Cryptocurrency investment has surged in recent years. Saying this, there are still many investors whoare curious about it but haveyet to include crypto assets in their portfolios. Cryptocurrencies are well-known for their often extreme price volatility, which can put off many investors. However, with the right knowledge and approach, in line with adherence to your risk tolerance and a full understanding of the crypto market risk, incorporating crypto assets into your portfolio may create elusive, high-yield investment opportunities.

This article looks at how to start investing in cryptocurrency. It aims to demystify cryptocurrency investment and covers the essential foundation for all would-be crypto investors before taking the financial plunge.

Learn what cryptocurrency is exactly, explore its various types, and discover a list of five best practices before getting started.

Cryptocurrency is a virtual currency. Like “traditional” money, it can be used to buy and sell goods and services, provided a merchant or buyer/seller accepts it as a form of payment. While this is technically true, cryptocurrency has primarily been viewed and treated as a financial asset for sale and purchase since the creation of Bitcoin in 2009.

Cryptocurrencies have become widely known for their potential for enormous value growth. However, the opposite is also true, as the market prices of crypto assets have also fallen drastically at times. It is widely seen as a high-risk asset class, but one that can yield high rewards.

Conventional fiat currencies like the US dollar, pound sterling, or Japanese yen are controlled by a central bank. These currency transactions largely have five parties in the transaction chain. Sender > sender bank > central bank > recipient bank > recipient. Cryptocurrencies have no central bank or any other central party to a transaction.

All crypto transactions are peer-to-peer, going directly from one crypto holder to another on a ledger known as the blockchain. The blockchain,often referred to as distributed ledger technology,uses a network validation process and encryption. This ensures that transfer duplication or theft of crypto funds during transit from one account to another is impossible. This blockchain also renders the need for a third party,a central bank or equivalent,as null and void. Transfers are instantaneous, and once they are processed, they cannot be unprocessed or cancelled.

Accordingly to CoinMarketCap, there are over 26,000 cryptocurrencies.1. However, there are two in particular that are particularly prominent. Of course, Bitcoin is still the leading cryptocurrency, with Ethereum in second place.

The top 10 cryptocurrencies by market capitalization, as ofJuly 2024:

1. Bitcoin (BTC) $1,110,000,000,000
2. Ethereum (ETH) $374,000,000,000
3. Tether (USDT) $112,000,000,000
4. BNB (BNB) $78,000,000,000
5. Solana (SOL) $64,000,000,000
6. USDC (USDC) $33,000,000,000
7. XRP (XRP) $25,000,000,000
8. Toncoin (TON) $18,000,000,000
9. Dogecoin (DOGE) $15,000,000,000
10. Cardano (ADA) $14,000,000,000

This list is, of course, subject to change. Different currencies can move up and down, while some may fall out of the top ten to be replaced by other altcoins.

Learning how to invest in bitcoin and make money can seem daunting at first. But like with any financial investment, at first it is a matter of understanding the financial asset and the investment risks involved.

To start investing in cryptocurrency, your first thing to do is to create an account with a secure online crypto exchange platform. Once you do so, you will then be ready to buy and sell Bitcoin, Ethereum, and a whole host of other cryptocurrencies. But before you do that, here are five best practices to keep in mind.

As with investments in conventional stocks, bonds, and other more traditional financial assets, you will be best-informed on cryptocurrency investing with a deeper knowledge and understanding of the market and its movements.

Like with the stock market, cryptocurrency analysis can help you to make more informed decisions. Again, like with conventional assets, cryptocurrencies may also be influenced by a wide range of factors, including wider economic and geopolitical conditions and developments. It is also a good rule of thumb to keep up to date on crypto-market-specific events and news.

Another important point is that not all crypto coins are the same. In fact, they can be very different from one another. It is worth carrying out research on what makes each crypto asset a possible buy. This research can also help you to ascertain which you would prefer to avoid.

Each coin necessitates the requisite analysis before buying it. This also depends on your risk tolerance. While crypto is broadly seen as a higher-risk asset class, the risk profiles can also fluctuate wildly from one coin to another.

For instance, Bitcoin is likely a much more predictable investment compared to many ‘altcoins’ – coins that are alternatives to the big two: Bitcoin and Ethereum. Many altcoins have skyrocketed in value over a short period, only to then plummet back down. It is all too easy to get caught up in a temporary buy period, such as that seen for Dogecoin after Tesla CEO Elon Musk promoted it in 2021. Each coin should be fully analysed before investing, with a full understanding of the associated pros and cons.

You can also define your crypto investment allocation approach. Some investors may have 100% of their crypto holdings in BTC; others may spread their investment across BTC and ETH; others in these two and a percentage in altcoins; while some may even have all their holdings in specific altcoins. It’s entirely up to you how to allocate your crypto investment.

Cryptocurrency acquisition occurs through exchanges or investment platforms such as Coinbase or the UK-based and focused OANDA Crypto. Platforms may differ based on a range of factors.

These include security and safety, account and transaction fees, the currencies on offer, and the minimum investing requirements of account holders. You may also consider other factors that are important to you, such as support, and ease of use, and accessibility.

Managing crypto risk is absolutely crucial – arguably more so than conventional assets, because of the high volatility associated with cryptocurrencies as well as the possibility of unforeseen events – for instance, the collapse of the crypto exchange, FTX, in 2022, which led to over $8 billion in customer deposit losses.

Crypto asset values can shoot up and down on the same day. This is one reason why investors may allocate a smaller percentage, such as 10% or 20%, of their entire portfolio, to cryptocurrency. This allocation may be higher, or even much higher. It depends on each investor’s risk appetite and what financial asset class interests them. However, most beginner investors might hold 80% of their entire portfolio in a mixture of bonds and stocks, with the remaining 20% for higher-risk, higher-reward assets. However, crypto might account for no more than 5-10% of this higher-risk category.

A widespread approach to crypto investment is to only invest what you are prepared to lose, given the high volatility that crypto markets are known for. Another major consideration is to define your time outlook. Are you short, medium, or long-term? For instance, a long-term crypto investor might not even pay attention to daily or even weekly price changes in a crypto asset because they could have the intention of holding it for a number of years.

For short-term investors, you can protect against risk by establishing selling and buying rules. For instance, to sell,or buy,BTC if it falls below a certain threshold.

The amount that you invest in crypto usually depends on a range of factors. These include your budget, goals, overall time investment period, and risk tolerance.

You can also define how you want to spread risk across your crypto assets for investment. Another thing to keep in mind is that the transaction costs of buying and selling can add up. This is why many crypto investors are “long”:they understand the short and medium-term volatility of the market, but are convinced that cryptocurrencies will continue to represent a good investment in five, 10, or even 20 years’ time.

Cryptocurrency is a highly speculative financial asset, which is why many, typically more conservative investors, steer clear of it altogether. However, there are also enormous amounts of crypto investors across the world, convinced of the yield opportunities of investing in crypto. Each investor is different.

The right approach for you is something that can only be defined after careful analysis of your financial goals and means, as well as your risk tolerance, and developing a deep understanding of the cryptocurrency market and how crypto exchanges work. However, crypto can be a very profitable and exciting asset class for many investors.

OANDA Crypto is the ultimate crypto exchange for fast, reliable, fully secure crypto buying and selling!

Start investing in cryptocurrency today with OANDA Crypto today.

Sign up free