How to Invest in Cryptocurrency for Beginners?

    Tanya Sharma
    Tanya Sharma
    Published on February 04, 2023 11:44 AM

    Crypto investment is still one of the most often asked questions among new web3 GenZ. In this article, we will look at a step-by-step guide to crypto investments and learn about the best cryptocurrency to invest in in 2023.

    Crypto coins
    Source: Unsplash

    Cryptocurrency investment refers to the act of speculating on cryptocurrency price fluctuations through a contract for difference (CFD) trading account or buying and selling the underlying coins through an exchange. CFD trading is a sort of derivative that allows you to wager on changes in the price of Bitcoin (BTC) without owning the underlying currencies.

    Crypto has been extremely volatile since its inception, but this volatility might present opportunities for profit if you're looking to invest in Cryptocurrency. Bitcoin and Ethereum have increased dramatically since their inception, but are still significantly lower than their highs, as other popular digital currencies.

    For years, experienced investors have speculated on cryptocurrencies, but how can you get started if you're new to the crypto market? Here's how to get started investing in cryptocurrencies, as well as the major risks to be aware of.

    How to Invest in Cryptocurrency: Step-by-Step Guide

    Cryptocurrency is unknown to many investors who nevertheless want to jump on the bandwagon and invest. Crypto investment is not new to be introduced. In the past decade, crypto investment and crypto portfolio management became a new genre of passive income. As a result, here is a crypto investment guide to getting you started systematically.

    Step 1: Recognize and allocate the investment:

    An investor must comprehend the asset class and the need for investment in that asset class before making any investment. One must understand that the cryptocurrency industry is quite volatile.

    Therefore only a limited portion of the portfolio should be committed to such risky investment avenues.

    According to industry experts, an investor should not invest more than 5-10% of his or her portfolio in digital tokens. Investing in cryptocurrency is similar to investing in stocks, but not the same. Investors must understand that a cryptocurrency is a form of currency.

    Many cryptocurrencies that have entered the market in the last decade have either plateaued or vanished entirely. That means that every investment you make could result in a loss.

    Step 2: Know what you're investing in:

    Understand exactly what you're investing in, just like you would with any other investment. When purchasing stocks, it is critical to study the annual report and other SEC filings to thoroughly research the companies. 

    Plan to do the same with any cryptocurrencies, as there are practically thousands of them, each of which operates differently, and new ones are being generated daily. You must comprehend the investing rationale for each deal.

    Many cryptocurrencies are supported by nothing at all, neither physical assets nor monetary flow. This is the case with Bitcoin, where investors rely only on someone paying more for the asset than they bought for it.

    In other words, unlike stocks, where a company's income can expand and drive returns for you, many crypto assets require the market to become more enthusiastic and positive for you to profit.

    Ethereum, Dogecoin, Cardano, and XRP are among the most popular coins. So, before you invest, be sure you understand the potential upside and risk. If your financial investment is not backed by an asset or cash flow, it may be worthless.

    Step 3: Remember that the past is history:

    Many new investors make the mistake of looking at the past and projecting it to the future. Yes, Bitcoin was once worth pennies, but it is now worth much more. The essential question, though, is "Will that growth continue in the future, even if at a slower pace?"

    Investors are concerned with the future, not with what an asset has done in the past. What factors will influence future returns? Investors who purchase a cryptocurrency today require gains from tomorrow, not gains from yesterday.

    Step 4: Select the Buying Platform:

    Banks and investment firms do not purchase cryptocurrency. These digital tokens can only be obtained through specialized cryptocurrency exchanges. Everyone deals in the most popular cryptocurrencies, and you should anticipate paying a charge for purchasing and selling.

    One can purchase cryptocurrencies straight from an exchange or from another peer who is selling his or her current ownership. However, investors should be aware that bitcoin trading is completely anonymous.

    • Take note of the volatility

    Cryptocurrency prices are nearly as volatile as an asset can get. They might fall in seconds on nothing more than a rumor that turns out to be false.

    That can be beneficial for knowledgeable investors who can execute transactions quickly or have a strong understanding of the market's fundamentals, how the market is trending, and where it might go. It's a minefield for rookie investors who don't have this expertise - or the high-powered algorithms that direct these trades.

    Volatility is a game for high-powered Wall Street investors who are competing to outgun other wealthy investors. The volatility might quickly overwhelm a new investment.

    This is because volatility frightens investors, particularly newbies. Meanwhile, other investors may enter the market and purchase on the cheap. In short, volatility can assist professional investors in "buying low and selling high," while naïve investors in "buying high and selling low."

    • Take charge of your risk

    When trading any asset on a short-term basis, you must limit your risk, which is especially important with volatile assets like cryptocurrencies. As a beginning trader, you'll need to grasp how to manage risk and create a procedure to assist you to limit losses. And the process varies from person to person:

    A long-term investor's risk management strategy may simply be to never sell, regardless of price. The investor's long-term mindset permits him to continue with the investment.

    A short-term trader's risk management may consist of establishing rigorous standards for when to sell, such as when an investment has declined 10%. The trader then closely adheres to the rule so that a relatively minor fall does not turn into a crushing loss later.

    Newer investors can try saving aside a particular amount of trading money and then just use a fraction of it at first. If a position swings against them, they will still have money to trade with later.

    Step 5: Keep your cryptocurrency safe:

    Cryptocurrencies are kept in crypto wallets, which can be hot or cold. The hot wallets are online, but the cold wallets are not. It's a strange and complicated procedure. This wallet is not a physical wallet, but rather a software tool created specifically to hold cryptocurrency.

    It maintains the private and public keys that allow the user to connect to the blockchain, where one's bitcoins are stored. They do not store the cryptocurrencies themselves, but they do provide public and private keys that allow you to access cryptocurrencies on the blockchain. To complete the transaction, the user must have both. 

    They are referred to as "keys" because they are used to unlock the coins on the blockchain.

    Desktop wallets, online wallets, mobile wallets, and hardware wallets are various types of digital wallets. The wallet should be chosen depending on the balance of security and ease. Users can get digital wallets from some exchanges.

    • Don't put more money in than you can afford to lose:

    Finally, it is critical to avoid investing money that you require in speculative assets. If you can't afford to lose it all, you can't afford to invest it in hazardous assets like cryptocurrency or other speculative assets.

    Whether it's a down payment on a house or a significant forthcoming purchase, money that you'll need in the next few years should be saved in a safe account so that it's available when you need it. 

    If you want a guaranteed return, your best bet is to pay off your debt. Whatever interest rate you pay on your loan is sure to earn (or save) you money. You can't possibly lose there.

    Finally, don't underestimate the security of any exchange or broker you use. You may legally possess the assets, but someone must secure them, and their security must be strict. If they believe their cryptocurrency is not properly secured, some investors would invest in a crypto wallet to store their coins offline, making them unavailable to hackers or others.

    Step 6: Protect your cryptocurrency wallet:

    The security of your cryptocurrency is critical. It becomes more significant if you use cryptocurrency to buy items or have a hot wallet. So, once the crypto is live, one must ensure its security. To ensure private and encrypted online transactions, most consumers prefer to use a VPN (Virtually Private Network).

    Because of data encryption, no one can observe any of the users' online transactions. It is an additional layer of security that assures customers' data and cryptocurrency purchases are anonymous. It makes it more difficult for outsiders to hack into accounts, especially for individuals who have a large amount of cryptocurrency.

    Step 7: Hold and sell to maximize profits:

    With their fundamentals and the communities they serve, cryptocurrencies are a long-term bet. Their use is distinct and well exceeds the access we have so far. As a result, they should not be regarded as a get-rich-quick plan. Investors purchasing cryptocurrency should plan their investment horizon and book profits regularly.

    Also, the crypto market is still in its infancy in comparison to other investment options. As a result, fresh coins will enter the market, creating a buzz, and the euphoria will fade. As a result, investors should be wary of such swindler schemes. Profits should be booked on time.

    Best Crypto to Invest in 2023

    Experts predict that bitcoin will continue to lead the list of cryptocurrencies to invest in 2023. Analysts are bullish on cryptocurrency investing in 2023.

    Bitcoin has remained one of the top cryptocurrencies to buy in January 2023, despite market turbulence. Bitcoin, like many other cryptocurrencies, is based on blockchain technology, which records network transactions in a digital ledger.

    Bitcoin's price has fluctuated dramatically in recent years as a result of its popularity. Based on prior performance, experts believe that the cryptocurrency industry will maintain strong traction in 2023. Bitcoin has a market capitalization of 269 billion pounds.

    Ethereum: It is believed that investing in Ethereum is the finest financial decision for 2023. It is because Ethereum's value is stable and has increased significantly since 2021. As a result, Ethereum is regarded as the greatest option for individuals looking to capitalize on earnings and extend their collections through cryptocurrency shortly. Ethereum has a market capitalization of 127 billion pounds.

    Tether: According to numerous sources, Tether should be prioritized for investment. Tether is a stable cryptocurrency that aims to anchor its market value to an external reference. This cryptocurrency has value since it is supported by pounds, dollars, and euros. Tether has been a favorite among investors over other cryptocurrencies known for their volatility. Tether has a market capitalization of 55 billion pounds.

    US dollar coin: Like Tether, a US dollar coin is classified as a stablecoin. The currency is redeemed in a 1:1 ratio against dollars. This US dollar coin is subject to US regulations and is backed by dollar-designated assets with designated accounts. The US dollar coin is undoubtedly powered by Ethereum crypto and is hence used for global transactions. The market capitalization of the US dollar coin is worth 37 billion pounds.

    Binance Coin: Binance, the world's largest crypto exchange, can trade and make payments with Binance Coin. This cryptocurrency provides a discount on all transactions. This cryptocurrency was first made available for trading in 2017. It was eventually used for commerce, payments, and even ticket ticketing. Binance coin has a market capitalization of £34 billion.

    Other cryptocurrency investment Options

    While investing directly in cryptocurrencies is the most common method, investors have additional options, some of which are more direct than others. These are some examples:

    Crypto futures: 

    Futures are another option to bet on Bitcoin price movements, and futures allow you to employ leverage to earn large gains (or losses). Futures are a turbulent market that exacerbates the already volatile movements in cryptocurrency.

    Crypto funds: 

    There are a few crypto funds (such as the Grayscale Bitcoin Trust) that allow you to bet on price swings in Bitcoin, Ethereum, and a few other cryptocurrencies. As a result, they may be a convenient way to purchase cryptocurrency through a fund-like instrument.

    Stocks in cryptocurrency exchanges or brokers: 

    Purchasing stock in a company that is prepared to profit from the rise of cryptocurrencies regardless of the victor could also be an attractive alternative. That is the potential of an exchange like Coinbase or a broker like Robinhood, which earns a large portion of its revenue from crypto trading.

    Blockchain ETFs:

    A blockchain ETF allows you to invest in firms that stand to benefit from the rise of blockchain technology. The best blockchain ETFs provide exposure to some of the most important publicly traded businesses in the sector.

    However, it is vital to note that these companies frequently conduct much more than crypto-related activity, which means your exposure to bitcoin is diluted, lowering your potential gain and loss.

    Each of these techniques varies in terms of risk and exposure to bitcoin, so you should know exactly what you're getting and whether it meets your needs.

    Different Types of Cryptocurrency Investing

    Buying bitcoin directly is arguably the most common way to add crypto exposure to your portfolio, but there are a few different ways to invest in cryptocurrency:

    1. Purchase cryptocurrencies directly: You have the option to buy and store one or more cryptocurrencies directly. Your choices range from the most well-known digital currencies like Ethereum and Bitcoin to comparatively obscure coins that were recently issued in an ICO.

    2. Invest in a cryptocurrency Roth IRA: If you want to invest in cryptocurrency while still benefiting from the tax benefits of an individual retirement account (IRA), you might consider opening a bitcoin Roth IRA. The services of a crypto IRA provider also allow for more secure storage of crypto holdings.

    3. Invest in cryptocurrency-focused funds: You can choose to invest in cryptocurrency-focused funds such as exchange-traded funds (ETFs), index funds, and futures funds.

    4. Invest in cryptocurrency companies: You can invest in cryptocurrency mining companies, mining hardware manufacturers, and companies that support crypto with varied levels of crypto exposure, such as Robinhood Markets Inc. (HOOD) and PayPal Holdings Inc. (PYPL).

    5. Become a crypto miner: Mining cryptocurrency or acting as a validator in a crypto network is perhaps the most direct way to invest in it. Cryptocurrency miners and validators earn cryptocurrency rewards, which they can either keep or exchange for another currency.

    Is cryptocurrency a good Investment in 2023?

    1. When compared to traditional asset classes such as stocks, gold, and index funds, Bitcoin has outperformed the market over the last decade.

    2. For example, Bitcoin, Ethereum, Shiba Inu, and many other projects have earned increases of over a million percentage points since their initial public offering.

    3. Will the price of cryptocurrencies rise? There are no assurances of success since many cryptocurrencies fall short of expectations. Creating a diverse portfolio is the greatest approach to avoid this.

    4. Consider at least 10-15 initiatives from diverse niches, such as the metaverse, play-and-earn, move-to-earn, and DeFi.

    5. Another alternative is to diversify into high-quality, pre-vetted crypto presales. Meta Masters Guild (MEMAG) and Fight Out (FGHT) are two examples - more on this later.

    6. Investors should never risk more than they can really afford to lose in order to prevent financial hardship. This is the most important rule to remember when determining if bitcoin is a viable investment.

    What You Must Know Before Investing in Cryptocurrency?

    • One of the most difficult obstacles for investors when it comes to cryptocurrencies is not getting caught up in the excitement.

    • Take the time to study the many currencies available, as well as blockchain technology.

    • There are numerous primers on blockchain technology that are easily accessible to the layperson.

    • When selecting an investment, read the white paper for the project.

    After conducting the extensive study, you have most certainly established an understanding of the bitcoin sector and may have identified one or more projects in which to invest. The next stage is to decide when to make your investment. The world of digital currencies moves swiftly and is notoriously volatile.

    On the one hand, investing in a hot new currency before it explodes in popularity and value may motivate investors to follow suit. In reality, though, monitoring the market before making a move will increase your chances of success. Cryptocurrencies' prices tend to follow predictable patterns. Bitcoin frequently leads the pack of digital currencies, which tend to follow its overall trend.

    News of an exchange hack, fraud, or price manipulation can send shockwaves through the cryptocurrency community, so it's critical to keep an eye on what's going on in the market as a whole.

    Finally, keep in mind that digital currencies are extremely speculative. Many other investors have poured money into the virtual-token realm only to see it disappear for every sudden bitcoin millionaire. Investing in this sector entails taking a risk. Doing your research before investing gives you the best chance of success.

    Invest in Cryptocurrency with Safety

    Cryptocurrency is a highly speculative industry, and many wise investors have decided to invest elsewhere. However, the best advice for beginners who want to start investing in cryptocurrency is to start small and only use money that you can afford to lose. Before investing in cryptocurrencies or specific companies with a large stake in it, as with any investment, assess your investment goals and present financial circumstances. Cryptocurrency may be incredibly volatile - the price of a single tweet might cause it to fall – and it remains a highly speculative investment. This indicates you should invest with prudence and care.

    Because the cryptocurrency sector is rapidly growing, it's also critical to keep an eye out for new developments that may have an impact on your crypto holdings. Cryptocurrency investors must understand the tax implications of using cryptocurrency, particularly if they buy or sell their crypto investments.

    Cryptocurrency investing FAQs

    How much money do I require to begin investing in cryptocurrency?

    In theory, investing in cryptocurrency costs only a few bucks. Most cryptocurrency exchanges, for example, have a $5 or $10 minimum trade. Other cryptocurrency trading apps may have a lower minimum.

    However, it's vital to remember that if you're trading modest quantities of bitcoin, some trading platforms will take a large portion of your investment as a charge. As a result, it's critical to find a broker or exchange that charges the least amount of money. In truth, many ostensibly "free" brokers include fees, known as spread mark-ups, in the amount you pay for your cryptocurrency.

    How do I get started investing in Bitcoin?

    If you want to invest in Bitcoin, you have several options and can deal with a range of companies, including:

    Crypto exchanges: Exchanges have the most diverse variety of cryptocurrencies and the most competitive pricing. Coinbase, Kraken, and Binance are among the most prominent participants, but there are many more.

    Traditional brokers: Many traditional brokers, in addition to stocks and other financial assets, allow you to trade Bitcoin, though they have a relatively limited selection of other cryptocurrencies. Interactive Brokers, TradeStation, and tasty works are among the leading firms in this space.

    Financial apps: Many financial apps now allow you to trade Bitcoin and a few other cryptocurrencies. Top players in this space include Robinhood and Webull, as well as payment apps like PayPal, Venmo, and Cash App.

    Which cryptocurrency is best to invest in for beginners?

    Bitcoin (BTC) is a low-fee beginner cryptocurrency. Bitcoin needs no introduction, as it was the catalyst for the cryptocurrency revolution and has since become the best Proof-of-Work coin on the market.

    How do I start buying crypto?

    Here's how to purchase cryptocurrency via an exchange:

    1. Select the bitcoin exchange that you want to utilize.
    2. Create an account with a cryptocurrency exchange.
    3. Use fiat money to fund your account.
    4. Choose which coin you want to purchase.
    5. Place a buy order for the cryptocurrency of your choice.

    Which crypto wallet is best?

    Our Top Picks for February 2023's Best Crypto Wallets:

    1. Coinbase Wallet is the best wallet for beginners
    2. MetaMask is the best Ethereum wallet.
    3. TrustWallet is the best mobile wallet.
    4. The Ledger Nano S Plus is the best cryptocurrency hardware wallet.
    5. Electrum is the best desktop Bitcoin wallet available.
    6. BlueWallet is the best mobile Bitcoin wallet available.
    7. Exodus Recommended for Desktop.