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Cryptocurrency Investment Tips for Beginners
- Vrinda Mathur
- Jan 20, 2025
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Cryptocurrencies are extremely volatile, yet this volatility might present opportunities for profit if you want to trade these digital assets. Cryptocurrencies like Bitcoin and Ethereum have grown significantly since their inception, but they have also seen massive boom-bust cycles along the way. Experienced traders have been speculating on cryptocurrencies for years, but how do you get started if you're new to the space?
Here's how to get started with cryptocurrency investing, as well as the major risks to be aware of.
What are Crypto Wallets?
Anyone who wants to interact with or invest in cryptocurrencies will require some form of wallet to manage and keep their digital assets. Cryptocurrency wallets, like those used to hold cash and credit cards, can vary greatly in terms of form, function, and security.
Wallets are broadly classified into two categories custodial and non-custodial.
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Custodial wallets
These are wallets that are held by a third party, such as a cryptocurrency exchange like Binance or a platform for digital assets like Nexo. They generally have the advantage of being reasonably simple to use, connecting to a wide range of products and services, and supporting a big number of cryptocurrencies, but they have a significant disadvantage in that they do not allow access to your private keys. This means that if the site goes down for maintenance or is hacked, your assets will be temporarily or permanently gone.
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Non-custodial wallets
Non-custodial wallets do not rely on centralized third parties to store or secure your private keys. As a result, non-custodial wallet holders maintain complete control over their funds at all times and are responsible for their security. These include numerous mobile and software wallets, as well as hardware wallets. They have the virtue of being accessible at all times, and many support numerous assets and blockchains, but they can be more difficult to use and have a high risk of suffering from human error.
Cryptocurrencies are digital currencies that function independent of the control of any single organisation or government. Unlike traditional currencies like the US dollar, cryptocurrencies are not backed by a central authority, such as the US government.
Instead, they are managed by an online, decentralized network of people. Cryptocurrencies are commonly envisioned and referred to as digital coins or tokens. They are protected by encryption using blockchain technology.
Also Read | The Ultimate Guide to Protecting Yourself Against Cryptocurrency Scams
Guide to Cryptocurrency Trading
After you have created an account, you can deposit fiat currency into it. Most centralized exchanges accept fiat deposits by bank transfers, bank wires, and other common money transfer methods.
If you already hold some cryptocurrency, you can deposit it into your exchange account. Remember to always transmit your money to the appropriate address: Bitcoin to your Bitcoin address, Ether to your Ethereum address, and so on. Sending cryptocurrency to the wrong addresses may result in losses.
Now that you're ready to start trading cryptocurrency, let's go over a few key trading fundamentals for beginners.
1. Trading Pairs
Trading pairs are classified into two types: crypto-to-crypto and crypto-to-fiat.
ETH/BTC is an example of a crypto-to-crypto trading pair. If the current value of one Ethereum (ETH) is 0.05 Bitcoin (BTC), you will need to convert 0.05 BTC to obtain one ETH. This pairing expresses the value of ETH in terms of BTC.
2. Order books.
An order book is a live, dynamic list of buy and sell orders placed by traders on a cryptocurrency exchange. It shows a snapshot of supply and demand for a certain cryptocurrency at various price levels.
An order book is divided into two primary sections: buy orders (bids) and sale orders (asos). Buy orders are a list of orders from traders that want to buy cryptocurrencies at a specific price, organized from the highest bid price to the lowest.
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Market orders
The simplest sort of order is a market order, which allows you to purchase or sell cryptocurrency immediately at the best market price. Assume the current highest bid, or purchase order, for one bitcoin is 35,000 dollars, and the lowest ask, or sell order, is 35,010 dollars in the order book. If you submit a market order to acquire bitcoins, your order will be matched with the lowest ask, which is $35,010.
Also Read | Types Of Digital Assets In Cryptocurrency
Steps for investing in cryptocurrency
First and foremost, if you intend to invest in cryptocurrency, you must ensure that all of your funds are in order. That involves having an emergency fund, a moderate amount of debt, and, ideally, a diverse portfolio of investments. Your cryptocurrency investments can become another component of your portfolio, perhaps contributing to higher total returns.
Pay attention to these key factors as you begin to invest in cryptocurrency.
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Understand what you’re investing in
Before investing, it's important to have a clear understanding of what you're getting into. If you're buying stocks, you should study the annual report and other SEC filings to thoroughly research the companies. Plan to do the same with every cryptocurrency, as there are practically thousands of them, each with a unique function, and new ones are generated on a daily basis. You must grasp the investing rationale for each deal.
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Keep an eye on that volatility
Cryptocurrency values are among the most volatile of any asset. They can drop in seconds on a rumor that turns out to be false. That can be beneficial for knowledgeable investors who can execute trades quickly or have a thorough understanding of the market's fundamentals, how it is trending, and where it may go. It's a minefield for rookie investors who lack these abilities, as well as the powerful algorithms that direct these trades.
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Avoid investing more than you can afford to lose.
Finally, avoid investing money that you need in speculative assets. If you can't afford to lose it all, don't invest in risky assets like cryptocurrency or other speculative assets.
Whether it's a down payment on a house or a significant forthcoming purchase, money you'll need in the coming years should be saved in safe accounts so it's available when you need it. If you want a guaranteed return, your best option is to pay off high-interest debt. You are assured to earn (or save) whatever interest rate you pay on your debt. You cannot lose there.
Bottom Line
Cryptocurrency is a very speculative industry, and many savvy investors have chosen to invest elsewhere. Beginners who wish to trade cryptocurrency should start small and only use money they can afford to lose
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