So you’ve decided you want to get into crypto. Nice. Practically speaking, making your first crypto investment is a matter of making two main decisions:
- Which crypto to buy
- Which exchange to buy it on
While you don’t have to know what crypto is to invest in, here’s a 2 min read on what crypto is, just in case you want to know.
What is crypto, and why get into it to begin with?
At its core, anything “crypto” involves using blockchain technology to bring something new to the table that wasn’t possible before.
Think of blockchains as tools to build with, like software with particular properties. Blockchains are immutable records of transactions meant to enable the transfer of value without the need for a central authority. So anything that involves keeping a record of ownership can be put on the blockchain – cash, gold, real estate, trading cards, and many other things. For example, Bitcoin enabled humans to exchange value over the internet without relying on banks or governments. That had never happened before Bitcoin.
There are many different types of blockchains, just like there are many coding languages, and each has its advantages and disadvantages. Some are focused on security, others on speed. Truthfully, we are still discovering the extent of the usefulness of crypto; that is precisely the reason why crypto prices fluctuate so much, but also why there are so many money-making opportunities in crypto.
The reason why people get into crypto is as varied as crypto itself. Some are fascinated by the potential profits (though honestly, who isn’t); some are intrigued by the technology, and others are more interested in the value of the practical application of the technology. Take Bitcoin again as an example – the intricacies of how it works are amazing, but you don’t necessarily need to be intimately familiar with the technical details to understand the value it brings as an uncensorable, inflation-proof, immutable record of transactions. Similarly, you don’t need to understand every technical detail about an iPhone to see the value in it, or about Apple to invest in it. There is a lot to learn about blockchains and crypto, and how much you learn is entirely up to you. You can invest in crypto very successfully with little knowledge, as you’ll read further below. Ok, now let’s get started.
How to choose which crypto to buy?
Much like investing in the stock market, you have three options to decide what to buy, and it all depends on the time and effort you’re willing to put in, the profit you’re looking to make, and your risk appetite.
- Research specific coins
This method is like stock picking. It takes the most time and effort, is relatively risky, but is also the most rewarding. If you can spend the time and find the next crypto to go from zero to hero, you may not need to work another day in your life.
- Buy an index
The method is like buying an index fund like the S&P 500. You can own a little of every crypto with very little time and very little effort. At the same time, you can’t expect the entire market to shoot up 100,000%.
- Follow the hype
When a crypto starts going up, people tend to pile up into it and make it go a lot higher. If you can identify and ride the trends, you can make a lot of money. Here, the potential for profit is high, and the time and effort required are low, but the risk is very high.
How to research a crypto investment?
So you’ve chosen to invest the time and effort to research cryptos. Good. There are many types of cryptocurrencies you can buy – well over 20,000. In reality, as you make your first crypto investment, you will likely have to choose between a few hundred, as exchanges typically support a limited amount of cryptos. Anyone can create cryptocurrencies, so most of them are worthless. That is why most exchanges do a lot of the screening process for their users and offer only legitimate cryptos – at least as far as they can tell.
From there, you can pick a few cryptos that you’ve heard of – most people start off with Bitcoin and Ethereum – and you should start your research. As with every investment, the main questions to answer are:
- What is this useful for?
- Why is it going to appreciate in value?
If you can answer both questions, well done – you have an investment thesis. Research multiple coins and make your own opinions about them. Just like in the stock market, analysts and investors will often disagree about the value or usefulness of a crypto or a stock. That’s just life – and crypto investors are generally very vocal.
The crypto market has a lot of what we call “noise”, which is useless information. Learning how to separate the noise from the useful information takes time and practice, but if you want to take this seriously, you’ll need to put in the hours.
If you don’t have the time or don’t want to do any research, you still have two options.
How to buy a crypto index?
It’s now 2022, and some exchanges, like Binance, are starting to implement crypto indices in their exchanges. So all you have to do is create an account and buy the index – you can do everything from start to finish in 30 minutes. If the exchange you’re interested in doesn’t have that feature, you can simulate a cryptocurrency index yourself. An index is a bucket of cryptos or stocks. So instead of picking winners, you buy the entire market or at least a significant part of it. Just like the S&P 500 is made up of the United States’ 500 largest public companies, you can simply buy a bunch of the largest coins in the world. In practice, creating a crypto index would mean buying some of the top 5, 10, or 20 coins. You can also buy the top 100 coins – it’s up to you. Say you have $10,000 dollars to invest, a possible indexing strategy is to buy $1,000 of every crypto in the top 10. So $1,000 of Bitcoin, $1,000 of Ethereum, and so on.
Diversifying your investments in this manner reduces the volatility of your portfolio, so if you want to get into crypto but are reluctant because of wild swings, that may be the way for you. Again, we generally advise you to read up on what you’re buying, especially because crypto is so fascinating. If you don’t, it’s on you. Take into account that while you are diversifying the risk, you are also diluting the returns of your portfolio. Profit and risk always go together.
How to follow the trend in crypto?
The last way to invest in crypto is by following the trend. You see a coin, it’s going up, it’s perhaps trending on Twitter, you catch the trend early, and you’re joining the ride with the intention to capitalize on the increased demand and sell it later at a higher price. This is the simplest, riskiest, and arguably the most fun way to invest in crypto.
This can be very profitable, but it is also the riskiest way to get into crypto and isn’t for the faint of heart. Crypto prices are famous and infamous for their volatility. Putting some money on a crypto for entertainment is one thing, but your life savings should be handled with a little more care. Or not. It’s up to you, but you’ve been warned.
Now that you have an idea of what to buy, let’s choose an exchange.
Fortunately for you, we’ve made choosing an exchange easy with our in-depth reviews and recommendations of which exchange fits what type of user. Nevertheless, you still need to know what to look at, so here are the common criteria you should consider.
How to choose a crypto exchange?
Let’s make this easy for you. If you’re new to crypto and just want us to pick an exchange for you, we recommend Bitvavo if you’re in the European Union, and Coinbase if you’re anywhere else in the world. If you want to know why or choose for yourself, read on.
Just like there are many cryptos, there are many crypto exchanges. And as you’re going to send actual money there, you want to make sure you choose a trustworthy exchange.
Let’s go over the main differences that should matter to you.
Let’s first address the elephant in the room: scams. Some exchanges are supervised and regulated, like Coinbase. As a public company, it’s unlikely to be a scam. That doesn’t mean every non-regulated exchange is a scam, as there can be many reasons why an exchange isn’t regulated.
No one can ever make an absolute promise of safety, but as far as we know -and we’ve put hundreds of hours of research into our reviews – none of the crypto exchanges we have reviewed is a scam. Could they be run into the ground? Perhaps. Can the CEO run off with the money? A good exchange will have measures in place to prevent that, like a multi-sig wallet that requires multiple signatures from multiple individuals to transfer funds.
But, this is crypto, after all, and surprising things can always happen. Ultimately, the convenience of using an exchange comes at the price of you having to trust it, which is, once again, a decision only you can make.
Now that that’s addressed, if you’ve decided on what to buy, you need to find an exchange that actually has the coins you’re interested in. Every exchange has a list of cryptos they support, and that amount varies. Some, like Binance, have over 600 cryptos. Others have 50 or so. If you want to buy the biggest cryptos, odds are they’ll be listed on every exchange.
If the exchange has the cryptos you want, the next thing to check is if they accept users from your country. There are restrictions, and not every exchange accepts users from every country. Again, exchanges often have a page with a list of supported countries, or at least a page with banned countries. The biggest crypto exchange will take pretty much everyone in, but some have a geographical focus, like the US or Europe.
Once that’s checked, the next important thing is the actual transfer of money. Which funding methods do you have access to, and which ones does the exchange support? Can you buy crypto with a credit card ( though you shouldn’t – the fees are very high)? Perhaps the exchange supports PayPal or a local payment method? Are bank transfers an option?
Funding the account is often the step where things get frustrating for people who are new to crypto. Banks don’t always play nicely with crypto exchanges, to the extent that some exchanges won’t even take your dollars or euros. Some exchanges are crypto only, meaning you have to have crypto to trade there. Those exchanges are great once you get your feet wet and want to start trading, but they probably aren’t the best choice for your first purchase. At this stage, you’re probably better off paying a little higher fees for the convenience of a local payment method.
This brings me to the next point, fees. They can range from 5% to 0.1% of your transactions, which is a huge difference. If you ask us what acceptable is, we’d say 0.4%, maximum. Lower fees are often found on more advanced exchanges where people trade millions, so the fees really matter. As you start out, you’re probably not going to want to trade all day or buy in millions, so paying a little more is OK. After all, the difference between paying 0.1% or 0.25% on a $1000 transaction is $1.5. Yes, you’re paying more, but in the grand scheme of things, it’s not that bad. Just don’t pay 5% – which you will if you insist on buying crypto with a credit card.
There’s always more you can research, like the UI, the trading features, the staking options, and so on. Our detailed reviews go into everything, and you can read those once you are ready to make your choice of exchange.
That’s it. You’re ready.
You now have an idea of how to get started in crypto. Your next step is to pick your investment method, pick your cryptos, pick the exchange you feel is the best fit for you, and sign up! You will have to verify your identity and go through a little bit of bureaucracy, but most exchanges will have you up and running in no time. And if you hate bureaucracy, you’ll be happy to know that we reviewed the signup and verification processes as well, so you can avoid the annoying ones. Another tip – it’s always a good idea to start small and get comfortable before pouring in everything you own. You don’t have to, but it’s common sense.
And to wrap up a mandatory disclaimer: we really do our best to provide accurate information, but we don’t intend any of this to be taken as financial or investment advice. We tried presenting the options you have in the most straightforward way, but ultimately what to buy and where is up to you. Your decisions, profits, and losses are your own.