How To Invest in Cryptocurrency: Key Tips for New Investors

If you’re curious about how to invest in cryptocurrency, you’re not alone. The process might seem complicated at first, but getting started is easier than you think. You don’t need technical expertise or special equipment — just a solid understanding of your options and a few smart steps. Here’s a straightforward guide to help you begin investing in crypto with confidence.

Quick Take: What Is Cryptocurrency?

Cryptocurrency is a type of digital asset created as a peer-to-peer payment system. Transactions are secured by blockchain technology.

Today, crypto is widely viewed as an investment — especially coins like Bitcoin.

You can buy cryptocurrency through online exchanges and store it in a digital wallet.

How To Invest In Cryptocurrency: 6-Step Guide

The easiest way to get started is through a crypto exchange. Here’s how to invest in cryptocurrency in six straightforward steps:

1. Choose an Exchange
   • Look for large, reputable exchanges with strong security protocols. Among the most popular are Coinbase, Kraken and Gemini.
2. Create an Account
   • Signing up is simple and free, but exchanges can charge various fees, so do your research before you join. 
3. Fund Your Account
   • Once you create an account with an exchange, follow the exchange’s prompts to fund your account. This usually involves connecting your bank account and transferring over cash.
4. Select Your Crypto
   • Choose your coin along with how much you want to buy.
5. Place Your Trade
   • Confirm the transaction and your chosen crypto will be added to your wallet.
6. Secure Your Investment
   • Consider transferring your crypto to a secure wallet for safekeeping.

Good To Know

Before you buy crypto, check for hidden fees:

• Platforms like Coinbase often charge higher fees for basic transactions.
• Using Coinbase Advanced or similar options can help you save on fees.
• Avoid credit card purchases — they usually come with an extra 3% to 5% fee.

Types of Cryptocurrency

There are many types of cryptocurrency you can invest in. Here are a few different types of crypto and some popular coins to consider:

Is Cryptocurrency a Good Investment? Key Reasons To Consider

Investors may consider adding crypto to their investment portfolio for a few reasons:

• Outsized returns. Crypto is volatile, but has been known to jump in value quickly. Adding crypto to your portfolio offers the potential for large returns in a short amount of time.
• Diversification. Cryptocurrency is an alternative asset that can add some diversification to your investment portfolio. Adding a small percentage of crypto to your overall investment plan helps broaden your asset classes and can help your portfolio grow.
• Increasing adoption and use cases. Crypto is only getting bigger. Bitcoin is now worth over $1 trillion and many other cryptocurrencies are being used in real life more than ever.

Risks of Cryptocurrency

Investing in crypto is risky — plain and simple. With massive scams, huge price drops and volatile prices — adding crypto to your investments is not for the faint of heart.

Here are a few risks of investing in crypto to consider:

• Volatility and market fluctuations:
  • Crypto price swings are worse than most other speculative assets.
  • Even the largest cryptocurrency faces these swings — Bitcoin has dropped in price by 50% or more in recent years.
  • Some crypto can quickly lose 90% of its value in days, or worse, become completely worthless.
• Regulatory and security concerns:
  • Cryptocurrency regulation is fuzzy.
  • Knowing how it will be treated as an investment seems to constantly be politicized.
  • Some cryptocurrencies are in legal battles with the U.S. government, while others have ended up being fraudulent and lost value.
• Risk of hacking or scams:
  • Smaller crypto projects aren’t as widely supported and have higher risks of being hacked.
  • Other projects are designed as a scam to get investors to purchase coins at a high price. Once the price is high enough, the creator of the crypto sells off their portion. This causes the value to fall drastically and investors lose money.

How To Choose the Right Cryptocurrency To Invest In

Choosing the right cryptocurrency takes research. Start by defining your investment goals and understanding how crypto fits into your strategy. Then, consider the following three factors:

1. Market Capitalization and Liquidity

• Cryptocurrencies with a larger market cap are usually well established and less likely to disappear overnight.
• Liquidity is the measure of how much the crypto is actively traded and available.
• High liquidity means you’re less likely to lose money to excess fees, and you can sell your crypto when needed.

2. Technology and Use Cases

• Cryptocurrency that has real-world applications and use cases has a better chance at long-term growth.
• It’s good to research platforms that offer new technology and solutions to real-world problems.

3. Team and Community

• Transparent, public-facing teams inspire confidence.
• Active online communities and clear roadmaps suggest strong future growth.

Popular Cryptos To Consider

Here are some of the most well-known and widely used cryptocurrencies that many investors add to their portfolios.

Bitcoin

• Largest and most reliable crypto investment.
• Backed by institutional support and government interest.
• Spot ETFs make it easier than ever to invest.
• Widely accepted and recognized.

Ethereum

• Second-largest by market cap.
• Known for enabling smart contracts and decentralized apps.
• A popular choice for long-term crypto investors.

Altcoins

• XRP: Fast, low-cost international payments.
• Cardano (ADA): Research-driven blockchain with scalability goals.
• Solana (SOL): High-performance chain known for fast transfers.

Best Ways To Start Investing In Cryptocurrency Today

You don’t need a digital wallet and technical know-how to invest in crypto. There are many different ways to get exposure to this asset class:

• Trading cryptocurrency on exchanges. Crypto exchanges allow you to create an account, transfer money from your bank and purchase different cryptocurrencies. Crypto exchanges function similarly to a traditional brokerage account — with the ability to actively trade crypto or buy and hold your favorites as a long-term investor.
• Staking or earning rewards through proof-of-stake coins. If you’re a fan of passive income, crypto staking might be a great way to invest. Staking is the process of locking away your crypto coins for a set amount of time in return for earning interest. Some coins pay up to 12% APY or more.
• Investing in crypto-related stocks or ETFs. There are now ETFs that are backed by cryptocurrency such as Bitcoin and Ethereum. You can also invest in companies that mine Bitcoin or act as Bitcoin holding companies — such as Strategy. 

Setting Up a Cryptocurrency Wallet

You must have a crypto wallet to purchase certain coins, but they don’t actually store your cryptocurrencies the way a physical wallet holds money.

What Is a Crypto Wallet?

• Crypto wallets don’t store coins, they store private keys — passwords that give you access to your crypto on the blockchain.
• If you lose your private key, you lose your crypto. No do-overs.

Software Wallets (Hot Wallets)

• Accessed through apps or web browsers, such as Coinbase Wallet or MetaMask.
• Free and easy to set up.
• Convenient, but less secure — they’re only as safe as your internet connection.

Hardware Wallets (Cold Storage)

• Physical devices that store your private keys offline.
• Highly secure — nearly unhackable.
• Less convenient and usually costs money.
• Considered the industry gold standard.

Pro Tip

Always check that your exchange supports the wallet you choose, and secure your private keys — if someone gets them, they can access and empty your wallet.

Garrett Baldwin, Elizabeth Constantineau and Andrew Lisa contributed to the reporting for this article.