How Much Do You Need to Start Buying Crypto: Beginner Guide

Published: 30th May, 2024 | Last Updated: 21st May, 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.

How much do you need to start buying crypto? It’s less about a specific number and more about what suits your budget. Some investors kick off their crypto journey with just a few dollars, while others might start with hundreds. Key factors to consider include personal financial health, platform minimums, and fees. Without overselling promises, this article outlines exactly how to determine the right starting point for you, whether you’re looking to invest a modest sum or consider a more significant stake.

This article is part of my series on how to buy crypto.

Key Takeaways

  • Crypto exchanges have very low thresholds for investing in crypto. You can start for as little as $1

  • Start with a manageable investment amount based on your financial profile, with $250-$500 suggested for beginners, and increase gradually with experience.

  • Project the future. Will you be happy with the amount you choose to invest if it grows by 5 times? On the other hand, will you be financially stable if you lose 90% of it? Both scenarios are plausible and you need to be comfortable with both.

  • Create a smart investment strategy considering your risk tolerance and financial goals, starting with funds you can afford to lose and limiting crypto allocation to around 5% of your total wealth, ensuring a diversified investment portfolio.

  • Minimize risks by using Dollar Cost Averaging (DCA) to invest consistently over time regardless of budget size, and remain informed about transaction fees, security measures, and tax implications of cryptocurrency trading.

Determining Your Initial Crypto Investment

Illustration of financial investment

When it comes to investing in the world of cryptocurrencies, one size doesn’t fit all. Your investment should be in tune with your financial profile, considering your disposable income and willingness to engage in a dollar-cost averaging strategy. A recommended starting sum of $250-$500 can serve as a buffer against potential losses. However, it’s all about striking a balance.

The regret of investing too little might hit you if the crypto market takes an upward leap, realizing the missed opportunities for higher gain. Conversely, over-investing might result in notable losses if the market goes south.

You need to find the Goldilocks amount. Not too little and not too much.

The key is to start small with manageable investments and gradually increase the capital as experience grows. Remember, you are not just buying digital coins; you are stepping into the future of finance.

Minimum Trade Requirements on Popular Crypto Exchanges

Cryptocurrency exchanges present a diverse and extensive landscape, each platform characterized by its unique regulations and prerequisites.

One of the key factors to consider when starting your crypto journey is the minimum trade value, which is the smallest amount of a cryptocurrency that can be bought or sold in a single transaction.

While most exchanges set the minimum trade value at around $5 or $10, some platforms, such as Coinbase, are more accessible for beginners, allowing trades as low as $1. Trading crypto on these platforms can be a great starting point for those new to the market.

Choosing an exchange that aligns with your investment capacity is a crucial first step in your journey. Whether you start with a small or considerable sum, understanding the minimum trade requirements can help you make informed decisions and ensure you are comfortable with your investment levels.

Understanding Transaction Costs and Fees

transaction fees from trading

Similar to conventional financial markets, cryptocurrency transactions carry associated costs and fees. It’s important to understand that these fees can significantly impact your overall investment returns. Fees for trading can vary between 0.2% to 0.7% per transaction if you use the pro version of a platform. Standard versions, although simpler, usually come with higher fees. Therefore, it’s worth learning how to navigate the pro version from the start.

Avoid day trading: repeatedly trying to time the market can result in elevated trading fees, consequently diminishing your overall returns. Also, keep an eye on deposit and withdrawal fees. Some exchanges charge a hefty amount for withdrawals, which can further reduce your returns.

Starting Small with Micro-Investing

Micro-investing in cryptocurrencies resembles testing the waters before fully diving in. It allows you to start with small amounts, gaining experience and understanding of the market dynamics before further expanding your investment. Platforms like Coinbase, Kraken, and Binance cater to micro-investors, with minimum deposits ranging from $1 to $10.

Investing small amounts consistently can be a great way to build your cryptocurrency portfolio over time. Also, some platforms reward users for learning about cryptocurrencies, providing an additional avenue to accumulate digital coins. For example, check out Coinbase Earn.

Crafting a Smart Crypto Investment Strategy

Diversified investment portfolio concept illustration

Venturing into the crypto market without a well-formulated investment strategy equates to navigating the ocean without a compass – you stand the risk of losing your way amidst the waves. Before venturing into cryptocurrencies, it is essential to have an emergency fund, low levels of debt, and an existing diversified portfolio of investments. In other words, your financial house should be in order before you start adding cryptocurrencies to your portfolio.

Crafting a smart crypto investment strategy involves:

  • Assessing your tolerance for risk. If you are risk averse you would start with small monthly investments of $250-500 into Bitcoin and Ethereum over a 20-year time horizon. If you are a risk taker you would start with a larger amount and try to buy low and sell high. This is easier said than done but it’s easier to win at the start of a bull market.

  • Aligning your cryptocurrency investments with your long-term financial goals

  • Investing amounts you can afford to lose, given the speculative nature of the crypto market

  • Allocating around 5% of your wealth to crypto and diversifying the rest across other asset classes such as real estate, stocks, bonds, mutual funds, and commodities

This way, you can enjoy the potential upside of cryptocurrencies while maintaining a balanced and diversified portfolio.

Setting Financial Goals for Cryptocurrency Investing

You need to establish definitive financial objectives. Otherwise, you risk seeing your portfolio ride all the way up and then all the way back down. Whether your goal is to save for retirement, buy a house, or just grow your wealth, cryptocurrencies can play a role in reaching these targets by providing opportunities for growth and diversifying your investment portfolio.

However, aligning your cryptocurrency investments with your financial aspirations and risk preferences requires careful analysis of market trends and thoughtful calibrations of your investment choices.

For instance, if you are trading for the short term, setting up a spreadsheet with the targets you hope to reach can be beneficial.

crypto portfolio spreadsheet

Once you reach these targets, ensure you exit the trade or at least start taking profits. This way, you can manage your risks while striving to achieve your financial goals, following sound investment advice.

Pros and cons of crypto investing

Pros

  • Potential for substantial returns: Cryptocurrencies can experience rapid price appreciation, providing the chance for significant profits.

  • Decentralization: Crypto operates independently of central banks, offering a level of freedom from traditional financial systems.

  • Accessibility: Cryptocurrencies can be accessed by anyone with an internet connection, democratizing financial participation.

  • 24/7 markets: Unlike traditional markets, cryptocurrency markets operate around the clock, providing constant trading opportunities.

  • Diversification: Adding cryptocurrencies to an investment portfolio can introduce a new asset class and help spread risk.

  • Portability: Digital currencies can be stored in digital wallets, making them highly portable across global borders.

Cons

  • Market Volatility: Cryptocurrency markets are known for their rapid and unpredictable price swings, which can lead to significant investment losses in a short period of time.

  • Regulatory Uncertainty: The legal landscape for cryptocurrencies is still evolving, with the potential for sudden regulatory changes that could impact market conditions or the legality of certain crypto activities.

  • Security Risks: Despite advancements, the digital nature of cryptocurrencies makes them susceptible to hacks, fraud, and theft.

  • Complexity: Understanding how cryptocurrencies and blockchain technology work can be daunting for the average person, creating a barrier to entry.

  • No Insurance: Unlike traditional bank accounts, cryptocurrency holdings are not insured by the Federal Deposit Insurance Corporation (FDIC) in the US or its equivalent in other countries. This means that losses due to security breaches or bankruptcies may not be recoverable.

  • Emotional Trading: The hype and excitement surrounding cryptocurrencies can lead to emotional trading and poor decision-making.

The Role of Dollar Cost Averaging in Crypto Buying

Dollar cost averaging strategy illustration

Dollar Cost Averaging (DCA) involves investing a predefined amount of money each month, averaging out the cost price of each purchase. This strategy helps manage market volatility by spreading investments over time, lowering the average cost per unit, and potentially increasing long-term returns.

By implementing DCA, you can:

  • Buy more cryptocurrency when prices are lower

  • Buy less when prices are higher

  • Mitigate stress by removing the pressure to predict short-term market movements

How to implement Dollar Cost Averaging

The first step is to decide on a comfortable investment amount and determine the frequency of your investments. Choose whether you will invest weekly, monthly, or quarterly. Most people do it on a monthly basis to match when they get paid.

Most crypto trading platforms offer to automate recurring purchases.

The amount you decide to invest depends on how much you can afford to set aside for investing in crypto. Keep in mind that you want to DCA with the large and established blockchains namely Bitcoin and Ethereum. I would not feel comfortable DCAing into any other crypto assets over the long term.

volatility.

Which Crypto Exchange to use

Crypto exchange comparison illustration

Selecting the appropriate platform to initiate your crypto journey holds equal importance as your choice of cryptocurrencies for investment. Various exchanges offer different features, fee structures, and user experiences. Some popular exchanges include:

  • Gemini

  • Kraken

  • Coinbase

  • Crypto.com

These platforms provide various services where investors can buy Bitcoin and other cryptocurrencies, as well as engage in Bitcoin trades.

One crucial aspect to consider when choosing a platform is the fee structure. The cost of transactions can significantly impact your overall investment returns. Therefore, it’s essential to understand how these fees work and factor them into your investment decision.

Comparing Features of Leading Crypto Exchanges

When selecting a cryptocurrency exchange, you should consider several factors, including:

  • Security features

  • Fee structures

  • Available trading volume

  • Minimum investment requirements

  • Types of cryptocurrencies supported

Each crypto exchange platform boasts its distinct features and services.

To start use one of the Top 10 Crypto Exchanges.

Some exchanges like Kraken, offer advanced features targeted towards experienced traders, such as advanced order types, as well as margin and futures trading. Moreover, exchanges may provide financial incentives like trading fee discounts for users who execute high volumes of trades or utilize the exchange’s native cryptocurrency.

When it comes to security, crypto exchanges commonly implement robust measures, including insurance policies and cold storage strategies, to protect user assets against potential breaches.

Check out my guide with the 20 factors you should look for in a crypto exchange.

Security Measures and Protecting Your Digital Assets

Prioritizing security is paramount when selecting a crypto exchange. With the ever-increasing cyber threats, it’s crucial to select a platform that implements robust security measures to protect your digital assets. Some exchanges, like Gemini, place a high emphasis on security by implementing features like hot wallet insurance and obtaining certifications such as SOC 2 to protect user’s funds.

Two-factor authentication is another security feature offered by some cryptocurrency exchanges to enhance the safety of user accounts and prevent unauthorized access. Additionally, using wallets from providers separate from the exchanges, such as hot and cold wallets, can provide additional security layers to safeguard against potential breaches and hacking incidents.

Considering Tax Implications of Cryptocurrency Trades

Cryptocurrency trading extends beyond the buy-low-sell-high strategy. It also necessitates grasping the tax consequences of your transactions. The IRS requires taxpayers to reveal cryptocurrency transactions and can audit individuals based on their crypto-related activities. Cryptocurrency gains are subject to capital gains tax, with rates varying based on the holding period.

It’s crucial to note that even if you don’t receive a 1099 form from exchanges, you are still required to report your transactions. Moreover, using cryptocurrency for transactions may result in a tax event, requiring the realization of any gains or losses based on the asset’s value change. Accurate tax reporting necessitates knowledge of the asset’s cost basis and consulting with a tax advisor could be beneficial.

Gain Exposure to Crypto Markets Without Direct Buying

ETF and blockchain stocks investment concept illustration

If you don’t want to buy crypto directly alternative assets do exist. Investment vehicles like exchange-traded funds and blockchain technology stocks offer indirect exposure to cryptocurrencies.

Spot Bitcoin ETFs

Spot Bitcoin ETFs, approved by the SEC in January 2024, allow investors to trade shares representing Bitcoin on major exchanges. These ETFs track the price of Bitcoin and trade over major exchanges, providing investors with exposure to Bitcoin’s price without the need to directly purchase and store the digital currency.

You can easily purchase these products through you financial brokerage account without needing to open an account at a crypto exchange. The only drawback is that you can only get exposure to Bitcoin this way.

Blockchain Stocks

Another alternative to buying cryptocurrencies themselves is to invest in companies that are involved in the blockchain ecosystem.

Blockchain companies engage in activities such as cryptocurrency mining and software development, supporting the broader crypto market.

Managing Expectations and Risks in Cryptocurrency Investing

risk, management, assessment

Despite the enticing potential of high returns, it’s vital to keep your expectations in check while investing in cryptocurrencies. The volatility in the cryptocurrency market can be particularly challenging for new investors, often leading to a pattern of buying high during peaks out of fear of missing out and selling low during dips in a panic.

Moreover, investors should be wary of fraud risks such as pump-and-dump schemes, which are commonly promoted on social media.

To approach cryptocurrency trading with risk management in mind, new traders should:

  1. Set aside a specific amount of money for trading

  2. Begin by using only a portion of it, creating a buffer to mitigate potential losses

  3. Be cognizant of the risks and the potential for regulatory changes, such as the IRS reconsidering the wash-sale rule, which presently allows claims of tax losses on quick cryptocurrency buy-backs after selling.

Volatility and Its Effects on Crypto Assets

volatility

High volatility stands as a defining trait of cryptocurrency markets. This means that prices can change rapidly in a very short time, making it possible for investors to experience significant gains or losses. Factors such as news developments, speculation, and limited liquidity contribute to these heightened price movements.

While volatility can lead to large price swings and the potential for significant returns, it also comes with a high level of risk. This is why it’s important to only invest money that you can afford to lose, and to always keep a diversified portfolio to spread your risk.

High-Interest Debt vs. Cryptocurrency Investment

card, credit card, credit

Before investing in crypto, it’s vital that you are financially stable.

Don’t invest in crypto if you are still paying off high-interest debts like credit card debt.

Frequently Asked Questions

How much should I start investing in cryptocurrencies?

I recommend starting with a sum of $250-$500 to buffer against potential losses when investing in cryptocurrencies. This will give you a decent starting point in the market.

What is the Dollar Cost Averaging strategy?

Dollar Cost Averaging is a strategy where you invest a set amount of money at regular intervals to smooth out the cost of purchases and avoid emotional decision-making. It helps reduce the impact of market fluctuations on your investments.

What are the features to consider when selecting a cryptocurrency exchange?

When selecting a cryptocurrency exchange, consider factors like security features, fee structures, trading volume, investment requirements, and supported cryptocurrencies for a well-informed decision.

How can I gain exposure to the crypto market without directly buying cryptocurrencies?

Consider investing in ETFs or stocks of blockchain technology companies to gain indirect exposure to the crypto market. It’s a way to benefit from the crypto market without directly buying cryptocurrencies.

How can I manage the risks in cryptocurrency investing?

To manage risks in cryptocurrency investing, allocate a specific amount of money for trading and start with only a portion of it, creating a buffer to help mitigate potential losses. This can help you limit your exposure and protect your overall investment.

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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