fees compared to debit cards.
However, bank account-funded purchases can create withdrawal delays of up to seven days. Debit card purchases are usually available for immediate transfer, although debit cards may only work with Instant Buy platforms like Coinbase Simple Trade. Coinbase Advanced doesn’t support debit cards.
Let’s assume you’re using Simple Trade and a bank account. Select the type of cryptocurrency you want to buy and set an amount. Then, choose your funding method.
In the last screen, you can review the trade, including fees.
Many exchanges, including Coinbase and Kraken, also support automatic purchases, allowing you to invest in crypto over time. We’ll discuss dollar-cost averaging as an investment strategy to mitigate volatility in a later section.
Step 5: Monitor and Manage Your Investments
If you’re new to investing and trading, knowing when to take profits and when to buy back or move on to another crypto investment can be challenging. As you gain experience, you can use crypto indicators to guide your trades, some of which are suitable for beginners.
If you keep your crypto on an exchange like Coinbase, you’ll see real-time prices for the positions in your portfolio. You can also track the all-time performance for each asset.
Keeping a limited number of cryptocurrencies in your portfolio allows you to stay current on the latest news and developments. As the number of cryptocurrencies you hold grows, this becomes more challenging. Diversification helps mitigate volatility, but too much diversification can make maintaining focus and making informed decisions on each holding difficult.
Risks and Rewards: What You Should Know Before Investing
Crypto is notorious for its volatility, and as a risk asset, crypto often sells off first during periods of investor uncertainty. Expect daily swings of 1%, 5%, or even more. However, that same volatility that can shake out investors can also lead to outsized gains over time.
Bitcoin’s 5-year chart, shown below, reveals plenty of trading opportunities within a long-term uptrend. However, market volatility along the way caused many investors to sell at a lost. After reaching an all-time high of more than $73,000 in 2021, BTC fell below $16,000 in 2022. That bottom marked the beginning of a new uptrend.
A dollar-cost averaging strategy proved to be a prudent strategy because it captured the lows. Buying in fixed dollar amounts at fixed intervals ensures you buy more of the asset when prices are low and less when prices rise.
You should also watch for news that affects the assets you hold. For example, Coinbase, along with many other exchanges, suspended trading for XRP after the US Securities and Exchange Commission (SEC) charged Ripple with selling unregistered securities. XRP’s price suffered, and trading became more difficult because fewer exchanges supported the coin. Coinbase and Kraken have since relisted XRP.
Another important factor to consider is the risk if your chosen exchange fails or is hacked. Unlike traditional investments such as stocks or savings accounts which are typically protected by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation in the US, cryptocurrency investments do not offer the same protections. This means there is no government-backed insurance to cover your assets and you might lose all your funds.
How Much Should You Invest in Cryptocurrency as a Beginner?
As with all investments, you should always invest within your means and never more than you can afford to lose. In simple terms, don’t bet the mortgage money on a moonshot. As detailed earlier, crypto prices can change direction quickly; historically, more than half go to zero.
Managing investment amounts becomes easier if you work with a budget and a schedule. Let’s say you look at your budget and decide you can afford to invest $100 monthly. Platforms like Coinbase and Kraken allow you to set up automatic purchases. You can break this up into weekly purchases or buy once each month automatically.
This dollar-cost averaging (DCA) strategy is how many of us save for retirement in 401k plans or IRAs. Buying a fixed dollar amount at a fixed interval optimizes your purchases while ensuring you’re always investing. As prices dip, you’re buying more BTC, ETH, or whatever you’ve chosen to buy. DCA investment strategies also reduce the effect of volatility on your portfolio.
However, you’ll also want to consider your risk appetite. Most of us aren’t paying our bills with digital currencies yet, so consider the speculative nature of crypto when choosing an investment amount and employ risk management strategies when trading.
Common Mistakes to Avoid When Investing in Cryptocurrency
Whether you’re a new crypto investor or a seasoned trader, we all make investment mistakes. Let’s discuss some of the most common mistakes seen with newer traders.
- Lack of diversification: Putting all your eggs in one basket concentrates not only your gains but also your losses. Consider investing in a basket of promising cryptocurrencies rather than just one or two.
- Lack of research: Many new cryptocurrency investors buy a coin without careful research. Understand what you’re buying with a critical eye that looks for opportunities as well as barriers to success.
- FOMO buying: Fear of missing out (FOMO) often causes people to buy tops in markets.
- Panic selling: The fear of loss can lead to panic selling. Bitcoin bottomed at under $16,000 in 2022, after which it began an uptrend to $70,000 and beyond.
- Ignoring fees: Fees can add up quickly when trading frequently or in larger amounts. Weigh the trading fees for the exchange you choose, but don’t choose a questionable exchange simply because the fees are lower. Also, consider using the advanced trading platform on your chosen exchange to reduce trading costs dramatically.
- Leaving crypto on exchanges: Crypto exchanges can pause withdrawals or sometimes close their virtual doors. Moving your crypto holdings to a self-custody crypto wallet takes your funds out of harm’s way.
- Not following security best practices: Don’t reuse passwords or choose a simple password for convenience. Crypto exchange accounts are targets for hackers and phishing scams.
- Using excessive leverage: Crypto leverage trading lets you borrow against collateral to make larger trades. While sometimes more profitable, leverage trading is always riskier than trading without leverage.
- Using questionable exchanges: Research any exchange you’re considering before sending funds or making trades. Exchanges can disappear, and some may even manipulate markets through wash trading or other shady practices.
How to Keep Your Cryptocurrency Safe and Secure
A safer trading experience begins with enabling two-factor authentication for your trading account or biometric authentication for your mobile app:
- Two-factor authentication helps prevent someone from accessing your account remotely. Once you connect a payment method, not only are your crypto assets at risk, but bad actors may also be able to purchase more crypto using your linked payment method. Two-factor authentication requires authorization on a device you physically control.
- Biometric authentication, such as face ID or a fingerprint scanner, helps ensure that only you can access your account on mobile devices. Most of us have lost a phone at some point, making the risk well understood.
Storing Cryptocurrency in Cold Storage
However, you may want to take additional steps, such as moving your crypto to cold storage. Cold storage refers to storing your crypto in an offline wallet. For example, crypto hardware wallets like Ledger (shown above) or Trezor devices generate and store the wallet’s private keys offline. To transfer funds from the wallet, authorization is required on the hardware wallet itself. Consider moving your crypto to a self-custody wallet and, preferably, a cold-storage wallet as balances grow.
Conclusion
While this guide focuses on how to invest in cryptocurrency for beginners, the basic concepts around crypto investing apply even as you gain experience. Always do your own research to gain a complete understanding of what you’re buying as well as its risks and opportunities. Choose your exchange carefully. Several high-profile exchange failures have left crypto investors without access to their coins. However, several well-established exchanges offer safe options.
Once you’ve invested, periodically reexamine your reasons for investing to be sure the decision still makes sense for your portfolio. Lastly, take steps to prevent emotion from governing your trades. If the investment still fits your long-term portfolio, consider using a DCA strategy to reduce the effects of volatility over time.
FAQs
What is the best crypto to buy for beginners?
Most new crypto investors begin with Bitcoin or Ethereum. These two cryptocurrencies lead the market and benefit from a sizeable worldwide investment community.
What is the easiest way to invest in crypto?
A beginner-friendly exchange like Kraken or Coinbase provides an easy onramp to the world of crypto. To get started, open an account and complete identity verification. Next, connect a funding source, such as a bank account or debit card. Both exchanges offer easy-to-use buy-now widgets that let you choose the type of cryptocurrency and the purchase amount.
How should you invest in crypto for the first time?
The most successful crypto investments begin with research. Invest some time in learning how the cryptocurrency you’re considering works and which problems it solves. When you find a cryptocurrency that fits your needs and risk profile, open an account with a trustworthy exchange that supports it. Fund your account and make your first purchase according to your budget.
How often should you invest in cryptocurrency?
Many experienced investors prefer to buy at fixed intervals, such as weekly or monthly. Dollar-cost averaging lets you spend the same amount with each purchase but buy more of the asset when prices dip or less when prices rise.
When is a good time to start investing in crypto?
If you think crypto investing is right for your portfolio, the best time to invest is now, particularly if using a DCA strategy. Timing the cryptocurrency market can be difficult and often leads to emotionally driven trades. Dollar-cost averaging lets you buy a little at a time to build your position.
References
- Dead Coins: Over 50% of Cryptocurrencies Have Failed (coingecko.com)
- Bitcoin: A Peer-to-Peer Electronic Cash System (bitcoin.org)
- Ethereum Whitepaper (ethereum.org)
- Bitcoin (BTC) price per day (statista.com)
- SEC Charges Ripple and Two Executives with Conducting $1.3 Billion Unregistered Securities Offering (sec.gov)
Connor Sephton 
Elena Bozhkova