Investing in Cryptocurrency 2022: How to Invest in Cryptocurrency Guide for Beginners
All you need to know about cryptocurrency investing
Cryptocurrency has moved into the mainstream as an investment asset class and vehicle.
If you’re looking to add some to your investment portfolio, it may be difficult to figure out how to get started in Cryptocurrency Investing. Crypto is currently unregulated, and investing in it can feel more Wild West than Wall Street.
There are thousands of different cryptocurrencies, but experts say you should take a hard pass on most of them. Crypto values fluctuate by the hour, and this can be especially true for lesser-known coins.
Even more established cryptocurrencies like Ethereum and Bitcoin experience their share of volatility, but at least have a greater record of increasing in value over time.
Digital currencies are making all the headlines right now, with some analysts predicting the price of bitcoin could hit $100,000 in 2022.
Investors worldwide have invested and are starting to invest in cryptocurrency. While Bitcoin is likely the best-known digital money, thousands of cryptocurrencies already exist.
Cryptocurrency can be considered as one of the newest and most exciting asset classes that are available to investors.
- Cryptocurrency is digital money that is secured by blockchain technology.
- Cryptocurrency investing can take many forms, ranging from buying cryptocurrency directly to investing in crypto funds and companies.
- You can buy cryptocurrency using a crypto exchange or through certain broker-dealers.
- Investing in cryptocurrency is risky, so it’s important to not invest more money than you can afford to lose.
Understanding Cryptocurrency Investing
When you think of investing in cryptocurrency, you might think about buying and holding one or more crypto coins.
Buying cryptocurrency directly is probably the most common way to add crypto exposure to your portfolio, but when it comes to investing in cryptocurrency, you have a few different options:
- Buy cryptocurrency directly: You can choose to directly purchase and store one or more cryptocurrencies. Your options range from the most established digital currencies like Ethereum and Bitcoin to virtually unknown coins that are newly released in an initial coin offering (ICO).
- Invest in cryptocurrency companies: You can invest in companies with a partial or total focus on cryptocurrency. Your options include cryptocurrency mining companies, mining hardware makers, companies like Robinhood Markets, Inc. (HOOD) and PayPal Holdings, Inc. (PYPL) that support cryptocurrency, and many others with varying levels of crypto exposure. You can also Invest in Trusted Cryptocurrency Investment Companies like Bitcoininvestmentrex.com and enjoy the benefits of easy and safe cryptocurrency investment plans with effective Cryptocurrency Investment Strategies.
- Invest in cryptocurrency-focused funds: If you don’t want to choose among individual cryptocurrency companies, then you can decide to invest in a cryptocurrency-focused fund instead. You have a choice of exchange-traded funds (ETFs), such as index funds and futures funds, in addition to a range of cryptocurrency investment trusts. Some crypto-focused funds invest in cryptocurrency directly, while others invest in crypto-focused companies or derivative securities like futures contracts.
- Invest in a cryptocurrency IRA: If you want to invest in cryptocurrency and at the same time garner the tax advantages afforded by an individual retirement account (IRA), then you can consider investing in a cryptocurrency IRA. Using the services of a crypto IRA provider can also facilitate more secure storage for your cryptocurrency holdings.
- Become a crypto miner or validator: Perhaps the most direct way to invest in cryptocurrency is to mine it or act as a validator in a crypto network. Cryptocurrency miners and validators earn rewards in crypto, which they can either hold as investments or exchange for another currency.
How Cryptocurrency Investing Works
If you want to invest in cryptocurrency directly, then you can use a Trusted Cryptocurrency Investment Platform. Here’s how to invest in cryptocurrency through a Cryptocurrency Investment Company Bitcoininvestmentrex.com:
- Choose which cryptocurrency investment company you want to use. Your best bet is a reputable, well-known platform with a good selection of currencies.
- Establish an account with the cryptocurrency investment company. You will not need to provide your personal information and verify your identity to complete the registration process as it doesn’t implement a strong KYC since its centered on DEFI. .
- Fund your bitcoin wallet with fiat money. Before you can invest any crypto, you need to fund your bitcoin wallet with another currency such as U.S. dollars.
- Decide which cryptocurrency investment plan you want to buy. You can choose to invest in one or many cryptocurrency investment plans. Research your options to help you decide.
- Place a deposit order for your chosen cryptocurrency investment plan. Follow the steps required by the cryptocurrency investment platform to submit and complete a deposit order for one or more cryptocurrency Investment plans.
- Confirm your receiving bitcoin address to cashout your profit and investment capital at maturity of your crypto investment plan
- Store your cryptocurrency in a digital wallet. After your investment cycle is complete, the information that you need to access your cryptocurrency is held in a digital wallet. That crypto wallet can be hosted either by the cryptocurrency investment company or an independent wallet provider.
As an investor in cryptocurrency, you need to decide how much of your portfolio to allocate to digital assets.
A best practice among investors is to periodically review your entire portfolio to perhaps rebalance your holdings.
That might mean increasing or scaling back your crypto exposure, depending on your investment goals, risk tolerance, profile, and other financial needs.
What to Know Before Investing in Cryptocurrency
Investing in cryptocurrency is considered to be risky and potentially extremely profitable if you implement the Best Cryptocurrency Investment Strategies. The prices of cryptocurrencies, even the most established cryptocurrencies, are much more volatile than the prices of other assets like stocks.
The prices of cryptocurrencies in the future could also be affected by regulatory changes, with the possibility that cryptocurrency becomes illegal and therefore worthless. But this is likely not the case as cryptocurrency went institutional in 2021 and would be having a major breakthrough in 2022.
Many investors are nonetheless attracted to the potential upside of investing in crypto. If you decide to invest in cryptocurrency, it’s important to carefully research any digital coin before buying it. Pay attention to transaction fees when making crypto purchases, as these fees can vary widely among currencies.
The cryptocurrency space is evolving rapidly, so it’s also important to pay attention to new developments that may affect your crypto holdings. Cryptocurrency investors need to understand the tax consequences of using crypto, especially if they purchase something or sell their crypto investments.
Given the riskiness of cryptocurrency as an asset class, it’s especially important not to invest in crypto more money than you can afford to lose.
How to pick a cryptocurrency to invest in
Before you go ahead and buy some coins or tokens just because somebody says it’s a good investment, it will pay to do some research.
First of all, it’s important to understand that picking a good cryptocurrency is not like picking a good stock. A stock represents ownership in a company that creates profits for its shareholders or at least has the potential to do so. Owning a cryptocurrency represents ownership in a digital asset with zero intrinsic value.
What makes a cryptocurrency increase or decrease in price is simple supply and demand. If there’s increased demand and a limited supply increase, the price goes up. If supply becomes constrained, the price goes up, and vice versa.
So, when evaluating a cryptocurrency, the most important questions to answer are how the supply increases, and what will drive demand for the coin higher.
You can answer those questions by reading the white paper that a cryptocurrency team publishes to attract interest in their project.
Look at the roadmap for a project and see if anything could spark an increase in demand. Research the team behind a project and see if they have the skills to execute their vision.
Try to find a community of people already investing in cryptocurrency and gauge their sentiment.
It’s also important to consider how much money has already flowed into a cryptocurrency. If the market cap is already very high, there may not be much potential growth left.
A high price will curb demand and increase supply as early investors look to make money off the table.
Bitcoin isn’t the only digital currency in town. In fact, there are over 7,500 cryptos in existence.
Luckily, most crypto investment platforms and exchanges only offer a couple of dozen. These are typically the most legitimate and viable coins with a respectable market cap.
Here are some examples of the top-traded cryptos today:
7 of the Best Cryptocurrencies to Buy Now
- Bitcoin (BTCUSD): The king of cryptos is still around and available to purchase on every popular Cryptocurrency Investment Firm or exchange. Before Tesla Inc. (TSLA) announced it had purchased $1.5 billion worth of Bitcoin in February 2021, BTC was trading at about $39,000. Any time Bitcoin trades for less than $39,000 is a buying opportunity, and with a combined $2.7 trillion in cash on S&P 500 companies’ balance sheets, there is a lot of potential for corporate treasuries to diversify from dollars to Bitcoin in coming years.
- Ethereum (ETH): The second most popular crypto by market cap achieved success through innovation, allowing for the recording of smart contracts to the blockchain. With a huge advantage in network adoption over rivals, numerous decentralized applications, or dApps, are built on top of the network, giving it staying power.
- Solana(SOL): Solana is one of Ethereum’s most serious competitors, boasting a fast network with a growing number of dApps, although Solana’s most compelling advantages at the moment are its programmer-friendly compatibility with the easy-to-code Rust language and its rock-bottom transaction fees in comparison to Ethereum.
- Avalanche (AVAX): If Avalanche is good enough for the youngest member of the Forbes 400, it should be worthy as a nominee for one of the best cryptocurrencies to buy. Sam Bankman-Fried, the 29-year-old co-founder and CEO of cryptocurrency exchange FTX, whose net worth is estimated at $22.5 billion, recently heaped praise on both Solana and Avalanche in an interview with Decrypt. Bankman-Fried thinks Avalanche holds some explosive promise in 2022: “I think that there’s a world in which it gets absolutely huge,” he told the outlet. Avalanche’s low fees and ability to execute smart contracts should help it gain market share over Ethereum until the long-awaited upgrade to Ethereum 2.0 – whenever that comes. As with most cryptos, AVAX is extremely volatile. It has a 52-week low of $9.34 and a 52-week high of $146.22, and it currently goes for about $70.
- Polygon (MATIC): Polygon, with a market cap of about $12 billion, is meaningfully larger than Yearn.finance but shares a very similar goal to YFI, aiming to help usher along mass adoption of cryptocurrency by increasing the scalability of Ethereum. Polygon’s technology aims to allow potentially limitless dApps to run on Ethereum, boosting its utility to the masses. Hitching its fate to the top network for DeFi has been a lucrative bet, and the MATIC token is up about 40-fold from its 4-cent level just a year ago. With MATIC trading more than 40% below its late-December peak, there’s more room for this one to run.
- Dogecoin (DOGE): Dogecoin was created in under 2 hours as a joke — a loving satire of cryptocurrency. Despite this, DOGE has reached an $85 billion market cap, highlighting the power of speculation and internet chatter.
- Binance Coin (BNB): BNB is the proprietary coin of Binance, the world’s largest coin exchange (Binance.US is the USA-only version). It’s become popular due to its wide acceptance and ability to reduce Binance’s trade fees.
Which is the Best Cryptocurrency to Invest in?
Well, cryptocurrency is so speculative and volatile that choosing the right cryptos for your portfolio may come down to which ones you believe in. For example, do you think Ethereum has more technical merit and worldly applications than Bitcoin?
While stock traders may read form 10-Ks when vetting companies, crypto investors might consider reading whitepapers — like the original one for Bitcoin.
Pros and cons of cryptocurrency
Cryptocurrency inspires passionate opinions across the spectrum of investors. Here are a few reasons that some people believe it is a transformational technology, while others worry it’s a fad.
- Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable.
- Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since over time these banks tend to reduce the value of money via inflation.
- Other advocates like the blockchain technology behind cryptocurrencies, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems.
- Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money.
- Some cryptocurrencies offer their owners the opportunity to earn passive income through a process called staking. Crypto staking involves using your cryptocurrencies to help verify transactions on a blockchain protocol. Though staking has its risks, it can allow you to grow your crypto holdings without buying more.
- Many cryptocurrency projects are untested, and blockchain technology in general has yet to gain wide adoption. If the underlying idea behind cryptocurrency does not reach its potential, long-term investors may never see the returns they hoped for.
- For shorter-term crypto investors, there are other risks. Its prices tend to change rapidly, and while that means that many people have made money quickly by buying in at the right time, many others have lost money by doing so just before a crypto crash.
- Those wild shifts in value may also cut against the basic ideas behind the projects that cryptocurrencies were created to support. For example, people may be less likely to use Bitcoin as a payment system if they are not sure what it will be worth the next day.
- The environmental impact of Bitcoin and other projects that use similar mining protocols is significant. A comparison by the University of Cambridge, for instance, said worldwide Bitcoin mining consumes more than twice as much power as all U.S. residential lighting. Some cryptocurrencies use different technology that demands less energy.
- Governments around the world have not yet fully reckoned with how to handle cryptocurrency, so regulatory changes and crackdowns have the potential to affect the market in unpredictable ways.
Crypto investing guidelines
Cryptocurrency is a relatively risky investment, no matter which way you slice it. Generally speaking, high-risk investments should make up a small part of your overall portfolio — one common guideline is no more than 15%.
You may want to look first to shore up your retirement savings, pay off debt or invest in a less-volatile asset class since all investments carry a form of risk.
There are other ways to manage risk within your crypto portfolio, such as by diversifying the range of cryptocurrencies that you buy.
Crypto assets may rise and fall at different degrees, and over different time periods, so by investing in several different products, you can insulate yourself — to some degree — from losses in one of your holdings.
Perhaps the most important thing when investing in anything is to do your homework.
Ensure to implement financial due diligence before investing in any cryptocurrency project.
This is particularly important when it comes to cryptocurrencies, which are often linked to a specific technological product that is being developed or rolled out.
When you buy a stock, it is linked to a company that is subject to well-defined financial reporting requirements, which can give you a sense of its prospects.
Cryptocurrencies, on the other hand, are more loosely regulated in the U.S., so discerning which projects are viable can be even more challenging.
If you have a financial advisor who is familiar with cryptocurrency, it may be worth asking for input.
For investors who are Cryptocurrency beginners, it can also be worthwhile to examine how widely a cryptocurrency is being used.
Most reputable crypto projects have publicly available metrics showing data such as how many transactions are being carried out on their platforms.
If use of a cryptocurrency is growing, that may be a sign that it is establishing itself in the market. Cryptocurrencies also generally make “white papers” available to explain how they’ll work and how they intend to distribute tokens.
If you’re looking to invest in less established crypto products, here are some additional questions to consider:
- Who’s heading the project? An identifiable and well-known leader is a positive sign.
- Are there other major investors who are investing in it? It’s a good sign if other well-known investors want a piece of the currency.
- Will you own a portion in the company or just currency or tokens? This distinction is important. Being a part owner means you get to participate in its earnings (you’re an owner), while buying tokens simply means you’re entitled to use them, like chips in a casino.
- Is the currency already developed, or is the company looking to raise money to develop it? The further along the product, the less risky it is.
It can take a lot of work to comb through a prospectus; the more detail it has, the better your chances it’s legitimate. But even legitimacy doesn’t mean the currency will succeed.
That’s an entirely separate question, and that requires a lot of market savvy. Be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors.
Legality of cryptocurrencies
There’s no question that cryptocurrencies are legal in the U.S., though China has essentially banned their use, and ultimately whether they’re legal depends on each individual country.
The question of whether cryptocurrencies are allowed, however, is only one part of the legal question. Other things to consider include how crypto is taxed and what you can buy with cryptocurrency.
- Legal tender: You might call them cryptocurrencies, but they differ from traditional currencies in one important way: there’s no requirement in most places that they be accepted as “legal tender.” The U.S. dollar, by contrast, must be accepted for “all debts, public and private.” Countries around the world are taking various approaches to cryptocurrency. El Salvador in 2021 became the first country to adopt Bitcoin as legal tender. Meanwhile, China is developing its own digital currency. For now, in the U.S., what you can buy with cryptocurrency depends on the preferences of the seller.
- Crypto taxes: Again, the term “currency” is a bit of a red herring when it comes to taxes in the U.S. Cryptocurrencies are taxed as property, rather than currency. That means that when you sell them, you’ll pay tax on the capital gains, or the difference between the price of the purchase and sale. And if you’re given crypto as payment — or as a reward for an activity such as mining — you’ll be taxed on the value at the time you received them.
Frequently Asked Questions
What is Cryptocurrency?
Bitcoin and most other cryptocurrencies are supported by a technology known as the blockchain, which maintains a tamper-resistant record of transactions and keeps track of who owns what. Public blockchains are usually decentralized, which means they operate without a central authority such as a bank or government.
The term cryptocurrencies come from the cryptographic processes that developers have put in place to guard against fraud.
These innovations addressed a problem faced by previous efforts to create purely digital currencies: how to prevent people from making copies of their holdings and attempting to spend them twice.
Individual units of cryptocurrencies can be referred to as coins or tokens, depending on how they are used.
Some are intended to be units of exchange for goods and services, others are stores of value, and some are mostly designed to help run computer networks that carry out more complex financial transactions.
One common way cryptocurrencies are created is through a process known as mining, which is used by Bitcoin.
Mining can be an energy-intensive process in which computers solve complex puzzles in order to verify the authenticity of transactions on the network.
As a reward, the owners of those computers can receive newly created cryptocurrency. Other cryptocurrencies use different methods to create and distribute tokens, and many have a significantly lighter environmental impact.
Is cryptocurrency a good investment?
Investing in cryptocurrency is not for everyone. The prices of cryptocurrencies can be volatile, which makes investing in crypto likely a poor choice for conservative investors. If you are interested in assuming greater risk as an investor, then investing in one or more cryptocurrencies may be right for you.
How can I invest in Cryptocurrency?
You can invest in Bitcoin directly by using one of the major cryptocurrency investment companies or exchanges, such as Bitcoininvestmentrex.com or Binance. Another way to gain investment exposure to Bitcoin is to buy shares in a company with significant Bitcoin exposure, such as a Bitcoin mining company. A third option is to invest in a Bitcoin-focused fund such as an exchange-traded fund.
How much money do I need to buy cryptocurrency?
You can invest in Bitcoin or another cryptocurrency without a lot of money. Using Coinbase, for example, you can buy cryptocurrency with as little as $2 in your local currency.3
Do You Have to Pay Taxes on Cryptocurrency?
Yes. Crypto gains are taxed at a regular capital gains rate: 10 to 37% for short-term gains and 0 to 20% for long-term gains.
According to the IRS, these three are non-taxable and don’t need reporting:
- Buying crypto with cash and holding it (affectionately known as HODLing)
- Donating crypto to a qualified tax-exempt charity or non-profit
- Transferring crypto between wallets
Whereas the following do need to be reported and will be taxed as capital gains:
- Selling crypto for cash (even if you lost money on your initial investment)
- Using crypto to pay for goods or services
- Exchanging one crypto for another
- Mined crypto.
- Being paid in crypto or by airdrop.
- Receiving crypto as a bonus or a reward
If you don’t declare your holdings you can get penalized. It’s the same penalties for unpaid taxes – and as the IRS themselves say, “they can add up fast”:
- A late filing fee
- A late payment fee
- Interest on top of both penalties
Your total penalty could amount to 25% or more of your unpaid tax amount.
Should You Invest in Cryptocurrency?
You might consider investing in crypto if:
- You’d like to add very high-risk to your portfolio: If you’ve already assessed your risk tolerance and are actively looking to add higher risk into your portfolio, crypto certainly fits the bill.
- You believe in the mission of crypto and blockchain: Maybe you believe in the positive aspects of crypto and blockchain technology, and perceive it as a form of ESG investing.
You may want to pass on crypto if:
- You’re risk-averse: Cryptocurrency is extremely risky, volatile and unpredictable. If that gives you more anxiety than excitement, it may not be a fit for your portfolio.
- It’s your first form of investing: To echo Varun Marneni, a certified financial planner with Atlanta’s CPC Advisors, it’s best to have $100,000 in safe investments first before you invest in crypto.
- You’re feeling FOMO: Fear is not an investment strategy. FOMO shouldn’t be a motivator for buying crypto, or any investable asset for that matter. Besides, you don’t need crypto to get rich.
Making money by investing in cryptocurrencies
Investing in crypto requires you to do your research and be confident enough in your investment to hang on during what’s sure to be a wild ride. If you can do that, the payoff could be worth it as the expected returns are higher than most other asset classes.