How to invest in crypto: A guide for beginners

The world of digital assets might seem daunting for some, but with the right tools and know-how, investing in crypto can be a rewarding financial venture. Still, as tempting as the potential payoff might be, it’s important to first consider the risks.

Whether your goal is to diversify your investment portfolio or simply understand how to invest in crypto in a way that makes sense for you, this guide will introduce you to the basics.

Cryptocurrency for beginners

Cryptocurrencies are digital or virtual assets that use cryptography and blockchain technology to operate independently of central banks. There are now over 25,000 cryptocurrencies in existence (at the time of writing); the most well-known is Bitcoin (BTC), introduced in 2009 as the world’s first cryptocurrency and often regarded as the digital gold standard in the crypto space.

Other popular altcoins (alternatives to Bitcoin) include Ethereum (ETH), Solana (SOL), Avalanche (AVAX), Chainlink (LINK), Fantom (FTM), Polygon (MATIC), Optimism (OP), Arbitrum (ARB), Cardano (ADA), and Dai (DAI). Each has unique features, use cases, and investment risks, serving different purposes within the blockchain ecosystem.

Despite the exciting opportunities these diverse cryptocurrencies offer, it's important to recognize that the crypto market is highly volatile. Influenced by its relatively young age, lack of governmental regulation, and market sentiment driven by news and social media, the market can experience dramatic price swings in short periods – sometimes within hours or minutes. Because of this, it’s crucial to approach cryptocurrency investing with caution.

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What to consider before investing in crypto

Before investing in crypto, it’s important to understand the factors that can influence your success. By carefully evaluating a project’s fundamentals and staying aware of risks and regulations, you can make more informed and strategic decisions.

Here are some key considerations:

• Research the project’s details: Before investing in a cryptocurrency, it’s essential to understand its use cases, underlying technology, development team, tokenomics (how the cryptocurrency’s economy works), and market potential. This information will help you assess the project’s viability, growth potential, and long-term sustainability.
• Set clear investment goals: Investing without defined objectives is like setting sail without a map. Whether your focus is on short-term gains, long-term growth, or portfolio diversification, having clear and realistic goals ensures you stay aligned with your strategy and risk tolerance.
• Analyze risk: Because cryptocurrency is notoriously volatile, with prices capable of significant swings in short periods, Understanding how much risk you are comfortable with is vital to making smart investment decisions.
• Stay informed on regulatory changes: The regulatory landscape for cryptocurrencies is constantly evolving, and new rules can affect the value, legality, and taxation of your assets. Staying informed about local and global regulatory developments will help you adjust your strategies and ensure you remain compliant with legal requirements.
• Tax consequences: Tax laws for crypto investments vary by jurisdiction, and failure to comply can result in penalties. Understanding how crypto transactions are taxed in your country and using tools like CoinTracker can simplify tracking and reporting cryptocurrency transactions.

Six ways get started in crypto

There’s no single best way to invest in cryptocurrency; the right approach depends on your goals and risk tolerance. While there are several ways to enter the crypto space, each with its unique benefits, here are six of the most common:

1. Invest in crypto companies: Consider investing in public companies that operate in the cryptocurrency ecosystem, such as mining companies, hardware manufacturers, or firms like Coinbase that facilitate crypto transactions. This offers indirect exposure to the market.
2. Buy and trade cryptocurrency: This straightforward method involves purchasing cryptocurrencies like Bitcoin, Ethereum, or altcoins through exchanges or wallets. It provides direct exposure to market price movements, offering potential gains or losses based on asset performance.
3. Invest in crypto-focused funds: For a diversified approach, consider crypto-focused funds or mutual funds, which offer exposure to a managed assortment of crypto assets. These funds help spread out risk, potentially reducing the potential for significant losses.
4. Buy crypto ETPs or ETFs via a brokerage platform: Exchange-traded products (ETPs) and exchange-traded funds (ETFs) that track cryptocurrency performance can be purchased through traditional brokerage accounts, making it easy to add crypto to your investment portfolio.
5. Become a crypto miner or validator: Participating directly in the blockchain network as a miner or validator allows you to earn cryptocurrency rewards. This approach requires technical knowledge, investment in specialized hardware, energy, and reliable internet service.
6. Invest in a crypto Roth IRA or 401(k): A crypto Roth IRA allows you to invest in cryptocurrencies while benefiting from the tax advantages of a Roth IRA, such as tax-free earnings growth and no mandatory withdrawals. Some 401(k) plans, depending on the provider, now offer cryptocurrency investment options as well.

Five tips for new crypto investors

Ready to get started with crypto? If so, here are some helpful tips to guide you toward making informed and confident investment choices.

1. Understand your investments: Before diving into any cryptocurrency, research and understand the fundamentals behind it, whether it’s Bitcoin (BTC), Ethereum (ETH), Solana (SOL), or another altcoin. Knowing the underlying technology, such as proof-of-work or proof-of-stake mechanisms, helps set realistic expectations for its potential, use cases, and long-term viability.
2. Select a broker or exchange wisely: Choosing the right platform is critical to your trading experience. Look for a user-friendly, secure exchange that supports multiple cryptocurrencies. It’s essential to check for factors like fees, liquidity, security measures, and customer support to ensure the platform meets your needs.
3. Monitor market volatility: Cryptocurrency markets are known for their extreme price fluctuations. Keeping up with market trends and credible sources of information, such as well-respected crypto news outlets, can help you better understand and navigate these fluctuations, enabling smarter, more informed trading decisions.
4. Prioritize control risk: The high volatility of crypto markets requires careful risk control. Use strategies such as setting stop-loss orders to limit potential losses, regularly reviewing market conditions, and diversifying your portfolio to reduce overall risk exposure. A balanced approach helps safeguard your investments against unpredictable downturns.
5. Invest responsibly: One of the golden rules of investing is to never invest more than you can afford to lose, especially in a volatile market like crypto. Overcommitting can lead to emotional decision-making and financial strain. Responsible investing involves exercising caution and only committing funds you’re comfortable with losing.

Kickstart your investing in crypto confidently with CoinTracker

Staking your claim in the world of crypto comes with risks and challenges, but it’s also exciting and full of potential rewards. CoinTracker provides powerful tools to help you track your investments, manage assets, and simplify tax filing so you can focus on growing your crypto portfolio.

Whether you’re trading Bitcoin, Ethereum, Solana, or any other altcoin, CoinTracker keeps you informed and organized. Our seamless integrations with leading exchanges and wallets make it easy to monitor your investments, stay ahead of tax obligations, and trade with confidence.

Try CoinTracker for free and discover why over 2 million users trust us for their crypto tax needs.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.