How to Invest in Cryptocurrency


The increasing popularity, usage, and investment in cryptocurrency, also known as crypto, has raised curiosity among potential investors. This guide, meant for beginners, defines cryptocurrency as an investment category and covers the fundamentals of investing in it. Discover what crypto is, the different types available, factors to consider before investing, and information to help you determine if it's suitable for your investment portfolio. And if you decide to venture into crypto investing, a step-by-step guide to get started is provided.

What is cryptocurrency?


Cryptocurrency is a digital currency that serves as a means of payment, similar to cash. It's also an investment option that, like other assets, can be bought with the goal of financial gain. However, cryptocurrency is known for its high volatility, experiencing large price fluctuations. "Investing in cryptocurrency for the long-term, rather than speculative trading, is a way to benefit from the growth of this evolving technology and its various applications. It's impossible to know the future, but it appears that crypto and its underlying technologies will become more widespread. Nonetheless, the journey to a future where crypto is integrated into our daily lives will likely be bumpy," says Douglas Feldman, Chief Investment Officer of Stash.

Cryptocurrencies differ from traditional forms of currency as they are decentralized, meaning they are not issued, backed, or controlled by a central authority like the US government. Feldman emphasizes that "the decentralization concept is a key aspect of its design." Cryptocurrency units, known as coins or tokens, are created through a validation process based on blockchain technology. This technology, also referred to as distributed ledger technology, maintains a secure and encrypted record of each virtual coin's value and related transactions. These records are distributed and connected across the network of parties or computers accessing the blockchain and, in theory, can be accessed by anyone with an internet connection. The blockchain was created with the goal of promoting security, transparency, speed, and accuracy.

Types of cryptocurrencies


Cryptocurrency is a generic term that refers to digital currencies utilizing blockchain technology. As of January 2023, there are around 22,000 different types of cryptocurrency, according to Bitcoin, one of the earliest cryptocurrencies, is the most well-known. All other digital currencies based on coins are collectively referred to as "altcoin," meaning alternative to bitcoin.

Some cryptocurrencies have gained significant attention, large market value, and a broad base of users and investors in recent years.

Top 10 cryptocurrencies by USD market cap

As of January 18, 2023: 

- Bitcoin

- Ethereum

- Tether


- USDC ( US Dollar Coin )


- Binance Coin 

- Cardano 

- Dogecoin

- Polygon

Predicting which cryptocurrencies will be the most successful is challenging as the crypto market is relatively new and many coins are still in their infancy. Despite being among the largest, these coins still carry risks, with the potential for investment loss being substantial. For instance, after significant gains in 2021, the value of most cryptocurrencies declined sharply in 2022. That's why it's crucial to educate yourself about each crypto before investing and assess if it aligns with your investment goals.

What to consider before investing in cryptocurrency


Cryptocurrency is known for its volatility, with rapid changes in value over short periods of time, which may not be ideal for those who prefer low-risk investments. It's important to note that anyone can create a cryptocurrency, and regulations for it are still evolving, so it's essential to thoroughly research any potential investments to avoid fraudulent schemes.

It can be beneficial to consider your motivations for investing in cryptocurrency. Are you seeking to take advantage of a trend or do you have a well-considered strategy? Douglas Feldman, Stash Chief Investment Officer, suggests, "Never invest with the assumption that you can't lose. There is no such thing as a risk-free way to make substantial profits. You should only invest in cryptocurrency if you believe in its long-term potential and are prepared to tolerate significant fluctuations in value."

Douglas Feldman advises investors to think carefully about their motivations and expectations before investing in cryptocurrency. He stresses the importance of taking a long-term view, as the asset class is highly volatile and prone to rapid price swings. Emotional decision-making, such as buying when prices rise or selling when they fall, is typically not a successful investing strategy in this market. It's crucial to have a well-thought-out investment plan and to stay focused on the long-term prospects of the crypto in which you choose to invest.

Is cryptocurrency a good investment?

Investing in cryptocurrency requires careful consideration of your risk tolerance, investment goals, and portfolio diversification. The value of virtual coins can fluctuate greatly, making it crucial to understand your motivations and expectations before investing. As with all investments, it's essential to factor in your risk appetite and investment time horizon.

Just because an investment is accessible, it does not automatically make it a suitable choice for you. Remember, all investments carry the potential for financial loss.

How much should you invest in cryptocurrency?

Experts suggest investing 1% to 5% of net worth in crypto. According to Feldman, limiting exposure to crypto is important and never invest more than what can be affordably lost. A small exposure to crypto can improve the risk-adjusted return of a diversified portfolio, but investment in crypto should be based on the overall investment portfolio and risk tolerance.

It's important to diversify your crypto portfolio to reduce risk. Feldman advises, "The type of crypto assets you have is important. Some coins have more promising long-term uses and may be less vulnerable to price manipulation. Although the entire crypto market is highly volatile, larger, more liquid cryptocurrencies may carry less risk than smaller, more speculative ones. However, even the largest and most established cryptos can experience significant price swings. Consider the combination of cryptocurrencies you own, in addition to the total amount of crypto in your portfolio."

At Stash, it is advised to keep not more than 2% of your total portfolio invested in a single cryptocurrency to minimize cryptocurrency-related risks.

Pros of investing in cryptocurrency

Before 2022, the value of cryptocurrencies was not closely related to other investment types such as stocks and bonds, so having a small investment in this high-growth area could improve overall returns while managing risk. Despite high correlations between cryptocurrencies and other assets in 2022, it is uncertain whether this is a lasting trend.

Some experts view cryptocurrencies such as Bitcoin similarly to gold, as both are valuable, indestructible, limited in supply, and not controlled by any central authority. The decentralized and transparent nature of the underlying blockchain technology makes it challenging to compromise the integrity of cryptocurrencies.

Cons of investing in cryptocurrency

The cryptocurrency market is prone to extreme fluctuations, making it challenging to forecast its value fluctuations, and the reasons behind significant shifts may not be easily understood.

Although the underlying blockchain technology of cryptocurrencies is highly secure, individuals can still be vulnerable to hacking due to the same risks associated with online activities.

Cryptocurrency transactions are not heavily regulated by the government, therefore they do not offer the same legal protection as traditional investments such as stocks.

Read More: Top Cryptocurrencies To Buy Now in 2023 for Long-Term Growth

How to keep your cryptocurrency secure

Securing your cryptocurrency investment is a crucial aspect to consider when investing in this type of asset. Here are some tips to help:

- Choose trustworthy exchanges and digital wallet providers. 

- Enhance security by using strong passwords, two-factor authentication, and secure internet connections. 

- Beware of phishing scams aimed at crypto users. 

- Never reveal your password or key to anyone.

How to invest in cryptocurrency in 2023


Investing in cryptocurrencies is becoming increasingly easier. There are numerous exchanges available, similar to those used for traditional investments, that allow you to set up an account quickly. However, as with any investment, it is recommended to conduct research on a specific currency before making a investment. For those new to cryptocurrency investing, the following five steps can guide you in the process.

Step 1: Choose what cryptocurrency to invest in

Just like evaluating a company's potential risks and financial stability before investing in its stock, it is important to understand and carefully assess the distinct features of each cryptocurrency being considered for investment. You may opt to invest in one or multiple cryptocurrencies.

Screening cryptocurrencies can be challenging as they have become a common target for scams such as pump-and-dump schemes. To avoid falling victim to such scams, it's crucial to avoid investing in small or newly established cryptocurrencies that are heavily promoted on social media. Keep in mind that it is your responsibility to assess the investment risk of a cryptocurrency and that social media influencers may not have your best interest in mind.

While investing through a reputable and large platform can reduce your exposure to fraud and cybersecurity risks, it is impossible to completely eliminate such risks due to the unregulated nature of the industry. For instance, in 2022, it was discovered that FTX, previously considered a trustworthy platform, was being run by unethical actors who misused clients' funds.

Step 2: Select a cryptocurrency exchange

Cryptocurrency can only be purchased through an exchange or investment platform, such as Stash. When choosing an exchange, consider factors such as security, fees, trading volume, minimum investment requirements, and the types of cryptocurrencies available for purchase on the platform.

Step 3: Consider storage and digital wallet options

Cryptocurrency is digital and needs a digital storage solution. Keeping your coins on the investment platform, as advised by Feldman, is an option. Most newer investors prefer to store their crypto investments with the platform they use, says Feldman. It's important to choose a platform that is regulated, well-protected against hacking and cyber threats, and carries substantial financial insurance for the safekeeping of your assets, adds Feldman.

Cryptocurrency requires a digital wallet to store your coins if you don't choose to hold them on a popular platform. The wallet holds the private keys to access your crypto by unlocking your ownership recorded on the blockchain. You can choose between a "hot" wallet accessible online or a "cold" wallet, a physical device that keeps your keys offline and is more secure. A digital wallet provides an extra layer of protection, says Feldman.

Step 4: Decide how much to invest

The amount you invest in cryptocurrency will depend on various factors such as your financial situation, risk tolerance, and investment plan. You should also keep in mind the minimum investment and transaction fees, which can differ among crypto exchanges.

When investing in a cryptocurrency, it's important to consider factors like budget, risk tolerance, and investment strategy, as well as minimum investment requirements and transaction costs, which can vary across exchanges. You can invest in a high-value cryptocurrency by using dollars, not necessarily having to buy a whole coin, and should always only invest what you can afford to lose.

Step 5: Manage your investments

Crypto is a different type of investment that can be used for purchasing or held for the long term, depending on your investment goals and strategy. The Stash Way, a philosophy of regular investment, diversification, and long-term investing, may be a useful approach for managing your crypto holdings. Stash offers automated investment portfolios with exposure to cryptocurrency to help manage your crypto investments.

Related investments to explore

If you're not yet ready to fully invest in cryptocurrencies, there are alternative options to consider. For instance, Exchange Traded Funds (ETFs) provide opportunities to participate in the crypto market without directly owning the currency. These ETFs usually invest in companies that have exposure to the crypto industry, such as through mining or holding substantial cryptocurrency holdings. This allows you to have a taste of the crypto world without fully diving in.

Investing in cryptocurrency with Stash

Regardless of your stance on cryptocurrencies, knowing how to invest in them expands your options if you choose to venture into this investment type. Stash offers the opportunity to invest in selected cryptocurrencies through the Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE), which are now included in Stash's Smart Portfolios.

For self-directed investors who believe in the long-term prospects of cryptocurrencies, Stash provides direct access to their crypto offerings, allowing you to research and choose the investments that suit you best. The Stash Crypto Calculator can assist you in avoiding excessive exposure to cryptocurrencies relative to the rest of your portfolio when making purchases.

Cryptocurrency investing FAQ

- Before investing in cryptocurrency, what should I know? 

Cryptocurrency investment involves significant risk and it's crucial to be aware of the potential drawbacks. Digital currencies are highly volatile, largely unregulated, and have uncertain future prospects.

- What to consider when choosing a cryptocurrency to invest in? 

Each cryptocurrency is unique, so the ideal option depends on your personal situation. However, beginner investors may want to start with well-established currencies as they have a wealth of information available on their functioning and historical performance.

Read More: Crypto Staking Basics


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