Crypto Investing 101: Beginner’s Full Guide

Crypto Investing 101: A Comprehensive Guide for Beginners

So you want to get started investing? You have a bit of money saved up, and maybe you’ve heard about Bitcoin a few times. It sounds pretty damn interesting, right? Maybe you even read that someone made a million bucks by investing in Dogecoin. Of course, those people who made it big on Bitcoin bought it 10 years ago. Fun fact for you, by the way: a thousand dollars invested into Bitcoin exactly 10 years ago would be worth around three hundred thousand dollars right now.

Not too bad, right? But if you’re new to investing in crypto, even simple tasks like buying your first Bitcoin can seem like a huge deal. Plus, there will always be that little voice in the back of your head saying, “Well, what if I lose all my money?” In this article, we’re going to answer some of these questions, explain the basics of investing in crypto, and provide the information you need to know when you’re getting started as an investor.

Why Invest in Crypto?

There are many reasons why people want to invest, specifically in cryptocurrency. The first and obvious reason is that crypto is a highly volatile but also a high-growth, high-return industry. Let’s be real, people come to crypto to make big money, and ideally, to make it fast. Secondly, people are waking up to the reality that they cannot trust the traditional financial system anymore. Retirement is looking less and less likely for an increasing number of people, and the value of money over time is falling, often dramatically.

So, if you hold cash, you’re guaranteed to lose. You need to invest to stay ahead. It’s almost not even a choice anymore. And there are many things you can invest in, such as rare art, watches, real estate, stocks, bonds, and, of course, Bitcoin and cryptocurrencies. At the end of the day, you want to make an investment into something that you think is going to beat inflation and put some nice money into your pockets.

How Much Do I Need to Get Started?

The answer to this question is that you can start with any amount when investing in crypto. You don’t need a million dollars. You can start with $100, and that’s perfectly fine. The key here is to go slow and learn about this asset class before putting in any big sums of money. The temptation to go all in as soon as you can is strong with crypto, but it should be resisted. You need to take your time.

As for how much to invest in crypto as a total dollar sum, that really comes down to you and your personal finances. The size of your portfolio and your risk tolerance will determine how much exposure you should have to crypto. The golden rule to remember is to never invest more than you can afford to lose. If you woke up tomorrow and your wallet had been hacked, would you be okay? If the answer is no, then you’re investing too much.

How Often Should I Buy Crypto?

For many investors, a nice passive approach to investing is probably going to work best. You can set up an auto-buy for a certain amount of Bitcoin every week or month, rain or shine. This strategy is called dollar-cost averaging, and it’s a great way to invest for the long term. However, if you have a bigger sum that you want to invest and you want to do it fast, when should you make that big purchase? The ideal time is when markets are low, when asset prices are significantly down and fear is high.

Everyone is saying that crypto is done for, it’s a scam, and it’s going to zero. You can also look for oversold readings on key technical indicators, such as the RSI, to try and find good entry points. Conversely, you do not want to buy at new all-time highs when prices have just pumped by hundreds or sometimes thousands of percent. That’s a dangerous time to buy. When greed is high, it’s a time of danger. The media is talking about crypto as the new paradigm of money. It’s the worst time to buy, the highest risk time, and the lowest reward potential time.

How Much of My Portfolio Should Go Into Crypto?

Again, everyone needs to answer this question for themselves. There is no set percentage that applies to everyone. However, studies have shown that just 1% of your total portfolio in Bitcoin can actually see you dramatically outperform traditional 60/40 stock-bond portfolios. Some investors, especially younger ones looking to make it big, go 100% into crypto. It’s seen by many as the best way to create wealth quickly.

Personally, I like to diversify profits out of crypto into things like stocks and metals. The key thing to keep in mind with crypto is that it is risky and volatile. Putting too much money into crypto exposes you to bigger risks, but having zero exposure could see you underperform massively compared to those who own it.

Understanding Crypto: Bitcoin, Ethereum, and Altcoins

It’s important to understand what crypto actually is before diving into the world of investing. Crypto is magic internet money. It’s not physical assets like art or a house. These are intangible assets that you can’t touch. Crypto assets don’t give you ownership over the protocols. They are not stocks. Owning a stock gives you certain legal rights, but owning a crypto asset does not. The way crypto assets are treated for tax purposes often varies from how traditional assets are treated. One thing to never forget is that the taxman will want to be paid.

Bitcoin is the OG crypto. It’s the most widely adopted and recognized crypto in the world. Bitcoin is like digital gold. It’s the simplest way to understand it. If you’re a casual investor who just wants to dabble and get some exposure to crypto, you can just buy Bitcoin and keep it simple. Bitcoin leads the crypto markets and is widely considered safe. However, the returns may not be as big as with other cryptocurrencies.

Ethereum is the second-largest cryptocurrency in the world. Some people argue that it should be number one. Buying and owning Ethereum gives you exposure to everything built on top of Ethereum. It’s like a value sync for all the protocols and tokens built on top of it. Ethereum has a burning mechanism built in, which decreases the supply of Ethereum in the long term. You can also stake Ethereum to earn yearly returns.

When it comes to altcoins, they can be a real money-maker in crypto. Altcoins are all coins except Bitcoin and Ethereum. They broadly break down into three categories: big caps, mid caps, and small caps. Big caps are considered safer but may have smaller returns. Mid caps range from the top 20 to the top 200 or 300 by market cap. Small caps are usually altcoins with a market cap under $100 million. Investing in altcoins can be riskier but potentially more rewarding. However, it’s important to do your research and look for coins with strong use cases, good teams, and solid backers.

How to Buy Crypto

Assuming you’re not going the brokerage route and buying a Bitcoin ETF or an Ethereum ETF, you’ll need to open a cryptocurrency exchange account. My recommendations are Kraken for those based in the USA and Canada, and Binance for everyone else in the world. Once you’ve completed the KYC process and funded your account, you can start buying coins. The process is similar to buying stocks on a brokerage platform.

You find the coin you want to buy, enter the amount, and click the buy button. The big difference is that you can easily withdraw your coins from the exchange and put them into your own wallet. It’s important to remember that cryptocurrency exchanges are not banks or stock brokerages. They are marketplaces for digital assets. It’s recommended to download a software wallet or buy a hardware wallet to have full control over your crypto.

How to Make Money with Crypto

There are three key ways to make money with crypto. The first is by selling your coins. Buy low and sell high. This involves learning key skills like understanding market cycles, sentiment, and technical analysis. The second way is by buying and staking coins like Ethereum or Cardano. This can provide a steady stream of passive income, but timing your buys is crucial. The third way is through DeFi (Decentralized Finance). You can put your money to work on chain and earn fees for providing liquidity or participating in other DeFi protocols. However, it’s important to be aware of the risks involved in DeFi, such as hacks.

Conclusion

Investing in crypto can be a thrilling and potentially lucrative endeavour. However, it’s important to approach it with caution and do your research. Start with a small amount and learn about the asset class before investing larger sums of money. Diversify your portfolio and take profits when you’re sitting on big gains. Understand the different types of crypto and their use cases. Choose a reputable cryptocurrency exchange and secure your coins in a wallet that you control. And most importantly, never invest more than you can afford to lose. With the right knowledge and strategy, investing in crypto can be a rewarding experience. Good luck!

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