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How to invest in cryptocurrencies?

Investing in cryptos is becoming as easy as investing in equity shares thanks to technology and the rise in demand. Bitcoin, Ethereum and Dogecoin are just a few of the crypto currencies available to be traded by investors like you and me. But how can one jump into the world of cryptocurrencies? Here’s how:

  1. Choose which crypto exchange you want to use

  2. Set up a broker account with the crypto exchange

  3. Put cash into the account

  4. Invest

  5. Store your coins


Choose your crypto exchange


There are a number of exchanges which you can trade crypto on but each person has their own preferences. Similar to an equity exchange, a crypto exchange is a platform where buyers and sellers can transact cryptocurrencies. Some of the most well known exchanges are Binance and Coinbase. These exchanges are popular because they offer users convenience to buy and sell crypto with US dollars. Some exchanges only allow you to purchase cryptocurrencies with other cryptocurrencies. For example, buying 1 bitcoin with 13.24 ethereum coins. However, convenience costs money and usually the most beginner friendly platforms charge the highest through fees.


Another issue with using standard trading platforms like Robinhood is that after you purchase a coin, you don’t really own the crypto. This is because you cannot transfer these assets from your trading account to a hard wallet. Some owners prefer holding their coins in crypto wallets for extra security. This way they never face an issue if Robinhood crashes or puts a halt on trading. Some advanced crypto investors hold wallets that do not connect to the internet for additional security.


Set up a broker account with the crypto exchange


After you decide which crypto exchange you want to use, it’s time to set up your account. This usually involves verifying your identity to prevent fraud and ensure you meet federal regulations. This includes sending in a copy of your international identification and a selfie to verify your identity. You will not be able to transact any crypto till you complete the identity verification process.


Put cash into the account


In order to start purchasing crypto currencies, you will have to fund your account by either directly connecting your bank account or adding a debit card. This usually takes a few days to approve but once it’s connected, you will be able to instantly use funds to trade any cryptos.


Watch out though! Connecting a credit card to your account will cause you to pay unnecessary charges. For example, crypto transactions usually involve paying a higher interest rate than regular purchases. In addition, the brokerage may charge you additional fees just because you’re using a credit card. So make sure to either connect your bank account or use a debit card only.


Invest


Look at you - you’re ready to place your first crypto currency order! You can choose from a wide range of cryptos - ranging from big names like Bitcoin to interesting cryptos like TrumpCoin. As an investor, make sure to purchase coins whose projects mean something to you and you believe in. When purchasing a cryptocurrency, you fortunately can buy fractional shares. This means that you don’t need to spend ~ $43,000 to invest in Bitcoin. You can buy as much as you want and receive the prorated amount. For example, if you want to invest $1,000, you will only receive ~ 0.023 Bitcoin.


The 10 current largest crypto currencies by market capitalization are:

  1. Bitcoin (BTC)

  2. Ethereum (ETH)

  3. Cardano (ADA)

  4. Tether (USDT)

  5. Binance Coin (BNB)

  6. XRP (XRP)

  7. Solana (SOL)

  8. USD Coin (USDC)

  9. Polkadot (DOT)

  10. Dogecoin (DOGE)


Fun fact: dogecoin was previously in the top 5 cryptocurrencies by market capitalization however has fallen after a lack of demand (or hype in this case).


Store your coins


One of the reasons why advanced crypto investors choose to store their coins on an offline wallet is because exchanges are not backed by the FDIC and at a high risk of theft through hacking. Previously, billions of dollars worth of Bitcoin have been lost after people have forgotten their keys to access their accounts. For example, Stefan Thomas forgot the password to access his account holding crypto worth approximately $200 million.


If you’re buying crypto through a broker like Robinhood, you currently don’t have a choice how your coins are stored. If you don’t want to store your crypto in your exchange wallet, you can transfer them to a hot or cold wallet. Depending on the transfer, you may have to pay a fee. Hot wallets are stored online while cold wallets are stored offline. Both are secure but cold wallets provide extra security since they are not connected to the internet. This is usually stored in a hard drive, but if you forget the key, you could end up like Stefan Thomas.