The world of cryptocurrency is a rollercoaster ride, with extreme highs and lows, but these digital assets have been gaining popularity steadily over the past few years. Thanks to their increasing acceptance, investors now have a multitude of options when it comes to acquiring cryptocurrencies.
If you’re considering diving into the world of crypto, here’s what you need to know and how to go about it.
4 steps to purchasing crypto
Before you jump into buying crypto, it’s important to assess your overall financial situation. Make sure you have an emergency fund, manageable debt levels, and a diverse investment portfolio in place first.
Due to the volatility of crypto, any investments should be part of a broader strategy to mitigate potential losses. Only invest what you can afford to lose.
If you’re ready to take the plunge, here are four steps to guide you through the process.
1. Choose where to purchase crypto
The first decision you need to make is which platform to use for buying coins. The most common option is a crypto exchange.
- Crypto exchanges offer a wide range of cryptocurrencies and often provide competitive pricing. Popular exchanges include Coinbase, Kraken, and Binance, among others.
- Peer-to-peer payment apps like Cash App or PayPal also allow for crypto purchases. Fees can vary depending on the platform. For example, Cash App charges a 2.25 percent fee for Bitcoin purchases ranging from $10 to $100.
- Traditional brokers are another avenue for buying crypto. Online brokers enable you to purchase cryptocurrency while keeping your other assets within the same platform.
2. Set up and fund an account
Once you’ve chosen where to buy your coins, it’s time to create an account. Most online brokers and exchanges will require basic personal information for verification, such as your Social Security number and birth date.
After setting up your profile, you’ll need to fund your account by linking a payment method, such as a credit/debit card or bank account.
3. Select which crypto to purchase
After funding your account, it’s time to decide which cryptocurrency to buy. With thousands of options available, take the time to research and understand the coins you’re interested in.
Bitcoin and Ethereum are the two most popular choices. Bitcoin, the original cryptocurrency, boasts a market capitalization of nearly $1.15 trillion, while Ethereum, known for its smart contract feature, has a market cap of close to $296 billion.
Coins with larger market caps tend to be more stable, while smaller altcoins offer growth potential but come with higher volatility. Beginners may opt for well-known, liquid coins, while experienced investors may explore newer projects.
Regardless of your choice and experience level, remember that investing in crypto is highly speculative, so only invest money you’re willing to lose.
4. Choose a crypto wallet
A crypto wallet is essential for any crypto transactions. Some exchanges provide digital wallets for storing purchased coins, while others require an external wallet for offline storage.
Wallets within exchanges offer convenience and accessibility, while external wallets provide enhanced security and control.
Understanding the different wallet types is crucial for making an informed decision on where to store your crypto assets.
- Software wallet
- Software wallets, also known as hot wallets, allow you to manage and protect your crypto holdings using private keys through software on your desktop, browser extension, or mobile app connected to a blockchain for transactions.
- Hardware wallet
- Hardware wallets, or cold wallets, store private access keys offline on a USB drive or storage device. They are only connected to the internet for transactions, providing protection against electronic theft.
The choice of wallet depends on your security preferences and accessibility needs. For example, a wallet on your phone via an app like Robinhood may be more convenient than a USB drive. Ultimately, it’s a personal decision.
Is buying crypto a worthwhile investment?
The risks and volatility associated with investing in cryptocurrency cannot be overlooked. Crypto prices are driven by speculation and sentiment, lacking the backing of hard assets or cash flow. It’s crucial to only invest funds you are comfortable losing.
Crypto is a high-risk asset that comes with cybersecurity threats and regulatory hurdles.
Final thoughts
Prior to purchasing crypto, ensure your financial house is in order. Remember that any crypto investments should be part of a larger strategy, and prices are dictated by investor sentiment. When you’re prepared, head to a crypto exchange, peer-to-peer platform, or broker to make your purchases. Have your personal information and payment methods ready.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.