You want to get started with cryptocurrency but don’t know where to begin. Buying crypto can be exciting but also risky if you don’t have a solid strategy in place. As a beginner, the array of options and volatility in the crypto market can seem overwhelming. However, with some basic knowledge and the right approach, you can build your crypto portfolio confidently. In this article, we outline five key strategies every new crypto investor should implement to get started on the right track. From choosing a secure exchange and wallet to dollar-cost averaging your way into the market, follow these essential tips to make your first crypto purchase with confidence. Crypto investing doesn’t have to be complicated if you go in with a plan.
Cryptocurrency 101: A Quick Intro for Beginners
To get started with cryptocurrency, you’ll need to understand the basics. Cryptocurrency, or crypto, is a form of digital money that is designed to be secure and, in many cases, anonymous. It is a currency associated with the internet that uses cryptography, the process of converting legible information into an almost uncrackable code, to track purchases and transfers.
Types of Cryptocurrencies
There are thousands of cryptocurrencies, but the most well-known is Bitcoin. Other popular coins include:
- Ethereum (ETH): A decentralized platform for apps and tokens.
- Litecoin (LTC): A peer-to-peer digital currency.
- Ripple (XRP): A network for global payments.
- Bitcoin Cash (BCH): A fork of Bitcoin focused on lower fees and faster transactions.
How Cryptocurrency Works
Cryptocurrencies are not physical coins, they are electronic assets designed to work as a medium of exchange. Here’s how they work:
- A network of computers runs the blockchain, a public ledger that records every crypto transaction and prevents fraud.
- Users are anonymous and there are typically no transaction fees.
- Coins are created through a process called mining, in which people use powerful computers that tally the transactions and solve complex math problems to discover virtual coins.
- Coins can be traded on crypto exchanges for other digital assets or traditional currencies like the US dollar.
- Wallets are used to store crypto keys that allow you to send and receive coins. They come in many forms, including online, software, and hardware wallets.
The best way to get started is to do thorough research, learn how crypto works, and start with a small amount of money you can afford to lose since the market is highly volatile. You’ll also need to open an exchange account, fund it, and start buying popular coins. Take it slow, learn the ropes, and you’ll be trading crypto in no time!
How Much to Invest in Crypto Each Month
To succeed as a beginner in the cryptocurrency market, you must start with a solid investment strategy. A key part of any good strategy is determining how much to allocate to crypto each month within your budget.
How Much Can You Afford to Invest?
Look at your income and expenses to see how much you can set aside for crypto investing each month after paying for essentials. As a general rule, invest only what you can afford to lose since crypto can be volatile.
One popular approach is dollar-cost averaging. This means investing a fixed amount, say $100-$500, in crypto at regular intervals like once a week or once a month. By buying at regular periods, you ensure you buy more crypto when prices are low and less when prices are high. This helps you get good value over time.
Start Small and Scale Up
For beginners, a good option is starting with a small monthly investment, such as $50-$200 per month. As you learn and get comfortable, you can increase the amount over time as your budget allows. The key is to start building your portfolio, even with small amounts.
In summary, determine how much you can invest after paying for essentials, use dollar-cost averaging to get good value, and start with small amounts, scaling up over time as you gain experience. With the right monthly investment strategy, you’ll be on your way to building wealth through crypto. The key is simply getting started.
5 Important Crypto Buying Tips for Beginners
As a beginner looking to invest in cryptocurrency, following some tried-and-true buying strategies can help set you up for success. Here are five of the most important crypto buying tips to keep in mind:
Do Your Own Research
Before purchasing any cryptocurrency, make sure you understand what you’re investing in. Research the purpose and goals of the currency, its underlying technology, the team behind it, and any partnerships or real-world applications. Look for currencies with transparent, public teams and clearly defined use cases. The more you know about a currency, the better informed your buying decisions will be.
Start Small and Build Up
When you’re first getting started, only invest money that you can afford to lose. Cryptocurrency can be highly volatile, and the value of your investments could drop significantly. Begin with a small amount, like $100 or $200, to learn the ropes of buying and trading crypto. As you get more comfortable, you can invest larger amounts. But never invest more than you can afford to lose.
Use Dollar-Cost Averaging
Rather than investing all your money at once, use dollar-cost averaging to buy small amounts over time. For example, invest $50 or $100 each month into a currency you want to buy. This allows you to get a good average price over the long run without betting big on the price at any given moment. Dollar-cost averaging is a tried-and-true method for any long-term investor.
Store Your Coins Securely
Once you’ve purchased cryptocurrency, it’s critical to store it securely. The top options are hardware wallets that are disconnected from the internet, and paper wallets with private keys on physical paper. Avoid leaving large amounts of crypto on an exchange, as exchanges can be targets for hackers. Take the time to research and choose a secure storage method before buying a lot of coins.
While you’re learning, it’s fine to start with just one or two major cryptocurrencies like Bitcoin or Ethereum. But over time, consider diversifying your portfolio to include other strong altcoins. A diverse spread of cryptocurrencies can help insulate your investments against the volatility of the market. But again, only invest in currencies that you fully understand and believe in.
Following these tips will help you make well-informed buying decisions, manage risk, and build up your crypto portfolio over time through a strategic, diversified approach. With practice and patience, you’ll be trading crypto with confidence in no time.
Choosing the Right Cryptocurrencies to Invest In
When starting your crypto journey, researching and selecting which cryptocurrencies to invest in is one of the most important steps. With over 1,500 different cryptocurrencies available, how do you choose? Here are a few tips:
Focus on the top 20 cryptocurrencies by market capitalization. The largest cryptos like Bitcoin, Ethereum and Litecoin are well-established, less risky, and more stable. They are a good place for beginners to start. As you gain more experience, you can branch out into smaller market cap coins.
Consider the real-world utility. Select cryptocurrencies that solve a problem or meet a need. Cryptos with practical applications and partnerships with companies tend to perform better long-term. For example, Ethereum powers smart contracts and decentralized apps. Litecoin offers faster transaction speeds than Bitcoin.
Diversify your portfolio. Don’t put all your money into one crypto. Spread it over multiple cryptocurrencies to reduce risk. A good start is allocating 50-70% into two or three major coins, then the remaining into a few smaller market cap coins. This provides both stability and growth potential.
Research the development team. Look into the founders, developers, and project leaders behind the crypto. Strong, dedicated teams that are transparent and actively improving the network are a good sign. Avoid anonymous teams or those with little experience.
Check if the crypto can be stored securely. Make sure the cryptocurrency you choose has secure storage options like hardware wallets that provide offline cold storage. If there are limited wallet options, your funds could be at higher risk of cybertheft.
By following these tips, you’ll be well on your way to building a balanced crypto portfolio with strong potential for gains. Always do thorough research, understand what you’re investing in, and never invest more than you can afford to lose. The volatile nature of cryptocurrencies means there is inherent risk, so start small as you learn the ropes.
Using Dollar Cost Averaging to Build Your Crypto Portfolio
Dollar cost averaging (DCA) is an investment strategy where you invest a fixed amount of money in an asset at regular intervals, regardless of the price. For crypto, this means buying a certain amount of a coin, like $50 or $100 worth, on the same day each week or month.
Why Use Dollar Cost Averaging for Crypto?
DCA is a simple but effective strategy for beginners to build a crypto portfolio over time without worrying about timing the market. Some key benefits of DCA for crypto include:
- It reduces risk. By investing regularly, you buy more crypto when prices are low and less when prices are high. This helps you get good value over the long run and avoid investing a large lump sum at the wrong time.
- It’s easy to implement. You simply set up an automatic purchase schedule with an exchange and your investments are made for you. No complex analysis or guesswork required.
- Your money goes further. When crypto prices are low, your fixed investment amount will purchase more tokens or coins. This gives you an opportunity to accumulate more crypto for the same investment.
- Peace of mind. DCA takes the emotions out of investing and prevents you from making rash buying or selling decisions based on fear or greed. You have confidence you are building your portfolio strategically over time.
- Potential for solid returns. Although DCA does not aim to time the market’s peaks and troughs, historical data shows that crypto, like other volatile assets, has solid potential for long-term gains. DCA allows you to benefit from this potential.
How to Implement a DCA Strategy
To put a DCA strategy into action, follow these steps:
- Choose a cryptocurrency you want to invest in and an exchange where you can buy it.
- Determine how much you want to invest and how often (e.g. $50-$100 a week or month). Start conservatively and you can always increase the amount over time as you get more comfortable.
- Set up an automatic recurring buy with your exchange so purchases are made automatically on the schedule you choose.
- Re-evaluate and rebalance your DCA strategy as needed based on your financial situation and risk tolerance. But avoid stopping or changing your schedule based solely on market fluctuations.
- Stay invested for the long run to realize the full benefits of dollar cost averaging and the growth potential of cryptocurrency.
How to Keep Your Crypto Investments Secure
To keep your crypto investments secure, there are several important steps you should take:
Enable Two-Factor Authentication
Two-factor authentication (2FA) adds an extra layer of security for your crypto exchange and wallet accounts. It requires not only your password but also a code sent to your phone. Enable 2FA on any exchange or wallet where you store your coins.
Use Unique, Complex Passwords
Create unique passwords for your crypto accounts that are long, contain a mix of letters, numbers and symbols. Don’t reuse the same password across multiple accounts. If one account is compromised, it could put your crypto holdings at risk. Using a password manager app can help generate and remember complex, unique passwords for all your accounts.
Be Wary of Phishing Attacks
Phishing attacks are a common tactic used to steal people’s account info and crypto. Phishing emails or texts will try to trick you into entering your account credentials or downloading malware. Never click links or download attachments from unsolicited messages. Legitimate companies will not ask for sensitive data via email.
Whitelisting is a security feature that only allows withdrawals to approved addresses that you specify. Enable whitelisting on exchanges and wallets so that if your account is hacked, the hacker can only withdraw funds to addresses you approve. This limits their ability to steal your coins.
Use a Hardware Wallet for Large Holdings
For significant crypto holdings, use a hardware wallet like Trezor or Ledger to store your coins. These are physical devices that aren’t connected to the internet, so they provide an air gap that hackers can’t access remotely. Only connect your hardware wallet when you want to access your coins or send transactions. Then disconnect it again for maximum security.
Following these best practices will help ensure your crypto investments remain secure from the many threats that exist online today. While no method is 100% foolproof, taking multiple precautions and enabling all security features available for your accounts is the best way to protect your valuable digital assets.
Deciding When to Buy, Sell or Hold Your Coins
When determining the best time to buy, sell or hold your cryptocurrency coins, several strategies can help guide your decisions.
Buy the Dip
If a coin you’re interested in drops significantly in price, it may be an opportunity to buy at a discount. Do some research to determine if the price drop is due to general market conditions or some short-term issue, or if there are deeper problems with the coin itself. If the former, buying the dip could allow you to accumulate more coins at a lower cost basis. However, if the price drop is due to major issues with the coin that could permanently impact its value, it may be better to avoid buying altogether.
Take Profits on the Way Up
Rather than waiting to sell all your coins at once, consider taking profits incrementally on the way up. For example, you might sell 25-50% of your holdings once you’ve made 100% profit, another 25% at 200% profit, and hold the remaining coins for long term in case the price continues to rise substantially over time. This allows you to lock in gains and recoup your initial investment, while still benefitting if the coin continues to surge in value.
Hold for the Long Term
For coins with strong fundamentals that you believe in long term, a “buy and hold” strategy may make sense. Do extensive research to choose high-quality coins with innovative technology, active development teams, growing mainstream interest and real-world adoption. Buy when the price is at a relative low, then hold for multiple years as the value of the coin increases over time alongside mainstream adoption. This long term holding approach has resulted in huge gains for early Bitcoin and Ethereum investors.
Rather than investing all your money in crypto at once, dollar-cost averaging involves investing a fixed amount on a regular schedule. For example, you might invest $100-$500 per month in a few different coins. This approach allows you to buy more coins when prices are low, and fewer when prices are high, resulting in a lower average cost over time. Dollar-cost averaging also helps remove the temptation to try and time the market. Over the long run, it can lead to solid returns.
In summary, the best approach for you depends on your financial situation, investment objectives, and tolerance for risk. A balanced strategy utilizing multiple techniques may provide the most benefits. But regardless of your approach, thoroughly researching any coins before investing money can help maximize your chances of success in this volatile market.
Tax Implications of Crypto Investing and Trading
When investing in cryptocurrency, it’s important to understand the tax implications of your trading and investment activities. The IRS considers crypto as property, so crypto transactions are subject to capital gains taxes and must be reported on your tax returns.
Reporting Crypto Transactions
You are required to report crypto transactions, including:
- Buying or selling crypto for fiat (government-issued) currency like USD
- Exchanging one crypto for another (e.g. Bitcoin to Ethereum)
- Receiving crypto as payment for goods or services
- Donating crypto to charities or other organizations
For each transaction, you must report:
- The fair market value of the crypto in USD at the time of the transaction
- Your cost basis (how much you paid for the crypto plus any fees)
- The capital gain or loss (fair market value minus cost basis)
Calculating Your Crypto Capital Gains and Losses
When you sell crypto at a profit, it results in a capital gain. If you sell at a loss, it results in a capital loss. Your net capital gain or loss for the year is calculated by summing all your capital gains and losses. If the result is positive, it’s taxed at either 0%, 15% or 20% depending on your tax bracket. Capital losses can offset capital gains and up to $3,000 of ordinary income.
The tax rate on your capital gains depends on your holding period. Short-term capital gains (for crypto held less than a year) are taxed as ordinary income. Long-term capital gains (for crypto held more than a year) qualify for lower tax rates. It’s beneficial to hold crypto for over a year when possible to take advantage of the lower long-term capital gains tax rates.
Keep careful records of all your crypto transactions and work with a crypto tax professional to make sure your crypto taxes are filed properly. With some planning, you can maximize tax-efficient crypto investing while staying on the right side of the IRS.
Daily Cryptocurrency Trading Tips FAQ
Daily cryptocurrency trading requires diligence and discipline. To be a successful trader, you need to establish good habits and follow certain tips to optimize your strategy.
Develop a Trading Plan
The most important tip for any trader is to have a well-defined trading plan that outlines your goals and strategy. Determine what coins you want to trade, your entry and exit points, and your risk tolerance. Stick to your plan to avoid emotional decision making. Review and revise your plan regularly based on your trading results.
Do Your Own Research
Don’t just follow hype or rumors. Do your own research on any coins before investing to understand the project, team, technology, roadmap, and potential. Read the whitepaper, check the team’s background, analyze the tokenomics, and evaluate the competition. Look for innovative projects solving real problems with strong fundamentals.
Start Small and Scale Up
Especially when you’re first starting out, begin with a small amount of capital to minimize losses while you learn. As you gain experience, you can scale up your position sizes and diversify into more coins. Never invest money that you can’t afford to lose.
Use Limit Orders
Place limit orders rather than market orders to ensure you get the price you want. Limit orders will only execute if the price meets your limit, whereas market orders will execute at the best available price, which may be much higher or lower than you intend. Limit orders give you more control and help avoid slippage.
Stay Up to Date with Trends
The cryptocurrency market is fast-moving, so stay on top of trends to spot opportunities and risks. Follow influencers on Twitter and YouTube, join Telegram groups, read Reddit forums, and subscribe to newsletters from reputable sources. Look for signs of changing market sentiment to determine good entry and exit points.
With the proper discipline and habits, you can achieve success as a cryptocurrency trader. Start with a plan, do your research, begin small, use limit orders, and stay up to date with trends. Follow these tips and you’ll be well on your way to consistent gains.
As a beginner in the cryptocurrency space, following the strategies above will help set you up for success. Do your research, start small, and buy when the market is fearful. Think long term and avoid emotional reactions to short term price fluctuations. Develop a diversified portfolio that balances risks and rewards. And never stop learning about this fast-paced industry.
By taking these steps, you’ll gain invaluable knowledge and experience to become a savvier investor. While there are never any guarantees, the potential rewards of cryptocurrency are worth the effort. With time and practice, you’ll establish your own strategies based on what works for your investment goals. The key is simply getting started. The future of finance is here – are you ready to be a part of it?