Investing / Crypto

D-Keine / www.oldyorkcellars.com

Cryptocurrency has introduced people to a new form of investment that can be very lucrative. While it’s a risky venture, it can earn a ten-fold return on your initial investment in some cases.

Bitcoin holds the title for being the first cryptocurrency – and most popular for that matter – in the world. It rose dramatically from $3, at the end of to hitting an all time high of $65, in

Although it’s more volatile than bonds and stocks, it’s possible to make a reasonable sum if you know how to invest in Bitcoin. For instance, most experts suggest you do not invest more than 3% of your investment portfolio in cryptocurrency.

What else do you need to know when you decide to buy Bitcoin? Here’s an overview.

How To Buy Bitcoin

Like any other cryptocurrency, there are four steps you need to take to buy Bitcoin.

4 Steps To Follow

1. Find a way to buy Bitcoin. You need to buy Bitcoin from a cryptocurrency exchange, such as Coinbase. You can also purchase cryptocurrency from traditional brokers, such as Robinhood.
2. Figure out how to store Bitcoin. You have to decide if you want to store your Bitcoin in a cold or hot wallet.
3. Purchase your Bitcoin. Buy the number of bitcoins you want using what you’ve found during the first step.
4. Manage your Bitcoin. Manage this financial asset by making a long-term plan for it.

Now, here’s a breakdown of all these steps in detail.

1. Where To Buy Bitcoin

First off, you need to determine how to buy Bitcoin. Fortunately, there are a few different ways to do this.

Cryptocurrency Exchanges

Cryptocurrency exchanges facilitate cryptocurrency trading for several kinds of assets, including fiat currencies and digital currencies.

Such a platform would act as an intermediary between seller and buyer, making money through transaction fees and commissions.

Typically, there are two types of cryptocurrency exchanges:

• Centralized: These cryptocurrency exchanges are third parties between sellers and buyers. They are more reliable since there’s a company involved. Some examples include GDAX, Kraken and Coinbase. These exchanges are very user-friendly as they allow users to view their accounts and make transactions via convenient websites and applications.
• Decentralized: Meanwhile, decentralized cryptocurrency exchanges facilitate peer-to-peer cryptocurrency transactions without an intermediary. Some examples include Blocknet and AirSwap. These exchanges are at a lower risk of being hacked since users do not have to transfer their cryptocurrency or other assets to an intermediary.

Cryptocurrency Brokers

Cryptocurrency stockbrokers are a firm or agent that handles a client’s assets and trading.

The first mainstream cryptocurrency broker was Robinhood, offering free Bitcoin trades. eToro, a social trading platform, is another prominent cryptocurrency broker.

Alternative Ways To Buy Bitcoin

Here are some other ways to buy Bitcoin:

• Bitcoin ATMs: These are just like regular ATMs but can be used to sell or purchase Bitcoins. According to Coin ATM Radar, there are over 42, ATMs of this sort in the U.S.
• Bitcoin Futures: This option is for pros and is offered by firms like TradeStation. It lets you trade Bitcoin futures.
• Peer-to-Peer Sales: You can purchase Bitcoins from another owner directly, sort of like buying something off Etsy. Some tools for this include Bitquick and Bisq. However, you should be careful when purchasing cryptocurrency directly from someone without the involvement of a third-party intermediary.

2. Figure Out How To Store Bitcoin

You can store Bitcoin in a hot or cold wallet. Hot wallet transactions are quicker, while those in cold wallets have extra steps to maintain security. The latter takes longer but is more secure.

Hot Wallet

Storing your cryptocurrency in a hot wallet means the assets are stored by a provider or trusted exchange in the cloud. You can access your Bitcoins through a computer browser or an app.

All trading exchanges come with complimentary hot wallets where all your Bitcoins are automatically stored. If you want to store your Bitcoin in a third-party hot wallet, you can download a free app and use it to keep your assets safe.

Some hot wallet providers include Coinbase, Blockchain, Electrum, and Mycelium.

Some pros of a hot wallet include:

• Quick to access
• Easy to use
• Usually free

However, hot wallets are connected to the Internet, making them susceptible to hacking and presenting other, more technical vulnerabilities.

Cold Wallet

A cold wallet is an offline encryptable device where Bitcoins can be downloaded. You can carry the device around. It’s considered safer than a hot wallet and costs around $

For example, two cold wallet providers are:

• Ledger: Their cold wallets cost $60 to $
• Trezor: Their cold wallets range from $80 to $

When you’re creating digital wallet accounts, make sure the passwords are strong. Here are some pros of cold wallets:

• More secure than hot wallets
• Completely offline

On the flip side, cold wallets are expensive and require you to carry the device with you if you want to make regular transactions.

3. Purchase Your Bitcoin

Once you have linked your wallet to the exchange, you must select the number of Bitcoins you want to purchase. One Bitcoin costs about $40,, making it difficult for everyone to purchase a round-number amount.

You can buy the cryptocurrency in fractions, allowing you to purchase exactly the amount you want.

4. Manage Your Bitcoin

The simplest way to manage your cryptocurrency investment is to keep an eye on the cryptocurrency market and sell your Bitcoin when it goes up in value. However, if you think the currency will face a significant spike in the coming years, hold on to your Bitcoin for a long time.

Do You Know How To Invest in Bitcoin Safely?

If you’re new to cryptocurrency investments, you should be pretty careful since the market is very volatile, and you can end up losing your money quickly. Here are some tips to be on the safer side:

• Research: Make sure you learn all you need to know about cryptocurrency exchanges before you select one. You can also talk to experienced investors through online forums, especially those on Reddit.
• Diversify: Investing in Bitcoin seems like a lucrative move since the currency has spiked exponentially in the past few years. Still, you should not put all your money in one cryptocurrency. Instead, diversify your investments so that your money is more durable to shifts in the market.

How Much Does Bitcoin Cost?

It may seem surprising that Bitcoin has reached a five-figure value. One bitcoin costs about $40, as of Mar. 7,

However, the value of Bitcoin varies from time to time. This happens due to several factors that affect the rate of Bitcoin.

What Affects the Price of Bitcoin?

Here are some of the factors that influence the sky-rocketing price of Bitcoin.

Supply and Demand

The supply and demand theory combined with Bitcoin’s popularity made many individuals invest in Bitcoin. This sudden demand led to a rise in Bitcoin value.

Popularity

Low demand for Bitcoin results in a decrease in value. However, in recent years, many individuals, companies, governments and multinational corporations have invested in Bitcoin, driving up its value which reached a new high.

This demand is continuously rising. Therefore, the price of Bitcoin keeps going up. Moreover, the portrayal of Bitcoin in the media plays a significant role in driving up the cost of Bitcoin. For example, earlier in , the Bitcoin prices crashed due to the negative media coverage regarding Bitcoin regulation in some countries.

Mining

Mining is a process that validates transactions and adds them to the blockchain. With Bitcoin gaining popularity, many mining pools became dedicated to mining it. Anyone could mine Bitcoin with the help of proper hardware and mining pools. But, the more miners there are, the more difficult it is for you to mine to keep production continuing consistently. Naturally, this increases the price of Bitcoin.

With new miners and hardware becoming a part of the bitcoin network, the hash rate increased, which resulted in a higher Bitcoin value.

Good To Know

Remember that cryptocurrency, due to its volatility, can take a toll on your pocket and mental wellbeing. So, you should only dabble in Bitcoin investment if you’re not too bothered by the dramatic highs and lows in Bitcoin prices.

Information is accurate as of Mar. 7,

Despite its well-known volatility, cryptocurrency is on fire and many investors are looking to profit on its white-hot rise. Cryptos such as Bitcoin and Ethereum ebb for a while and then climb higher, and many other popular digital currencies are doing so, too. Experienced traders have been speculating on crypto for years, but what if you&#x;re new to the market and looking to get a piece of the action?

Here&#x;s how to start investing in cryptocurrency and what you need to watch out for.

5 steps for investing in cryptocurrency

First things first, if you&#x;re looking to invest in crypto, you need to have all your finances in order. That means having an emergency fund in place, a manageable level of debt and ideally a diversified portfolio of investments. Your crypto investments can become one more part of your portfolio, one that helps raise your total returns, hopefully.

Pay attention to these five other things as you&#x;re starting to invest in cryptocurrencies.

1. Understand what you&#x;re investing in

As you would for any investment, understand exactly what you&#x;re investing in. If you&#x;re buying stocks, it&#x;s important to read the prospectus and analyze the companies thoroughly. Plan to do the same with any cryptocurrencies, since there are literally thousands of them, they all function differently and new ones are being created every day. You need to understand the investment case for each trade.

In the case of many cryptocurrencies, they&#x;re backed by nothing at all, neither hard assets nor cash flow. That&#x;s the case for Bitcoin, for example, where investors rely exclusively on someone paying more for the asset than they paid for it. In other words, unlike stock, where a company can grow its profits and drive returns for you that way, many crypto assets must rely on the market becoming more optimistic and bullish for you to profit.

Some of the most popular coins include Ethereum, Dogecoin, Cardano and XRP. Solana has been another massively successful coin as well. So before investing, understand the potential upside and downside. If your financial investment is not backed by an asset or cash flow, it could end up being worth nothing.

2. Remember, the past is past

A mistake that many new investors make is looking at the past and extrapolating that to the future. Yes, Bitcoin used to be worth pennies, but now is worth much more. The key question, however, is Will that growth continue into the future, even if it&#x;s not at quite that meteoric rate?

Investors look to the future, not to what an asset has done in the past. What will drive future returns? Traders buying a cryptocurrency today need tomorrow&#x;s gains, not yesterday&#x;s.

3. Watch that volatility

The prices of cryptocurrencies are about as volatile as an asset can get. They could drop quickly in seconds on nothing more than a rumor that ends up proving baseless. That can be great for sophisticated investors who can execute trades rapidly or who have a solid grasp on the market&#x;s fundamentals, how the market is trending and where it could go. For new investors without these skills &#x; or the high-powered algorithms that direct these trades &#x; it&#x;s a minefield.

Volatility is a game for high-powered Wall Street traders, each of whom is trying to outgun other deep-pocketed investors. A new investor can easily get crushed by the volatility.

That&#x;s because volatility shakes out traders, especially beginners, who get scared. Meanwhile, other traders may step in and buy on the cheap. In short, volatility can help sophisticated traders buy low and sell high while inexperienced investors buy high and sell low.

4. Manage your risk

If you&#x;re trading any asset on a short-term basis, you need to manage your risk, and that can be especially true with volatile assets such as cryptocurrency. So as a newer trader, you&#x;ll need to understand how best to manage risk and develop a process that helps you mitigate losses. And that process can vary from individual to individual:

• Risk management for a long-term investor might simply be never selling, regardless of the price. The long-term mentality allows the investor to stick with the position.
• Risk management for a short-term trader, however, might be setting strict rules on when to sell, such as when an investment has fallen 10 percent. The trader then rotely follows the rule so that a relatively small decline doesn&#x;t become a crushing loss later.

Newer traders should consider setting aside a certain amount of trading money and then using only a portion of it, at least at first. If a position moves against them, they&#x;ll still have money in reserve to trade with later. The ultimate point is that you can&#x;t trade if you don&#x;t have any money. So keeping some money in reserve means you&#x;ll always have a bankroll to fund your trading.

It&#x;s important to manage risk, but that will come at an emotional cost. Selling a losing position hurts, but doing so can help you avoid worse losses later.

5. Don&#x;t invest more than you can afford to lose

Finally, it&#x;s important to avoid putting money that you need into speculative assets. If you can&#x;t afford to lose it &#x; all of it &#x; you can&#x;t afford to put it into risky assets such as cryptocurrency, or other market-based assets such as stocks or ETFs, for that matter.

Whether it&#x;s a down payment for a house or an important upcoming purchase, money that you need in the next few years should be kept in safe accounts so that it&#x;s there when you need it. And if you&#x;re looking for an absolutely sure return, your best option is to pay off debt. You&#x;re guaranteed to earn (or save) whatever interest rate you&#x;re paying on the debt. You can&#x;t lose there.

Finally, don&#x;t overlook the security of any exchange or broker you&#x;re using. You may own the assets legally, but someone still has to secure them, and their security needs to be tight. If they don&#x;t think their cryptocurrency is properly secured, some traders choose to invest in a crypto wallet to hold their coins offline so they&#x;re inaccessible to hackers or others.

Other ways to invest in cryptocurrency

While investing directly in cryptocurrency may be the most popular way to do so, traders have other ways to get into the crypto game, some more directly than others. These include:

• Crypto futures: Futures are another way to wager on the price swings in Bitcoin, and futures allow you to use the power of leverage to generate massive returns (or losses). Futures are a fast-moving market and exacerbate the already volatile moves in crypto.
• Crypto funds: A few crypto funds (such as the Grayscale Bitcoin Trust) also exist that allow you to wager on the price swings in Bitcoin, Ethereum as well as a few other altcoins. So they can be an easy way to buy crypto through a fund-like product.
• Crypto exchange or broker stocks: Buying stock in a company that&#x;s poised to profit on the rise of cryptocurrency regardless of the winner could be an interesting option, too. And that&#x;s the potential in an exchange such as Coinbase or a broker such as Robinhood, which derives a huge chunk of its revenues from crypto trading.
• Blockchain ETFs: A blockchain ETF allows you to invest in the companies that may profit from the emergence of blockchain technology. The top blockchain ETFs give you exposure to some of the key publicly traded companies in the space. But it&#x;s important to note that these companies often do much more than crypto-related business, meaning your exposure to cryptocurrency is diluted, reducing your potential upside and downside.

Each of these methods varies in its riskiness and exposure to cryptocurrency, so you&#x;ll want to understand exactly what you&#x;re buying and whether it fits your needs.

Cryptocurrency investing FAQs

How much money do I need to start investing in cryptocurrency?

In theory it takes only a few dollars to invest in cryptocurrency. Most crypto exchanges, for example, have a minimum trade that might be $5 or $ Other crypto trading apps might have a minimum that&#x;s even lower.

However, it&#x;s important to understand that some trading platforms will take a huge chunk of your investment as a fee if you&#x;re trading small amounts of cryptocurrency. So it&#x;s important to look for a broker or exchange that minimizes your fees. In fact, many so-called free brokers embed fees &#x; called spread mark-ups &#x; in the price you pay for your cryptocurrency.

How does a blockchain work?

Cryptocurrency is based on blockchain technology. Blockchain is a kind of database that records and timestamps every entry into it. The best way to think of a blockchain is like a running receipt of transactions. When a blockchain database powers cryptocurrency, it records and verifies transactions in the currency, verifying the currency&#x;s movements and who owns it.

Many crypto blockchain databases are run with decentralized computer networks. That is, many redundant computers operate the database, checking and rechecking the transactions to ensure that they&#x;re accurate. If there&#x;s a discrepancy, the networked computers have to resolve it.

How do you mine cryptocurrency?

Some cryptocurrencies reward those who verify the transactions on the blockchain database in a process called mining. For example, these miners involved with Bitcoin solve very complex mathematical problems as part of the verification process. If they&#x;re successful, miners receive a predetermined award of bitcoins.

To mine bitcoins, miners need powerful processing units that consume huge amounts of energy. Many miners operate huge rooms full of such mining rigs in order to extract these rewards. As of early , running the Bitcoin system burned as much energy as a medium-sized country.

How can I invest in Bitcoin?

If you&#x;re looking to invest in Bitcoin, you have a variety of ways to do so, and you can work with a number of companies, including:

• Crypto exchanges: Exchanges have some of the widest selection of cryptocurrencies, and they tend to be the most competitive on price. Top players include Coinbase, Kraken and Binance, but there are literally dozens of others.
• Traditional brokers: Many traditional brokers also allow you to trade Bitcoin in addition to stocks and other financial assets, though they have a relatively limited selection of other cryptocurrencies. Top players here include Interactive Brokers, TradeStation and tastyworks.
• Financial apps: Many financial apps now allow you to trade Bitcoin and a few other cryptos. Top players here include Robinhood and Webull as well as payment apps such as PayPal, Venmo and Cash App.

If you&#x;re looking to buy Bitcoin, pay particular attention to the fees that you&#x;re paying. Here are other key things to watch out for as you&#x;re buying Bitcoin.

What are altcoins?

An altcoin is an alternative to Bitcoin. Many years ago, traders would use the term pejoratively. Since Bitcoin was the largest and most popular cryptocurrency, everything else was defined in relation to it. So, whatever was not Bitcoin was lumped into a derisive category called altcoins.

While Bitcoin is still the largest cryptocurrency by market capitalization, it&#x;s no longer as dominant as it was in the very early days of cryptocurrency. Other altcoins such as Ethereum and Solana have grown in popularity, making the term altcoin somewhat outmoded. Now with a reported 15, or more cryptocurrencies in existence, it makes less sense than ever to define the industry as Bitcoin and then everything else.

Bottom line

Cryptocurrency is a highly speculative area of the market, and many smart investors have decided to put their money elsewhere. For beginners who want to get started trading crypto, however, the best advice is to start small and only use money that you can afford to lose.

Learn more:

If you’re new to the world of crypto, figuring out how to buy Bitcoin, Dogecoin, Ethereum and other cryptocurrencies can be confusing at first. Thankfully, it’s pretty simple to learn the ropes. You can start investing in cryptocurrency by following these five easy steps.

1. Choose a Broker or Crypto Exchange

To buy cryptocurrency, first you need to pick a broker or a crypto exchange. While either lets you buy crypto, there are a few key differences between them to keep in mind.

What Is a Cryptocurrency Exchange?

A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Exchanges often have relatively low fees, but they tend to have more complex interfaces with multiple trade types and advanced performance charts, all of which can make them intimidating for new crypto investors.

Some of the most well-known cryptocurrency exchanges are Coinbase, Gemini and www.oldyorkcellars.com While these companies’ standard trading interfaces may overwhelm beginners, particularly those without a background trading stocks, they also offer user-friendly easy purchase options.

The convenience comes at a cost, however, as the beginner-friendly options charge substantially more than it would cost to buy the same crypto via each platform’s standard trading interface. To save on costs, you might aim to learn enough to utilize the standard trading platforms before you make your fist crypto purchase—or not long after.

An important note: As someone new to crypto, you’ll want to make sure your exchange or brokerage of choice allows fiat currency transfers and purchases made with U.S. dollars. Some exchanges only allow you to buy crypto using another crypto, meaning you’d have to find another exchange to buy the tokens your preferred exchange accepts before you could begin trading crypto on that platform.

What Is a Cryptocurrency Broker?

Cryptocurrency brokers take the complexity out of purchasing crypto, offering easy-to-use interfaces that interact with exchanges for you. Some charge higher fees than exchanges. Others claim to be “free” while making money by selling information about what you and other traders are buying and selling to large brokerages or funds or not executing your trade at the best possible market price. Robinhood and SoFi are two of the most well-known crypto brokers.

While they’re undeniably convenient, you have to be careful with brokers because you may face restrictions on moving your cryptocurrency holdings off the platform. At Robinhood and SoFi, for instance, you cannot transfer your crypto holdings out of your account. This may not seem like a huge deal, but advanced crypto investors prefer to hold their coins in crypto wallets for extra security. Some even choose hardware crypto wallets that are not connected to the internet for even more security.

2. Create and Verify Your Account

Once you decide on a cryptocurrency broker or exchange, you can sign up to open an account. Depending on the platform and the amount you plan to buy, you may have to verify your identity. This is an essential step to prevent fraud and meet federal regulatory requirements.

You may not be able to buy or sell cryptocurrency until you complete the verification process. The platform may ask you to submit a copy of your driver’s license or passport, and you may even be asked to upload a selfie to prove your appearance matches the documents you submit.

3. Deposit Cash to Invest

To buy crypto, you’ll need to make sure you have funds in your account. You might deposit money into your crypto account by linking your bank account, authorizing a wire transfer or even making a payment with a debit or credit card. Depending on the exchange or broker and your funding method, you may have to wait a few days before you can use the money you deposit to buy cryptocurrency.

Here’s one big buyer beware: While some exchanges or brokers allow you to deposit money from a credit card, doing so is extremely risky—and expensive. Credit card companies process cryptocurrency purchases with credit cards as cash advances. This means they’re subject to higher interest rates than regular purchases, and you’ll also have to pay additional cash advance fees. For example, you may have to pay 5% of the transaction amount when you make a cash advance. This is on top of any fees that your crypto exchange or brokerage may charge; these can run up to 5% themselves, meaning you might lose 10% of your crypto purchase to fees.

4. Place Your Cryptocurrency Order

Once there is money in your account, you’re ready to place your first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum to more obscure cryptos like Theta Fuel or Holo.

When you decide on which cryptocurrency to purchase, you can enter its ticker symbol—Bitcoin, for instance is BTC—and how many coins you’d like to purchase. With most exchanges and brokers, you can purchase fractional shares of cryptocurrency, allowing you to buy a sliver of high-priced tokens like Bitcoin or Ethereum that otherwise take thousands to own.

The symbols for the 10 biggest cryptocurrencies based on market capitalization* are as follows:

1. Bitcoin (BTC)
2. Ethereum (ETH)
3. Tether (USDT)
4. Binance Coin (BNB)
5. Cardana (ADA)
6. Dogecoin (DOGE)
7. XRP (XRP)
8. USD Coin (USDC)
9. Polkadot (DOT)
10. Uniswap (UNI)

*Based on market capitalization as of June 28,

5. Select a Storage Method

Cryptocurrency exchanges are not backed by protections like the Federal Deposit Insurance Corp. (FDIC), and they’re at risk of theft or hacking. You could even lose your investment if you forget or lose the codes to access your account, as millions of dollars of Bitcoin already has been. That’s why it’s so important to have a secure storage place for your cryptocurrencies.

As noted above, if you’re buying cryptocurrency via a broker, you may have little to no choice in how your cryptocurrency is stored. If you purchase cryptocurrency through an exchange, you have more options:

• Leave the crypto on the exchange. When you buy cryptocurrency, it’s typically stored in a so-called crypto wallet attached to the exchange. If you don’t like the provider your exchange partners with or you want to move it to a more secure location, you might transfer it off of the exchange to a separate hot or cold wallet. Depending on the exchange and the size of your transfer, you may have to pay a small fee to do this.
• Hot wallets. These are crypto wallets that are stored online and run on internet-connected devices, such as tablets, computers or phones. Hot wallets are convenient, but there’s a higher risk of theft since they’re still connected to the internet.
• Cold wallets. Cold crypto wallets aren’t connected to the internet, making them your most secure option for holding cryptocurrency. They take the form of external devices, like a USB drive or a hard drive. You have to be careful with cold wallets, though—if you lose the keycode associated with them or the device breaks or fails, you may never be able to get your cryptocurrency back. While the same could happen with certain hot wallets, some are run by custodians who can help you get back into your account if you get locked out.

Alternatives Ways to Buy Cryptocurrency

While buying cryptocurrency is a major trend right now, it’s a volatile and risky investment choice. If investing in crypto on an exchange or via a broker doesn’t feel like the right choice for you, here’s are a few options to indirectly invest in Bitcoin and other cryptocurrencies:

1. Wait for Crypto Exchange-Traded Funds (ETFs)

ETFs are extremely popular investment tools that let you buy exposure to hundreds of individual investments in one fell swoop. This means they provide immediate diversification and are less risky than investing in individual investments.

There is a huge appetite for cryptocurrency ETFs, which would allow you to invest in many cryptocurrencies at once. No cryptocurrency ETFs are available for everyday investors quite yet, but there may be some soon. As of June , the U.S. Securities and Exchange Commission (SEC) is reviewing three cryptocurrency ETF applications from Kryptcoin, VanEck and WisdomTree.

2. Invest in Companies Connected to Cryptocurrency

If you’d rather invest in companies with tangible products or services and that are subject to regulatory oversight—but still want exposure to the cryptocurrency market—you can buy stocks of companies that use or own cryptocurrencies and the blockchain that powers them. You’ll need an online brokerage account to buy shares of public companies like:

• Nvidia (NVDA). This technology company designs and sells graphics processing units, which are at the heart of the systems used to mine cryptocurrency.
• PayPal (PYPL). Already a popular choice for people buying items online or transferring money to family and friends, this payments platform recently expanded to allow customers to buy and sell select cryptocurrencies with their PayPal and Venmo accounts.
• Square (SQ). This payment services provider for small businesses has purchased over $ million in Bitcoin since October In February , the firm disclosed that Bitcoin made up around 5% of the cash on its balance sheet. In addition, Square’s Cash App allows people to buy, sell and store cryptocurrency.

As with any investment, make sure you consider your investment goals and current financial situation before investing in cryptocurrency or individual companies that have a heavy stake in it. Cryptocurrency can be extremely volatile—a single tweet can make its price plummet—and it’s still a very speculative investment. This means you should invest carefully and with caution.

It's possible to get filthy rich by investing in cryptocurrency in -- but you could also lose all of your money. Investing in crypto assets is risky but also potentially extremely profitable.

Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency. A safer but potentially less lucrative alternative is buying the stocks of companies with exposure to cryptocurrency.

Let's examine the pros and cons of investing in cryptocurrency.

Is cryptocurrency safe?

Several factors make cryptocurrency a not entirely safe investment. However, other signs are emerging that cryptocurrency is here to stay.

There are numerous risks associated with crypto. Investors and users must decide for themselves if the benefits outweigh these risks.

Cryptocurrency risks

Cryptocurrency exchanges, more so than stock exchanges, are vulnerable to being hacked and becoming targets of other criminal activity. Security breaches have led to sizable losses for investors who have had their digital currencies stolen, spurring many exchanges and third-party insurers to begin offering protection against hacks. 

Safely storing cryptocurrencies is also more difficult than owning stocks or bonds. Cryptocurrency exchanges such as Coinbase(NASDAQ:COIN) make it fairly easy to buy and sell crypto assets such as Bitcoin(CRYPTO:BTC) and Ethereum(CRYPTO:ETH), but many people don't like to keep their digital assets on exchanges due to the risks of allowing any company to control access to their assets.

Storing cryptocurrency on a centralized exchange means you don't have full control over your assets. An exchange could freeze your assets based on a government request, or the exchange could go bankrupt and you'd have no recourse to recover your money.

Some cryptocurrency owners prefer offline "cold storage" options such as hardware wallets, but cold storage comes with its own set of challenges. The biggest is the risk of losing your private key; without a key, it's impossible to access your cryptocurrency.

There's also no guarantee that a crypto project you invest in will succeed. Competition is fierce among thousands of blockchain projects, and many projects are no more than scams. Only a small percentage of cryptocurrency projects will ultimately flourish.

Regulators may also crack down on the entire crypto industry, especially if governments view cryptocurrencies as a threat rather than an innovative technology.

The cutting-edge technology elements of cryptocurrency also increase the risks for investors. Much of the tech is still being developed and is not yet extensively proven in real-world scenarios.

The Motley Fool's 5 Million Dollar Crypto Bet. Read More »

Cryptocurrency adoption

Despite the risks, cryptocurrencies and the blockchain industry are growing stronger. Much-needed financial infrastructure is being built, and investors are increasingly able to access institutional-grade custody services. Professional and individual investors are gradually receiving the tools they need to manage and safeguard their crypto assets.

Crypto futures markets are being established, and many companies are gaining direct exposure to the cryptocurrency sector. Financial giants such as Block(NYSE:SQ) and PayPal(NASDAQ:PYPL) are making it easier to buy and sell cryptocurrency on their popular platforms. Other companies, including Block, have poured hundreds of millions of dollars into Bitcoin and other digital assets. Tesla(NASDAQ:TSLA) purchased $ billion worth of Bitcoin in early By February , the electric vehicle maker reported that it held almost $2 billion of the cryptocurrency. MicroStrategy (NASDAQ:MSTR) -- a business intelligence software company -- has been accumulating Bitcoin since It held $ billion in the cryptocurrency by the end of and said it plans to buy more with excess cash generated from operations.

Although other factors still affect the riskiness of cryptocurrency, the increasing pace of adoption is a sign of a maturing industry. Individual investors and companies are seeking to gain direct exposure to cryptocurrency, considering it safe enough for investing large sums of money.

Is crypto a good long-term investment?

Many cryptocurrencies such as Bitcoin and Ethereum are launched with lofty objectives, which may be achieved over long time horizons. While the success of any cryptocurrency project is not assured, early investors in a crypto project that reaches its goals can be richly rewarded over the long term.

For any cryptocurrency project, however, achieving widespread adoption is necessary to be considered a long-term success.

Bitcoin as a long-term investment

Bitcoin, as the most widely known cryptocurrency, benefits from the network effect -- more people want to own Bitcoin because Bitcoin is owned by the most people. Bitcoin is currently viewed by many investors as "digital gold," but it could also be used as a digital form of cash.

Bitcoin investors believe the cryptocurrency will gain value over the long term because the supply is fixed, unlike the supplies of fiat currencies such as the U.S. dollar or the Japanese yen. The supply of Bitcoin is capped at fewer than 21 million coins, while most currencies can be printed at the will of central bankers. Many investors expect Bitcoin to gain value as fiat currencies depreciate.

Those who are bullish about Bitcoin being extensively used as digital cash believe it has the potential to become the first truly global currency. 

Ethereum as a long-term investment

Ether is the native coin of the Ethereum platform and can be purchased by investors wishing to gain portfolio exposure to Ethereum. While Bitcoin can be viewed as digital gold, Ethereum is building a global computing platform that supports many other cryptocurrencies and a massive ecosystem of decentralized applications ("dApps").

The large number of cryptocurrencies built on the Ethereum platform, plus the open-source nature of dApps, creates opportunities for Ethereum to also benefit from the network effect and to create sustainable, long-term value. The Ethereum platform enables the use of "smart contracts," which execute automatically based on terms written directly into the contract code.

The Ethereum network collects Ether from users in exchange for executing smart contracts. Smart contract technology has significant potential to disrupt massive industries such as real estate and banking and also to create entirely new markets.

As the Ethereum platform becomes increasingly used worldwide, the Ether token increases in utility and value. Investors bullish on the long-term potential of the Ethereum platform can profit directly by owning Ether.  

That's not to say Ethereum doesn't have competition. A number of "Ethereum Killers," including Solana (CRYPTO:SOL), Polygon (CRYPTO:MATIC), and Avalanche(CRYPTO:AVAX), are all built to handle smart contracts and use a blockchain system capable of processing more transactions per second. The speed has the added advantage of being less expensive for users as well. But Ethereum is the most broadly adopted platform for using smart contracts.

Should you invest in cryptocurrency?

Owning some cryptocurrency can increase your portfolio's diversification since cryptocurrencies such as Bitcoin have historically shown few price correlations with the U.S. stock market. If you believe that cryptocurrency usage will become increasingly widespread over time, then it probably makes sense for you to buy some crypto directly as part of a diversified portfolio. For every cryptocurrency that you invest in, be sure to have an investment thesis as to why that currency will stand the test of time. If you do your research and learn as much as possible about how to invest in cryptocurrency, you should be able to manage the investment risk as part of your overall portfolio.

If buying cryptocurrency seems too risky, you can consider other ways to potentially profit from the rise of cryptocurrencies. You can buy the stocks of companies such as Coinbase, Block, and PayPal, or you can invest in an exchange like CME Group(NASDAQ:CME), which facilitates crypto futures trading. Although investments in these companies may be profitable, they do not have the same upside potential as investing in cryptocurrency directly.

Expert Q&A

The Motley Fool sought blockchain insights from three finance experts: Dr. Christine Parlour, professor and Sylvan C. Coleman Chair of Finance and Accounting at the Haas School of Business, University of California, Berkeley; Dr. Jimmie Lenz, director of Duke University's Master of Engineering in FinTech and Master of Engineering in Cybersecurity; and Dr. Merav Ozair, who is a leading blockchain expert and a FinTech Professor at Rutgers Business School.

Dr. Christine Parlour, professor and Sylvan C. Coleman Chair of Finance and Accounting at the Haas School of Business, University of California, Berkeley. Most of her work is in institutionally complex areas in finance, banking and financial technology. Her current work focuses on fintech, payment systems, blockchain and cryptocurrency, and market infrastructure.

The Motley Fool: What advice would you give to someone interested in investing in blockchain technology?

Parlour: Be curious but also be cautious. It is important to recognize that there is not a complete regulatory framework in this area. So, it is important to do your homework. First, consider the venue that you use to access the market. There are regulated crypto exchanges and trading places; however, there are also unregulated ones. Second, while most tokens are based on open-source code, it is not the case that they have the same disclosure regimes as blue chip stocks. So, be careful and investigate the nature of the underlying token. Note that in other countries (Canada, Europe), there are ETFs and ETPs that track crypto portfolios; these have not received regulatory approval yet in the U.S. If and when they are offered to consumers, these will be a low-cost way of accessing the crypto market, and then someone else will handle the market mechanics. 

Dr. Jimmie Lenz, director of Duke University's Master of Engineering in FinTech and Master of Engineering in Cybersecurity. Dr. Lenz is an experienced executive, lecturer, and scholar in the field of banking and capital markets, so we asked him a few questions about DeFi and blockchain.

Lenz:Learn and keep learning. The developments in the space are happening at a rapid pace, so much so that new knowledge is being generated constantly. As a professor teaching blockchain, this is the hardest part, reinventing the course every semester, but it keeps my students and me as current as possible. This doesn't mean neglecting base knowledge; having this is crucial, as well as some sense of the history to understand why developments have occurred at specific times.

Dr. Merav Ozair is a leading blockchain expert and a FinTech Professor at Rutgers Business School. She serves as research director of RBS Blockchain Hub, as well as an advisor and researcher at the Rutgers Blockchain and FinTech Collaboratory.

Ozair: Blockchain technology is definitely the future. There is no escaping that. However, it is difficult to predict which projects will last and which will fail and be forgotten.

Most blockchain technology companies are in their early, if not very early, stages. Hence, investing in companies utilizing blockchain technologies has all the same risks as investing in a start-up. And like in any start-up, the risk-reward ratio is high.

Therefore, learn about blockchain technology, do a thorough due diligence on any project -- from its technology to business model to execution. Learn about the "problem" it is trying to solve and what solution it's offering -- both from a technological perspective and a business perspective.

There's a lot of potential with blockchain technology, but the execution is in the details.

Bitcoin is a well-known cryptocurrency that offers tech enthusiasts an alternative form of money. Cryptocurrencies such as Bitcoin offer a relatively new method of tracking and verifying asset ownership, which enables the Bitcoin network to operate. In addition to functioning as a mode of payment, many people buy and hold Bitcoin as an investment, although it’s important to note that Bitcoin investments are extremely risky.

If you want to join the ranks of Bitcoin investors, you have several options to buy the world’s biggest and most popular cryptocurrency. Here’s a detailed look at the required steps to buy Bitcoin.

How to Invest in Bitcoin in 4 Steps

The easiest way for most people to buy Bitcoin is through a brokerage account or cryptocurrency exchange account. You can buy Bitcoin using most digital wallets as well, but in this section we will focus on the easiest way to buy:

1. Choose the Right Bitcoin Exchange or Brokerage

   Start your Bitcoin purchase by choosing the best place to buy and store your digital currency. Popular places to buy Bitcoin include Coinbase, Robinhood, eToro, FTX, Gemini, and BlockFi, among many others. Take note of fees and the reputation of the exchange when picking where to buy Bitcoin. Also, if you plan to transfer your Bitcoin out of the brokerage account, make sure that feature is supported, as not all brokerages give you that option.
   

2. Open an Account With Bitcoin Support

   Once you’ve picked your ideal account, it’s time to open your brokerage or cryptocurrency account. For those in the United States, plan on sharing your basic contact information and valid identification to meet the exchange’s know your customer (KYC) requirements.
   

3. Fund Your Account With Fiat (Government-Backed) Currency

   Once your account is open, it’s time to add funds. The fastest and cheapest way is typically with an online funds transfer from a connected bank account. Depending on your exchange, you may also be able to use payment apps like PayPal. Some cryptocurrency exchanges give you instant access to trade, while others may require you to wait for funds to clear before buying. If you can buy cryptocurrency immediately, you may have to wait until the deposit clears before you can withdraw funds from the account.
   

4. Enter a Purchase Order

   When you think the moment is right, click the buy button to enter an order. The exchange will turn your dollars into Bitcoin, stored in the same cryptocurrency account, similar to holding stocks in a brokerage account. Once your trade executes, you are officially a Bitcoin owner.
   

What You Need to Know Before You Invest in Bitcoin

Bitcoin is an exciting digital currency that began an online currency and digital asset revolution. Bitcoin uses a triple-entry bookkeeping system that powers a decentralized system run by many participating computers around the world, known as miners. Bitcoin was first created in and reached a peak value of more than $60, per coin in early However, the price is highly volatile compared to other assets, such as stocks and diverse ETFs.

If you move forward and make a Bitcoin purchase, you can choose between storing your Bitcoin in the same exchange account you used to buy the currency or external software, hardware, or paper cryptocurrency wallet. Offline storage with a hardware wallet, known as cold storage, is considered the safest and most secure place to keep your Bitcoin.

Understand the Risks of Investing in Bitcoin

As mentioned, Bitcoin is a relatively new and risky asset. While it’s possible that Bitcoin could double, triple, or even 10x in value over a short period of time, it could also drop to zero. Bitcoin is also susceptible to government actions and could be made illegal or severely limited, as recently happened in China. With Bitcoin or any other cryptocurrency, only invest what you can afford to lose.

If you keep your Bitcoin offline, it’s essential to keep your access information secure and available, as losing your wallet information could lock you out of your currency.

Pros and Cons of Investing in Bitcoin

Pros Explained

• Relatively easy to buy: You can easily buy Bitcoin using a cryptocurrency exchange, brokerage, or another account with Bitcoin support. It’s as easy as buying stock and other common investments.
• Offers an alternative currency and investment strategy: Bitcoin can act as a hedge against inflation and other currency risks. It also offers a unique investment outside of traditional financial markets.
• Secure: The blockchain technology behind Bitcoin makes it very secure and difficult to hack. All coins are tracked from inception through current ownership in a public ledger.

Cons Explained

• Highly risky and volatile: Bitcoin’s value is very volatile. The currency lost about half of its value over about three months in the first half of
• Potential for hacks and other losses: If you don’t keep your Bitcoin access information secure, hackers may be able to access and steal your currency. In some cases, even large exchanges have experienced losses.
• Requires some level of technical knowledge: While you don’t need advanced computer or programming skills, you’ll need to use a computer and the internet to buy, sell, and exchange Bitcoin and other cryptocurrencies.

How to Start Investing in Bitcoin

Here’s a more detailed look at the steps involved in buying Bitcoin for the first time:

Open an Account

Once you choose your brokerage or exchange, start by opening your account. For most cryptocurrency exchanges, the online account opening process takes just a few minutes if you have your information readily available. You need a cryptocurrency wallet, included in most cryptocurrency exchange accounts, to store your digital assets.

Plan to enter your name, address, phone number, email, and Social Security number to activate a cryptocurrency account. Some require additional information, like a picture of your driver’s license or passport, to access all account features. The experience is similar to opening any typical brokerage or bank account.

Decide Which Cryptocurrency to Buy

Bitcoin is the largest and most popular cryptocurrency by market capitalization. While Bitcoin is arguably the most important digital currency, most exchanges also give you access to currencies such as Ethereum, Cardano, Stellar Lumens, or Dogecoin.

Each currency has its own unique use cases, potential benefits, and market risks. Most cryptocurrencies are arguably riskier than Bitcoin, so invest with care.

Make Your First Transaction

To purchase Bitcoin, enter the amount of Bitcoin (abbreviated "BTC") in your exchange’s trading tool. You will need enough of your local currency for the transaction to go through once you click the button to submit.

Bitcoin transactions occur instantly on some exchanges, while others may process a transaction on the Bitcoin blockchain that takes some time to complete. Standard Bitcoin transactions require four confirmations and take about 40 minutes to complete, according to an exchage called Kraken. However, you can choose to pay higher transaction fees for faster processing times with some exchanges.

Alternatives to Buying Bitcoin Directly

If you want to buy cryptocurrency through a third party, you can take advantage of a growing number of alternative investment options.

For example, Grayscale Bitcoin Trust enables investors to invest in Bitcoin through a traditional investment fund that in some ways is similar to an ETF. The shares of this fund trade with the symbol GBTC on the OTC exchange OTCQX, and can be purchased through your brokerage account.

Another way to get indirect exposure to Bitcoin and the crypto industry is through other cryptocurrency and blockchain industry-focused ETFs, like Siren NASDAQ NexGen Economy (BCLN), Bitwise Crypto Industry Innovators (BITQ), and Capital Link NextGen Protocol ETF (KOIN). Consider fees and risks when investing in any ETF, particularly one focused on a relatively new industry.

What to Watch Out for After You Invest in Bitcoin

Bitcoin is risky and volatile. The price rises and falls very quickly and sometimes with little notice. A Twitter message by Elon Musk or a negative message from a government official could be enough to send Bitcoin’s value into a tailspin.

While Bitcoin and other cryptocurrencies may be a reasonable asset to hold in your investment portfolio, don’t invest more than you can afford to lose, and consider keeping cryptocurrency as a relatively small portion of your overall investments.

Should I Invest in Bitcoin?

Everyone has to make their own choice about whether they believe Bitcoin’s price will go “to the moon” or the dumps. If you decide to invest in Bitcoin, invest with caution and avoid putting too much of your net worth into this highly volatile asset.

If you find the idea of active stock trading intimidating, you probably won’t enjoy the high-speed, 24/7 cryptocurrency marketplace. But if you have the stomach for risk and don’t mind riding out the ups and downs of Bitcoin’s price, there’s no reason Bitcoin can’t be a part of your long-term investment strategy.

Advanced Strategies for Investing in Bitcoin

If you enjoy the Bitcoin marketplace, you can advance your strategy to include Bitcoin futures, decentralized exchanges, and automated trading strategies.

Bitcoin futures, like futures of other commodities, are derivative products with Bitcoin as their underlying securities. Derivatives are typically riskier than investing directly in the underlying security, and that means Bitcoin futures carry an even greater risk than directly buying Bitcoin.

Although it may be riskier and involve a better understanding of cryptocurrencies, another way to buy Bitcoin is through a decentralized exchange. Unlike Kraken or Gemini, which are centralized exchanges, platforms such as Exodus and Bisq allow you to connect with third-party buyers or sellers directly. Exodus does this through its app, whereas Bisq has software that you can run on your computer to give you access to a peer-to-peer network.

While using decentralized exchanges gives you more control over your Bitcoin and trading, it does have a few drawbacks.

Fees may be higher or lower than centralized exchanges depending on the currency you purchase, market rates, and how you enter the trade. If you’re not careful, it’s easy to spend a lot more on network fees when using a decentralized exchange. There is also more opportunity for you to make a mistake or send to the wrong wallet address, as centralized exchanges take care of much of this for you. Decentralized exchanges may also have a limited selection of cryptocurrencies and might not allow the trade of cryptocurrency options.

Another advanced strategy to buy Bitcoin that may not be suitable for beginner investors is using automated trading. There are many applications or trading bots, such as Cryptohopper, that have algorithms that make trades based on market conditions. Signing up for something like that will let the bot make trades on your behalf to take advantage of small price fluctuations, but it can be risky.

Frequently Asked Questions (FAQs)

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.