How to Invest in Cryptocurrency

Adam Johnson

How to invest in cryptocurrency is a question that has a multi-step answer.

Yet, investing in cryptocurrency can seem complicated. This article will offer steps that can be followed to buy cryptocurrency successfully.

Step 1: How to Invest in Cryptocurrency — Choose a Crypto Trading Service

The first step in buying cryptocurrency consists of choosing a crypto trading service or venue. The most popular trading services or purchasing venues are cryptocurrency exchanges, payment services and brokerages. Out of these, cryptocurrency exchanges are the most convenient, since they offer a breadth of features and more cryptocurrencies compared to other places.

A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Some of the most well-known exchanges are Coinbase, Gemini and Binance.US. These exchanges have relatively low fees and tend to have more complex interfaces, offering multiple trade types and advanced performance charts.

Though these features can be overwhelming for a new investor, they offer user-friendly, easy-purchase methods. However, beginner-friendly options charge substantially more than it would cost to buy the same crypto via each platform’s standard trading interface. To save costs, it might be in your best interest to learn enough to utilize the standard trading platforms before your first purchase.

You also can buy cryptocurrency through payment services such as PayPal (NASDAQ: PYPL).  Perhaps the most convenient method is to buy cryptocurrencies using a PayPal account that is connected to a payment mechanism, such as a debit card.

Another way to buy cryptocurrency is to use the balance of a PayPal account from a third-party provider. This is not nearly as convenient, since there are very few third-party sites that allow users to purchase crypto using the PayPal button.

However, Paypal only allows users to purchase four different kinds of cryptocurrencies: Bitcoin, Ethereum, Bitcoin Cash and Litecoin. There are also limitations that make utilizing cryptocurrencies inside this platform a hassle. For instance, PayPal does not currently let users send cryptocurrency they have bought to any other external crypto wallet or your personal wallet.

Brokerages offer easy-to-use interfaces that interact with exchanges for you which takes out the complexity of purchasing crypto. Two of the most well-known crypto brokers are Robinhood and SoFi. Robinhood charges zero percent commission for cryptocurrency trades and purchases and makes money from buying and selling information from you and other traders.

The absence of a commission fee may be an enticing prospect for beginners, but there are a couple catches. First, Robinhood does not offer the same plethora of features or coins. Instead, Robinhood only enables trading of seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Litecoin, Dogecoin and Ethereum Classic. In contrast, Coinbase offers more than 100 cryptocurrencies. Second, the Robinhood platform does not have a hosted wallet. Therefore, if you want to purchase cryptocurrencies through Robinhood, you will have to factor in additional costs for an online wallet provider.

Step Two: How to Invest in Cryptocurrency — Deposit Cash to Invest 

To buy cryptocurrency, you will 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. It may take a few days before you can use the money you deposit to buy cryptocurrency depending on the venue you choose.

While some exchanges allow you to deposit money from a credit card, doing so is extremely risky and expensive. Credit card companies process cryptocurrency purchases with credit as cash advances which means they are subject to higher interest rates than regular purchases. In addition, you will have to pay cash advance fees.

Step 3: How to Invest in Cryptocurrency — Place a Cryptocurrency Order 

Once there is money in your account, you are ready to place a cryptocurrency order. You can usually place an order by selecting “buy” on your broker’s or exchange’s mobile platform. Then, you can enter its ticker symbol, choose the order type, enter how many coins you want to purchase and confirm the order.

The type of order you select affects the price at which your order is executed. There are generally three types of orders: market orders, limit orders and stop orders.

  • Market Order: Buy or sell at the market’s current best available price.
  • Limit Order: Buy or sell with the restriction on the maximum price to be paid or the minimum price to be received.
  • Stop Order:  Buy or sell at a market price once it has traded at or through a specified price.

With most exchanges and brokerages, you can purchase fractional shares of cryptocurrency. This allows you to buy a piece of a high-priced coin that would otherwise take thousands of dollars to own.

Step 4: How to Invest in Cryptocurrency — Select Safe Storage Method 

Cryptocurrency exchanges are not backed by protections like the Federal Deposit Insurance Corp. (FDIC), so they are at risk of theft or hacking. This is where cryptocurrency wallets come in. A crypto wallet is a physical device or online software used to securely store the private keys to your cryptocurrencies. Some exchanges offer built-in wallet services, but not all.

There are two custody options available:

  • Hot wallet storage: This is a convenient method that utilizes online software to protect the private keys to certain assets.
  • Cold wallet storage: This custody method is the most secure one for holding cryptocurrency. It relies on offline electronic devices, such as hard drives, to securely store your private keys.

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