How to Invest in Cryptocurrency – Investopedia
Are you considering investing in cryptocurrency? Though Bitcoin is likely the best-known digital money, thousands of cryptocurrencies already exist. Cryptocurrency investing can take many forms, ranging from buying cryptocurrency directly to investing in crypto funds and companies. For direct investing in crypto coins, you can buy cryptocurrency using a crypto exchange or through certain broker-dealers. Find out more about how you can invest in one of the newest and most inventive asset classes available.
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:
Some crypto-focused funds invest in cryptocurrency directly, while others invest in crypto-focused companies or derivative securities such as futures contracts.
If you want to invest in cryptocurrency directly, then you can use a cryptocurrency exchange. Here’s how to buy cryptocurrency through an exchange:
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 assess the need to rebalance your holdings. That might mean increasing or scaling back your crypto exposure, depending on your investment goals and other financial needs.
Investing in cryptocurrency is considered risky. The prices of cryptocurrencies, even the most established ones, 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 worst-case possibility that cryptocurrency becomes illegal and therefore worthless.
Many investors are nonetheless attracted to the potential upside of investing in crypto. If you decide to invest, it's important to carefully research any digital coin before buying it. Pay attention to transaction fees when making crypto purchases because 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 more money in crypto than you can afford to lose.
Investing in cryptocurrency is not for everyone. The prices of cryptocurrencies can be volatile, which makes this type of investing likely a poor choice for conservative investors. If you are willing to assume greater risk as an investor, then investing in one or more cryptocurrencies may be right for you.
You can invest in Bitcoin directly by using one of the major cryptocurrency exchanges, such as Coinbase 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 (ETF).
You can invest in Bitcoin or another cryptocurrency without spending much money. Using the Coinbase platform, for example, you can buy cryptocurrency with as little as two units of your local currency.
CoinMarketCap. "Today's Cryptocurrency Prices by Market Cap."
Internal Revenue Service. "Virtual Currencies."
Coinbase. "What Is the Minimum Amount of Cryptocurrency That I Can Purchase?"
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