Are you considering sticking a toe in the rapidly-growing cryptocurrency world? Perhaps you are trying to build a diverse portfolio and wonder if having a little exposure to crypto might be the right call? Big banks and institutional investors have started taking it seriously, after all.
If you’re tempted to invest in the crypto market but feel a little lost with the terminology or concept in general, keep reading. This article is a practical starting place for anyone interested in crypto investing.
Understanding Crypto Fundamentals: A Quick Rundown
To invest in cryptocurrency, you first go to the exchanges that handle them and buy those particular cryptocurrencies there. Coinbase is an excellent example of an exchange to use, as it is one of the largest, most reputable exchanges for buying and selling various cryptocurrencies, like Bitcoin and Ethereum. Keep in mind, though, that not every exchange sells every currency. Coinbase has an extensive asset directory, but to invest in riskier or smaller-known cryptos, you may have to go to another exchange to purchase those particular coins.
Most people who are tempted to invest in the crypto market are simply looking to buy coins, hold them, and trade them when their value increases. If this sounds like you (i.e., you don’t plan on using the coins for purchasing other assets or non-fungible tokens), then you can simply keep your coins inside Coinbase, holding and trading them from there.
However, if you plan to use the assets for purchasing, you will need to transfer your coins to an appropriate crypto wallet. After your wallet is set up, it should be fairly straightforward to use. You’ll be given a public address of the wallet, which you will need to send yourself crypto from an exchange or for others to send you crypto.
Also, note that every crypto wallet has a 12-word seed phrase associated with it. It’s critical to keep this in a safe place because if you lose this phrase—your key—you lose your wallet and everything in it. Tens of billions worth of cryptocurrencies are currently sitting in lost or abandoned wallets, meaning they are likely locked due to people who forgot their keys. And cryptocurrency doesn’t have the luxury of a “safety net” like traditional banks provide. If you lose your key, you lose access to all your money. Plain and simple. No one can reset your password or help you back into your account.
Make Sure You Understand Crypto before Investing
Any savvy investor would not put money into a company they didn’t study and understand. And the same should be true when it comes to investing in cryptocurrency. We encourage you to do your homework and understand the basics before dabbling in the market. Coinbase has an extensive learning center where they answer all your basic crypto questions. We suggest starting there.
Remember, all investments carry a level of risk and have a certain amount of volatility attached. Cryptocurrencies, unlike other investments, don't make money on their own like companies and real estate assets could. They are simply a way to transfer and store money, which can go up or down very quickly based on market trends. To make a profit, you need someone to buy your currency for more than you did (well, that's the hope at least!).
Already in the market and took a loss? Check out these tax loopholes, which could help you save big.
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