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How to Invest in Cryptocurrency

Published on
June 22, 2022

How to Invest in Cryptocurrency

Cryptocurrency is supported in a variety of ways. Developers create, venture capital firms fund projects, and users buy or invest. This symbiotic relationship allows the entire industry to collaborate and strive toward similar goals. It may sustain the market's long-term development if all three parties work together.

Cryptocurrencies may be able to replace banks by 2021. On the other hand, most people invest in digital currencies for speculative purposes, which is understandable given how they have outperformed every other asset class over the last decade. Every journey begins with a basic understanding of blockchain technology, followed by an interest in learning how to invest in cryptocurrency.

Cryptocurrencies are similar to the stock market, except that crypto is considerably more accessible. Not to mention the fact that any intermediaries can be avoided. This is especially true now that decentralized exchanges are widely used.

There are two primary motivations for owning cryptocurrency:

  • Use decentralized financial instruments and interact with them (loans, yield products, savings, derivatives, etc.)
  • Obtain a high return on investment (ROI) rate during extremely turbulent bull markets.

Both solutions require the user to own cryptocurrency (dApp) to use decentralized applications. Let's take a closer look at how to invest in cryptocurrency.

A Step-by-Step Guide to Investing in Cryptocurrency

Purchasing cryptocurrencies is a simple process. The majority of the stages consist of creating accounts and depositing funds on an exchange. However, most of the labor is done when completing research and choosing a cryptocurrency to invest in. We'll go over the six steps you'll need to invest in this simple guide, and we'll show you how to do it.

1. Understand How Cryptocurrency Works

We couldn't reasonably show you how to acquire crypto or advise you to do so without first emphasizing the need to understand how digital currency works. Many people skip this step, but that doesn't mean you should as well. They know how crypto, primarily blockchain technology, works will not only help you become an expert but will also aid you in your investing research.

2. Do Your Research (DYOR)

DYOR, or Do Your Research, is a crypto motto that emphasizes the significance of the research. The pen is additionally more powerful than the sword, and information is undoubtedly an asset worth more than most assets in the blockchain sector. We recommend reading the related article for more information on the origins, history, and meaning of DYOR.

In a nutshell, DYOR refers to learning, comprehending, and learning about a cryptocurrency, platform, team, method, or blockchain feature. This alone can prevent you from suffering and wasting time, as it is essential to trust your judgment. You can only jeopardize yourself and put yourself in danger if you rely on what others say.

Your DYOR skill set might range from learning fundamental blockchain principles to mastering technical and fundamental analyses. Your choice is yours, but keep in mind that research will aid you considerably more than anything else on the market.

3. Choose a Cryptocurrency

Choosing a cryptocurrency is, of course, the next stage in investing in cryptocurrencies. According to CoinMarketCap, over 5,000 currencies and tokens are presently in circulation. CMC and CoinGecko do not automatically follow all new listings in DeFi, so there could be at least a thousand more.

Choosing from thousands of possibilities might be overwhelming, especially if you're new to the market. Psychologists have developed the term 'analysis paralysis' to describe a type of disruption that occurs when a person overthinks a decision to become 'paralyzed.' In reality, investors choose from a pool of 100 cryptocurrencies at most. If one truly wants to invest in the safest possibilities, the number is reduced to ten.

Bitcoin, for example, is volatile, but the risks of a crash, network failure, or rug pull are almost non-existent. From that perspective, the risk is limited to market fluctuations and the amount of power held by bullish or bearish investors.

Other significant investment choices include Ethereum, Litecoin, Ripple, and Bitcoin. According to CMC's data, the top 5 assets (excluding stablecoins) by market capitalization are:

Projects sometimes leave the top of the leaderboard as quickly as they enter it. However, the assets indicated before the list (including Bitcoin) remain within that sector without causing any significant ranking shifts.

Again, we propose using DYOR techniques to arrive at a final decision.

4. Find a Reputable Exchange

Banks do not currently provide cryptocurrencies as of 2021. Investing in digital assets must be accomplished through organizations that are not part of the traditional financial system, such as cryptocurrency exchanges. While some stock trading apps, payment networks, and prepaid debit card apps support cryptocurrencies, it is generally advised to go the extra mile and open an account with a reputable exchange.

It's time to open an account and submit KYC documentation when you've found a reliable exchange. While registration includes providing an email address and a password, the KYC method entails proving your identity by submitting the necessary identification documents. Although KYC is frequently optional, not verifying your identity will lower withdrawal rates.

5. Make a Fiat deposit

We recommend depositing fiat money now that you have an account. Exchanges accept the following payment options:

  • Wire transfers
  • Debit/Credit card
  • PayPal
  • Direct crypto deposit

The fees and processing times for each method differ. Wire transfers are the cheapest but also the most time-consuming alternative. Debit card purchases are very instantaneous, but they come with a 4% fee on average. Finally, PayPal purchases are fast, although they have higher costs than credit cards.

Next, locate the appropriate trading pair for your selected cryptocurrency and start a position by placing a market order to purchase the asset immediately or by placing a limit order to buy the asset after the target price is reached.

6. Safely Store Your Cryptocurrency

You've now successfully purchased your first cryptocurrency! The next step is to carefully store them and withdraw them to either a hot or cold wallet. Although exchange wallets are ideal since corporations ensure user assets, we encourage complete control over your assets. Remember, it's not your keys or your wallet you're looking for!

Go to the withdrawal and deposit area of the exchange to begin the process. Insert the wallet address of your desktop, mobile, or hardware wallet there, then confirm the withdrawal. Depending on network congestion, the transaction could take 10 to 30 minutes to be approved.

That concludes the discussion. You've done everything you can to get crypto and maximize your security and comfort at this point. The only thing left to do now is to watch the market.

Final Thoughts

Cryptocurrency may appear scary at first, but by taking small steps at a time, you will discover that investing in digital assets is far less complicated than it seems. The primary process is simple and has even been simplified in recent years, despite a few technical hurdles here and there.

If you need help figuring out how to invest once you've set up an exchange account, we recommend reading our exchange evaluations to understand better how each trading platform works. If that isn't enough, you can access official documents outlining each step of the process on the exchange's website.