The cryptocurrency sector is supported in various ways. Developers build, VC firms jumpstart projects, and users buy or invest. This symbiotic relationship enables the entire sector to synergize and work towards commonly-established goals. As long as all three parties work together, the market’s long-term development is sustained.
In 2021, cryptocurrencies can completely replace banks. However, most invest in digital currencies for speculative reasons - which is no wonder considering that they have outperformed every other asset class in the last decade. Every journey starts with learning how blockchain technology works, and after that, users become interested in how to invest in cryptocurrency.
Cryptocurrencies are much like the stock market; the core difference is that crypto is vastly more accessible. Not to mention, it is possible to avoid any intermediaries. This rings true, especially now that decentralized exchanges are used massively.
To summarize, there are two main reasons to own cryptocurrency:
Interact with and use decentralized financial instruments (loans, yield products, savings, derivatives, etc.)
Gain high return-on-investment (ROE) during highly volatile bull runs.
Both options require the user to actually own cryptocurrency in order to use decentralized applications (dApp). On that account, let us dive deeper into how to invest in cryptocurrency.
How to Invest in Cryptocurrency - A Step-by-Step Guide
Buying cryptocurrencies is relatively simple. Most steps boil down to registering accounts and depositing money on an exchange. However, the bulk of work is done when conducting research and selecting a cryptocurrency to invest in. In this simple guide, we will cover six steps needed to invest, and we will show how to complete them.
1. Understand How Cryptocurrency Works
We could not possibly show you how to buy crypto, or recommend you to do it without stating that, understanding how digital works is an important prerequisite. Many skip this step, but that does not mean that you should too. Knowing how crypto, specifically blockchain technology, works not only helps you become an expert but also assists you when researching potential investments.
Naturally, we recommend using the Shrimpy Academy for the easiest and fastest way to learn more about cryptocurrencies. Start by reading the following articles:
After completing the aforementioned articles, either continue with the next step or cement your knowledge by exploring DeFi, reading more advanced blockchain topics, and by reading articles from the Trading category.
2. Do Your Own Research (DYOR)
Do Your Own Research, known as DYOR, is a crypto maxim used to emphasize the importance of research. The pen is mightier than the sword, and in the blockchain industry, knowledge is definitely an asset worth more than most assets. To read more on the origins, history, and meaning of DYOR, we recommend reading the relevant article.
In summary, DYOR means acquiring knowledge, understanding, comprehension, and information about a cryptocurrency, platform, team, mechanism, or blockchain feature. This alone can save you from pain and losing time, as it is best to trust yourself and your own judgment. By relying on what others tell you, it is only possible to endanger yourself and put you at risk.
The level of your DYOR skillset can go as low as learning basic blockchain concepts or as high as mastering technical and fundamental analysis. The choice is yours, but be aware that research alone helps you tremendously, by far more than anything else in the market.
3. Choose a Cryptocurrency
The next step in investing in cryptocurrencies is, of course, choosing a cryptocurrency. Data from CoinMarketCap shows that more than 5,000 coins and tokens currently exist. There are perhaps at least a thousand more given that CMC and CoinGecko do not automatically track all new listings in DeFi.
It may be overwhelming to pick from thousands of options, especially when new to the market. In fact, psychologists have even classified a form of disturbance when overthinking a decision to the point of becoming ‘paralyzed’ and coined it as ‘analysis paralysis.’ The truth is that, in practice, investors decide from 100 cryptocurrencies at best. The number is lowered to 10 if one really wishes to invest in the safest options.
For example, Bitcoin may be volatile, but the risks of a collapse, network failure, or rugpull are close to zero. The risk, is from that perspective, limited to market movements and the amount of power owned by bullish or bearish investors.
Aside from Bitcoin, other notable investment options include Ethereum, Litecoin, and Ripple. Per CMC’s data, the top 10 assets based upon market capitalization (excluding stablecoins) are:
At times, projects leave the top spots of the leaderboard as soon as they enter it. However, the assets mentioned before the list (including Bitcoin,) stay within that sector without any major ranking disturbances.
Again, we recommend reaching the final decision by employing DYOR strategies.
4. Find a Reputable Exchange
As of 2021, banks do not yet offer cryptocurrencies. Investing in digital assets must be done through companies outside of the legacy world, which are usually cryptocurrency exchanges. While certain stock trading apps, payment networks, and prepaid debit card apps do offer cryptocurrencies, it is generally recommended to go the extra mile and register an account at a reputable exchange instead.
After finding a reputable exchange, it is time to register an account and file KYC documentation. While registration entails inputting an email and password, the KYC procedure entails confirming your identity by providing the relevant ID documentation. KYC is often optional but not confirming your identity limits you to lower withdrawal rates.
5. Deposit Fiat
Now that you have an account, we recommend depositing fiat money. Exchanges accept the following payment methods:
Direct crypto deposit
All methods vary by their fees and processing time. Wire transfers are the cheapest option but also take the longest. Debit card purchases are near-instant but charge 4% fees on average. Last but not least, PayPal purchases are instant but charge higher fees than credit cards.
Up next, find the relevant trading pair for your chosen cryptocurrency and open a position by executing a market order to buy instantly, or by setting a limit order to buy the asset in question once the desired price is reached.
6. Store Your Cryptocurrency Safely
At this point, you have successfully bought your first cryptocurrency! The next step is to store them safely and withdraw them to a hot wallet or cold wallet. Exchange wallets are also suitable as companies tend to insure user assets, but we still recommend having complete control over your assets. Remember, not your keys, not your wallet!
Initiate the step by heading over to the exchange’s withdrawal and deposit section. There, insert the wallet address of your dedicated desktop, mobile, or hardware wallet and confirm the withdrawal. Depending on network congestion, it may take anywhere from 10 to 30 minutes for the transaction to be approved.
That is it! At this point, you have done everything possible to obtain crypto and maximize your security and comfort. The only remaining step is to lay back and observe the market.
Cryptocurrency might appear intimidating at first, but by slowly taking each step, you will find out that investing in digital assets is easier than it looks. Although there are a few technical steps here and there, the overall process is straightforward and has even been simplified in recent years.
If you need help with figuring out how to invest once creating an exchange account, we once again recommend reading our exchange reviews to learn how each trading platform works. If that is not enough, you can visit the exchange’s website to find official documentation explaining each step of the way.
To find out how to invest in specific cryptocurrencies feel free to read the following guides:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.