How to Invest in Cryptocurrency
The cryptocurrency market has experienced explosive growth over the past decade, evolving from a niche investment to a global financial asset class. As of today, the total value of the cryptocurrency market is over $2.36 Trillion, with Bitcoin and other digital assets leading the charge. However, many potential investors are left wondering: is it too late to get in? Or is the market too volatile to be worth the risk?
Despite the fluctuations, the future of crypto continues to look promising, driven by increasing institutional adoption, blockchain innovations, and the rise of decentralized finance (DeFi). In this article, we’ll dive into the key aspects of how to invest in cryptocurrency, offering a step-by-step guide for those new to the world of digital assets. Whether you’re looking to diversify your portfolio or explore new investment opportunities, this guide will help you get started on the right foot.
The Meaning of Cryptocurrencies
Before jumping in conclusion and incorporating cryptocurrencies in your portfolio it is necessary to understand the meaning of crypto and how it functions. Cryptocurrencies, at their core, are digital or virtual currencies that use cryptography for security, making them nearly impossible to counterfeit or double-spend. Unlike traditional fiat currencies, which are issued and regulated by governments, cryptocurrencies operate on decentralized networks, typically based on blockchain technology. This means transactions are verified and recorded on a distributed ledger, making the system more transparent and resistant to manipulation.
There are currently over 20,000 cryptocurrencies in existence, but only a fraction of these have gained significant market share. Bitcoin, the first cryptocurrency launched in 2009 by an anonymous person (or group) under the pseudonym Satoshi Nakamoto, remains the most well-known and widely used. Following Bitcoin, other top cryptocurrencies include Ethereum (ETH), Binance Coin (BNB), Ripple (XRP), and Cardano (ADA).
Bitcoin’s creation marked a turning point in digital finance, as it introduced the concept of a decentralized peer-to-peer network. Since then, the cryptocurrency space has grown exponentially, evolving beyond simple transactions to include applications such as smart contracts, decentralized finance (DeFi), and non-fungible tokens (NFTs).
How to Invest in Cryptocurrency
If you are comfortable of being exposed to risks and ready to create a strategy that will keep your money safe, than there are several ways of including crypto in your portfolio:
Direct Crypto Purchases
One of the most straightforward methods is through direct crypto purchases.
Purchasing through PayPal
PayPal has made it easy for users to buy, sell, and hold cryptocurrencies directly from their platform. With just a few clicks, you can learn how to buy crypto on PayPal and invest in popular digital currencies like Bitcoin, Ethereum, and Litecoin without needing to set up a separate crypto wallet. Furthermore, this option is ideal for those already using PayPal and looking for a convenient entry point into the market.
Purchasing through Crypto Exchanges
Crypto exchanges like Coinbase, Binance, and Kraken offer a more robust and secure way to buy cryptocurrencies. These platforms provide access to a wide range of coins and tokens, as well as tools for trading, staking, and storing your assets. They also offer various features like educational resources and charts to help you make informed decisions.
Purchasing through Crypto ATMs
Crypto ATMs are physical machines that allow you to buy cryptocurrencies using cash or debit cards. These ATMs can be found in various locations globally and offer a quick, convenient way to invest in Bitcoin or other major cryptocurrencies. While their fees tend to be higher compared to exchanges, they are a simple solution for those who prefer in-person transactions.
Investing in Crypto ETPs or ETFs via Brokerage Platforms
If owning cryptocurrencies directly sounds a bit overwhelming, you can also use alternative methods to these digital assets by investing in funds like exchange-traded products (ETPs) or crypto-related exchange-traded funds (ETFs).
- Crypto ETPs give you a glimpse over the possibility of owning cryptocurrencies, as they allow you to track the value of a cryptocurrency without actually owning the coin. This opportunity is perfect for investors who are not willing to struggle with the complexity of crypto trading and the potential security risks. ETPs can be traded via traditional brokerage accounts or retirement vehicles like IRAs, making tax and estate planning easier compared to holding cryptocurrency directly.
However, ETPs have a couple of limitations, as they can be traded during traditional market hours, making it impossible for investors to react to the price fluctuations during weekends or non working hours. Another potential obstacle is the liquidity issue, which means that if these assets don’t gain a worldwide adoption, it might lead to financial losses. - Crypto-related ETFs represent another form of investment. There are two types: stock-based ETFs and futures-based ETFs, focusing on a different time frame. Stock-based ETFs give you exposure to companies that operate into the crypto world, such as mining firms of crypto exchanges, and ETFs focus on future agreements of specific cryptocurrencies or a basket of digital assets. Compared to the actual coins, these assets offer less fluctuations, making them a perfect asset for investors who are averse to risk, but want to be part of the crypto market.
Same as ETPs, they do not provide ownership over a certain cryptocurrency, so using them payments is not an option. Since they consist of multiple assets, the potential for gains is much lower than actually owning the cryptocurrency. As these assets offer less exposure to the volatility market they are perfect assets for less experienced investors.
Purchasing Crypto Stocks
Crypto stocks refer to shares of companies that are directly involved in the cryptocurrency industry, such as businesses developing blockchain technology, mining cryptocurrencies, or operating crypto exchanges. Examples include companies like Coinbase, a leading crypto exchange, or Marathon Digital Holdings, which focuses on crypto mining. By purchasing these stocks, investors can gain exposure to the crypto market without directly buying digital currencies. This approach offers a more traditional investment route while still benefiting from the growth of the cryptocurrency space.
To purchase crypto stocks, you can use any standard stock brokerage platform, such as Robinhood, E*TRADE, or Fidelity. Simply search for the stock ticker of the company you’re interested in, place an order, and add it to your portfolio. Investing in crypto stocks is often seen as less risky compared to direct crypto purchases since you’re investing in companies with business models beyond just cryptocurrency, adding a layer of diversification.
Holding Crypto or ETPs in Retirement Accounts
In recent years, some retirement accounts, such as self-directed IRAs or 401(k) plans, have begun offering the option to include cryptocurrencies or exchange-traded products (ETPs) linked to crypto. These ETPs track the price of cryptocurrencies like Bitcoin or Ethereum, allowing investors to gain exposure to the crypto market without directly holding the digital assets. Investing in crypto through retirement accounts offers potential long-term growth and diversification, though it comes with significant risks due to the volatility of the crypto market. If you’re interested in this option, it’s crucial to consult with a financial advisor to ensure it aligns with your retirement goals and risk tolerance.
Why Should You Invest in Crypto
Investing in cryptocurrency offers the potential for high returns and diversification beyond traditional assets like stocks and bonds, making it an attractive option for those willing to embrace its volatility.
With increasing institutional adoption and innovations in blockchain technology, cryptocurrencies are becoming more integrated into the global financial system. Whether through direct purchases, ETFs, crypto stocks, or retirement accounts, investors have multiple ways to gain exposure to the crypto market. However, it’s important to thoroughly research and understand the risks before diving in. For those who believe in the long-term potential of decentralized finance and blockchain, cryptocurrency can be a valuable addition to a diversified portfolio.
