How to start investing in cryptocurrencies

Summary in 30 seconds:

  • Decide how much money you want to invest in crypto. Never invest money that you may need. Cryptocurrencies are a very volatile asset and they are considered a high-risk investment.
  • Think in which currencies you would like to invest. Observe them for a while and find out.
  • You will need to create an account on an exchange to make your first purchase. Beware of commissions!
  • Think about which investment strategy you are going to follow and stick with it. We can help you with that.

In this guide, we will accompany you in the first steps to invest in cryptocurrencies through the points that we consider essential to take into account.

1. How much to invest?

The first thing you will have to think about is how much are you willing to invest. Keep in mind that cryptocurrencies are high-risk assets. Even if you find yourself attracted by the recent bullish movements of cryptocurrencies such as Bitcoin, you must make a rational decision about it.

Cryptocurrencies should represent only a small part of your investments. Sizing it will depend exclusively on you and your circumstances, your knowledge, and your risk profile. In any case, generally speaking, they shouldn't represent more than 5% of your equity.

Unlike other types of investments, with nuances, cryptocurrencies do not generate interest or pay dividends but rather work similarly to investing in gold or silver, acting as deposits of value in the medium and long term. They are an adequate investment as long as their price increase significantly and is maintained over time.

2. Decide which coins will be part of your portfolio

Designing a good cryptocurrency portfolio can be a difficult task - there are currently thousands of them, and the list is continuously growing. Again, it is vital that the criteria to select the currencies is rational and not guided by trends, fashions, or rumors. Read and find out, build a critical opinion, study its evolution and the project or team behind it, its objective, or its vision of the future.

At CryptoAdvisor.Club we publish every Monday cryptocurrency market reports on our social networks (you will find them at the bottom of the page) that can help you to know the evolution of the market. From our bot, you can also request reports and analyses of any cryptocurrency.

If you are starting, your best asset likely is to start with one of the most popular and capitalization currencies such as Bitcoin or Ethereum, the first and second currency, respectively, with the highest capitalization today. Even if you decide to start by including some other cryptocurrencies in your portfolio or already have some experience, it is probably a good idea to represent at least 50-60% of your portfolio.

3. Decide where to buy: Exchanges

Exchanges are platforms that allow us to buy and sell cryptocurrencies from fiat money (Euros, Dollars ...) or through exchanging other cryptocurrencies. They are not very different from other platforms where we can acquire other types of investment assets. It is important here to differentiate exchanges from CFD (Contracts For Difference) brokers. In exchanges, you can obtain and operate coins, while on CFD brokers, you will not acquire the cryptocurrency itself but an investment linked to its potential rise (or fall) in price and making a profit based on it. Buying on CFDs is not purchasing crypto.

There are many options on the market, and we recommend that you do your research. Some of the most popular Exchange platforms are Coinbase, Kraken, Binance, Criptan or Bit2me. Once you have an account in any of them, you must deposit a certain amount of money, which will allow you to buy the coins of your choice on the platform.

3.1 Commissions

Please note that most exchanges apply commissions to any purchase or sale. These commissions vary depending on the Exchange platform. Typically you will be able to preview these fees before executing the transaction, or if you have not yet registered, in their conditions of use. Generally speaking, if you deposit your funds by making a wire transfer instead of paying with a credit card, you will pay much less in commissions, and therefore, you will get a better return on your investment. Some platforms charge you more than an additional 5% for making credit card purchases!. A further advantage of the wire transfer: since deposits take between 24 and 48 hours to be available, you'll dodge the temptation to make compulsive purchases.

Aside from the fees charged by Exchanges , many cryptocurrencies (not all of them) charge commissions to any transaction that takes place on their blockchain, so you must also count on it.

4. Define a strategy and follow it

You have already decided how much you are going to invest and in which currencies. Ok, good! But do not leave out one of the most important decisions: What strategy are you going to follow with your investment? What role do cryptocurrencies play in your savings and investment strategy? Are you going to buy, save, and forget for a few years? Do you plan to trade your cryptocurrencies every day? Whichever your approach is take some time to think about it and then follow it.

It is not as easy as it sounds. Part of your investment strategy's success will be your ability to develop a series of habits that allow you to stick to the methodology you have chosen. Statistics show us that our emotions often play tricks on us. Most individual investors incur losses by making the mistake of selling when the price is falling, driven by fear and despair of losing even more. And then, buying when the price is high and rising, following the rush and the adrenaline of a spiking market and the fear of missing out. However, logic tells us to do just the opposite: buy low and sell high.

4.1 CryptoAdvisor.Club to the rescue

And it is precisely in this aspect, speaking of good investment habits, where a tool like CryptoAdvisor can help you make better investment decisions: eliminating the emotional factor from decision-making or automating calculations on your portfolio.

We are not a financial advisory service nor we will ever give you recommendations about which currency to buy, but we offer a service through Ben, our Telegram bot, which can help you to follow good passive and automated investment habits by:

  • Monitoring of your investment and identification of opportunities (through our algorithm).
  • Monitoring of variations in the percentage of representativeness of each currency.
  • Notifications of the evolution of prices and volume of assets in your portfolio and the market.
  • Relevant information from cryptocurrency market

4.2. When is the best time to buy?

There is no general rule in this regard. Some will say that "it is not a good idea to buy at the peak of a rise or when the price is plummeting." Others will say, "wait for the price to stabilize at a relatively low level." The truth is that concluding when we are in a peak or valley is not that simple and may not be so relevant.

A couple of examples with Bitcoin:

In the last quarter of 2017, the price of Bitcoin rose from € 5,000 to € 17,000, then fell sharply in the first months of 2018, even below the previous year's prices, to € 3,000. Many investors who entered the price maelstrom on that Christmas sold their Bitcoins throughout 2018, losing much of the money invested. However, those who kept their investments, even those who bought at a maximum of € 17,000, today have tripled their investment.

  • Any investor would have thought that Bitcoin was at the peak of the bubble in mid-December 2020 when Bitcoin rose to all-time highs that exceeded € 20,000. Just a couple of months later, its price more than doubled. Will Bitcoin be back at those prices in the coming months? Nobody knows.

Now, with perspective, we might think that having started then, at that price, would have been the right decision, but that beginning today, with Bitcoin eventually back to highs, may not be so much. But what price can Bitcoin be at the end of this year if the progression continues, given the increasing adoption and institutional support it is receiving? And in the next five years? Some forecasts say that in the next ten years its price could reach $1M. With that in mind, the current price may not be that high.

It all depends, from our point of view, on the time window that we are considering. A common saying is that time and knowledge are the best weapons to combat investment risk, and we agree. This means that if your approach to saving and investing is in the medium and long term, the specific moment you start investing will not be so important. The key is to begin, apply and periodically evaluate your strategy.

5. Custody of my cryptocurrencies and security

Usually, Exchanges offer the custody of the cryptocurrencies you buy through them at no additional cost as part of their services. You can sell your coins on the Exchange itself, receive the profits in Euros, and request a transfer back to your bank account.

However, there are other options to safeguard your crypto assets, which will allow you to have greater control of them and not depend on the security of the exchanges or possible hacks that they could suffer. We are talking about wallets, digital wallets that allow us to store our cryptocurrencies and transfer or receive them from other wallets or our exchanges. There are several types of wallet, mainly grouped into:

  • Hot Wallets: The digital keys are stored in an application, which runs on a device connected to the internet (web, mobile, or desktop application). An example of this type of wallet could be the mobile applications Coinbase Wallet or BreadWallet.

  • Cold Wallets: Digital keys are stored on a device/element without connection (at least during critical key or signature generation processes) to the internet. This category would include Hardware Wallets and Paper Wallets.

Do you have any questions? You can contact us from the Telegram bot using the command /feedback, or through the email [email protected]

Disclaimer: This article is not an investment recommendation. For educational purposes only.

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