How Do Beginners Invest in Cryptocurrency: Best Guide

Published: 8th June, 2024 | Last Updated: 8th June, 2024

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

In this post, I will explain how a beginner should think about investing in crypto. People who are new to crypto often ask me whether they can make money by investing in digital assets. The answer is a hesitant yes because there is a lot you need to learn before you can make this work. 

In this guide, I will teach you how to invest and explain what you need to do to start investing in crypto. 

However, I won’t explain how crypto works. Just like you don’t need to know how the engine works in a car to get from point A to point B, you don’t really need to understand how a blockchain works to invest in it. Having said that, I will give you a brief overview of why everyone is making such a big fuss about blockchain technology. 

Finally, while I will give you some directions, I am not going to tell you where to go once you learn how to invest. You will need to explore this yourself as you research on coins. However, I will introduce you to a methodology that has greatly helped me. 

Where to Start

The first thing you need to do to get started is to choose a crypto exchange. 

Which Exchange to Use

cryptocurrency exchanges for beginners to invest

The exchanges that I recommend are Kraken and Coinbase because they are household names and have additional security settings. 

I have a more detailed review of the top 10 crypto exchanges here: Top 10 Crypto Exchanges Ranked by Ease of Use.

If you don’t want to read that article, here is a quick guide

  • Coinbase is a publicly traded company and the largest exchange in the US. It offers a feature called Coinbase Vaults, which allows you to set a time delay on withdrawals. This way, should hackers try to withdraw your funds, they are forced to wait, during which time you are notified.
  • Kraken also offers a time delay and has never been hacked. 
  • Crypto.com has the cheapest fees out of a comparison of 20 crypto exchanges.
  • Binance is the largest exchange globally and has a wider coin selection (400 coins vs 250 coins), but it does not accept US dollars.
  • MEXC: has more than 800 coins and does not require identification to start trading. You often find coins with a low market capitalization on MEXC.
  • Robinhood: a US-based cryptocurrency broker that also allows you to invest in stocks, ETFs, etc. It has a more limited range of cryptocurrencies compared to crypto exchanges.

I think that’s enough. Choose one of the large ones, and you will be good to get started. 

If you are still not sure which one to go for, then see 20 Crucial Factors to Look for in a Cryptocurrency Exchange.

Getting Started with Cryptocurrency Investing

Once you choose an exchange, download their mobile app and set up an account. 

Pro Tips

  1. Make sure you do not click on an ad because sometimes spam ads appear with scams trying to steal your money.
  2. Use the pro version of the app. It will be less intimidating than you think, and it’s more than five times cheaper.  

What you will need

  • The exchange will ask you to prove your identity, so have a passport or driver’s license handy.
  • You will need to share personal information such as a name, email address, and phone number.
  • You will then need to deposit fiat currency. You can do this instantly with ACH transfers if you are in the US or with Interac e-Tranfers for those of you who are based in Canada. Otherwise, you need to make a wire transfer, which can take a couple of business days. Many exchanges also allow you to use a debit or credit card, but the fees are higher (3-5%), so this is best avoided. Usually, making a wire transfer is much cheaper. 

For more details, check out my guide on how to buy crypto.

Which crypto do I buy?

Naturally, you are wondering which crypto assets you need to invest in. Here are a few things you need to answer the questions

  1. Are you trading, or are you investing? If you are trading, it means you are looking to make a quick buck in less than a year. If you are investing, it means you have a long-term perspective.
  2. What do you know about crypto? If you know nothing, you need to educate yourself. The next section will give you an overview and some resources. 
  3. How to decide which coins to invest in. I will show you a research methodology you can use. 

Investment strategy

If you have been in this for the long term but don’t want to become a crypto nerd, then the only digital coins you should care about are Bitcoin and Ethereum. 

If you are in this for the short term, you are likely better off investing 70-80% in Bitcoin, Ethereum, and Solana. The rest can be invested in coins that are trending

What’s Bitcoin?

Bitcoin cryptocurrency for beginners

Bitcoin is competing against gold. There are two things worth knowing about bitcoin

1. Fixed supply

Firstly, the supply of bitcoin is fixed at 21million. There are already 19.7 BTC in circulation, leaving less than a million to enter the market by the end of 2140, after which no more Bitcoins will be created. This is programmed into the Bitcoin Network and will not change. The fixed supply of Bitcoin is why many people compare Bitcoin to gold. The supply of gold increases by about 2% each year, and if Elon Musk starts mining on the moon, then its value will drop. With Bitcoin, there can only ever be 21 million. 

2. No central authority

Secondly, you know how when you send $100 to your friend, they receive it in their bank account?

For that to happen, the bank will deduct $100 from your account and credit your friend’s account with $100.

In the background, the bank is updating the entries in its database to show that you have -$100 and your friend has +$100.

With Bitcoin and blockchains more broadly, there is no central intermediary.

There is no central bank or government that can control Bitcoin’s supply. Anyone can validate transactions and store a copy of the database on their computer. If you want to understand Bitcoin in depth read What is a bitcoin and how does it work

So here you have a currency fixed in supply that no one can control. This is why Bitcoin has been increasing 150% on average per year. 

If you believe in this narrative, then you could place a small portion of your savings into Bitcoin, say 2-5%.

What’s Ethereum?

Ethereum explained to beginners

Ethereum is different from Bitcoin. You can think of it as the iOS or Android of the blockchain world. Anyone can build a decentralized app using something called smart contracts.

For example, you could have an app that is a crypto exchange, or a lending and savings bank, or something else.

To really get to grips with Ethereum, check out What is Ethereum.

Ethereum accounts for about 60% of the total value locked into the apps built on top of it. 

After the emergence of Ethereum, a bunch of Ethereum killers emerged. These wanted to be faster and meaner machines, but they have not won that narrative yet. The only contender is Solana, which keeps breaking down but is growing fast. 

Largest ETH competitors

  • BNB
  • Solana
  • Polkadot
  • Toncoin
  • XRP
  • Avalanche

If you believe that Ethereum will disrupt finance as we know it, then you would invest 2-5% of your wealth with a long-term 20-year view. 

Do I Need a Crypto Wallet?

Crypto Wallet

So, most websites recommend that you do not store your digital currency in an exchange but use a hot or cold wallet instead. 

It works like this:

Your crypto lives on a digital ledger called a blockchain.

It says that number 123xyz has 3 BTC. Only you know you are 123xyz, and if you tell others that it is your address, they will be able to see your whole transaction history with that address.

To move your crypto from that address, you use a long password called a private key. 

If you use a crypto exchange, it takes custody of your keys on your behalf. If the exchange absconds with the funds or goes insolvent, you can wave goodbye to your crypto.

With established exchanges, I view this as less of a risk, but that is a personal opinion, and crypto exchanges are known to do naughty things or implode from time to time. 

A hot wallet is an app or extension that allows you to store the private keys to your crypto investments in a cryptographically secure way. However, digital wallets tend to get hacked from time to time, so you should not use them to store a large amount of crypto.

A safer alternative is to use a cold wallet.

ledger models
Ledger builds the most popular hardware wallets

A cold wallet is a physical device that is not connected to the internet, making it infinitely harder to hack. The only drawback is that if you lose your device and private keys, you can recover your digital currencies. 

If you are unsure what to do and don’t want to learn all this new stuff, you could just use a traditional brokerage account and invest in Bitcoin exchange-traded funds (ETFs). 

What is a Bitcoin ETF? 

Bitcoin ETF

A Bitcoin ETF tracks the value of Bitcoin, but you don’t need to worry about purchasing Bitcoin directly.

Instead, you own part of a fund that owns Bitcoin. The good thing about doing this is that you can use the same platform to invest in spot Bitcoin ETFs as well as traditional financial products. The bad thing is that you can only buy Bitcoin and Ethereum (expected soon). 

How to Do Your Own Research

The worst thing you can do in crypto is blindly follow an influencer’s advice without knowing what you are buying. Unfortunately, there are so many coins in crypto that it is hard to keep track of what each one does. My crash course in crypto teaches you how to recognize and categorize a crypto coin into one of eight buckets. It also teaches you how to do research on coins.

Here is the essence. 

To decide whether a coin is a good investment, you need to look at:

1. The team

What is their background, and do they have related experience? Also, find out who their investors are.

2. The product

Most crypto projects have an incomprehensible website. This is because it is written by nerds who are deeply involved with their project and because they are trying to write something more abstract.

To understand what the protocol and its coin do in practice, you need to find the white paper. In this part of your research, you want to understand what the product is, whether there could be demand for it, and how far it has developed. Is it just an idea, or do they have a working product? 

3. Tokenomics

For beginners in crypto tokenomics, it can be the most confusing aspect. The best way to think of it is that the project you are looking into wants to start a mini-economy. To participate in that economy, you need to use their token as a medium of exchange.

For example, to enter Disney World, you need Disney tokens to go on all the rides.

The fact that a protocol can issue its own tokens means it controls its monetary policy. It can decide how many tokens to issue, when to issue them, and how much to allocate to whom.

Most projects will allocate a proportion to the founders and early developers. Aspects you want to be looking at are how much of the total supply is already circulating, whether the supply is fixed, inflationary or deflationary and when new tokens vest. 

4. Momentum

This is probably the most important factor for a token to succeed. I have seen tokens that have a poor product, crappy team, and average tokenomics only to soar because they have a popular narrative.

You want to look at how many followers the project has on social media and use tools such as lunarcrush.com to understand how they are trending. 

Strategies for Trading Crypto in the Short-Term

Strategies for Trading Crypto

If you are in this for the short term, you are likely to lose money. Here are some things you can do to avoid that.

  • Read some of the best-selling books on trading. I found the Crypto Trader by Glenn Goodman very useful. It explains crypto trading in simple language and tells you how to identify patterns. 
  • Make sure you learn how to use a stop loss. This is a type of order that will sell your crypto if it moves in the opposite direction from what you expected. You need to be prepared for many small losses offset by fewer large wins. 
  • Do not trade on leverage. It is very costly in terms of fees and can result in significant losses.
  • Manage your emotions. If you get stressed easily, avoid cryptocurrency trading altogether. Even if you are a relaxed person, prepare to go on an emotional rollercoaster. 
  • You will likely become greedy. If a coin has gone up in value significantly, it’s time to take profits. You want to convert the dollar cost average into profits on the way up.
  • Pay close attention to market conditions. The best way to do this is to join Twitter (now x.com) and follow the top crypto advisors.

How Do Beginners Invest in Cryptocurrency: FAQs

Do I need to pay tax on crypto?

Yes, when you sell your crypto for fiat money or trade it with another crypto, you will need to report your profits to tax authorities. In most countries, you will need to pay capital gains tax, which is usually 15%-20%.

Can you make $100 a day with crypto?

Whether you can make $100 daily depends on how much you invest and what yield you can get. The less risky way to earn a yield in crypto is to stake your coins, lend them, or add them to a liquidity pool.

What should a beginner learn in crypto?

To understand crypto, you need to understand how blockchains work and read up on Bitcoin and Ethereum. You can check out the resources on my crypto101 page or you can sign up for my newsletter, where I walk you through the most important crypto protocols over 12 days. 

Is crypto a good investment?

Crypto is highly volatile in the short term, but in the long term, the leading crypto assets, such as Bitcoin and Ethereum, have delivered returns in excess of 150% per year on average. 

How much Bitcoin should a beginner buy?

You can start with any amount. Most pundits recommend allocating 2-5% of your wealth to bitcoin. This way, you don’t lose all your money if things go wrong, but there is also potential to see a lot of upside. 

How do I make money on crypto?

There are two ways to make money in crypto. The first is to buy low and sell high. This sounds easy but is extremely hard to do and takes practice, during which time you will lose money. The other is to buy stablecoins and earn a yield by lending them to others. A stablecoin is pegged to a fiat currency, and this way, you are not exposed to the volatility of the crypto market but can still participate in it. 

Up Next

How to Buy Crypto: Best Guide for Beginners

how to buy crypto

This guide goes into further details on what you need to know before buying crypto and how to go about it. It is a good companion guide to what you have just read and I highly recommend you read it next.

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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