Cryptocurrency is no longer just an obscure hobby your friend’s friend dabbles in.
Over the last few years, investors took notice as the price of Bitcoin, Ethereum, and other digital currencies skyrocketed. If you bought Bitcoin in April of 2017, for instance, you could’ve since seen a 3,700% return.
This boom catapulted crypto investment into the mainstream. Now, even some of the largest banks deal in digital currency. And scores of big-name companies have embraced it as a viable payment method.
If you haven’t tried your hand at investing in cryptocurrency yet, it’s not too late. Just know that it can be confusing. The glut of digital coin options is a lot to sift through. Plus, crypto is a volatile asset, susceptible to finicky price fluctuations that expose you to risk. If you’re new to the game, it pays to do your homework.
Read on for everything you need to know before you start investing in cryptocurrency, and for the best way keep track of how those investments are performing alongside the rest of your portfolio.
What is Cryptocurrency, Anyway?
Cryptocurrency is a type of asset that only exists virtually. The digital coins can be held as an investment or used to buy goods and services. And each individual coin has its own line of code that can’t be duplicated.
Crypto is so norm-shattering because it’s decentralized. This means it exists outside the control of a single authority, like a bank or government, that can regulate its use. Instead of funneling crypto purchases and sales through a central hub, they’re all monitored by a network of computers on a public ledger called blockchain.
This is cryptocurrency’s signature technology. Blockchain provides an anonymous and secured record of every transaction ever made for any type of digital coin. And it can be viewed by anyone.
There are thousands of different types of cryptocurrency, most with their own blockchain technology. The oldest and most popular is Bitcoin, which launched in 2009 and was valued at a record-high of more than $63,000 earlier this year.
What Are the Benefits of Investing In Cryptocurrency?
investing in cryptocurrency is popular in part because it’s so accessible. You can buy cryptocurrency at low fees at any time of day, untethered from regular stock exchange hours.
Crypto is also a more reliable store of value than fiat money because central authorities can’t dilute its worth by making more of it. The absence of any middleman also makes digital currency easy to exchange, and many traders appreciate that every transaction is kept secure. Crypto proponents hail it as the future of money, thinking it’ll only get more prevalent and, in turn, more valuable in the coming years.
But the main reason investing in cryptocurrency is so alluring is the potential for big profits. As mentioned, crypto is as volatile as assets come. Values can spike or plummet at a moment’s notice. If you time your trading just right — by selling short when the price drops or going long when it swings up — you could earn bigger returns than any conventional investment.
But are you likely to make such a windfall? Definitely not! Since cryptocurrency’s price changes are so unpredictable, betting big on any single coin exposes you to a mountain of risk. If you’re going to invest in crypto, you need to be smart about it.
Here’s how to do that.
4 Tips for Investing in Cryptocurrency Responsibly
Cryptocurrency is a valuable addition to any forward-thinking investor’s portfolio. But since the market is so vast and unpredictable, it’s easy to get in over your head if you don’t know what you’re doing.
These fundamentals will help get you started.
Allocate a Small Portion of Your Portfolio to Investing In Cryptocurrency
Cryptocurrency is a speculative asset. That means the value of most coins is only dependent on how much someone is willing to pay for them, which can change at any moment.
For this reason, cryptocurrency is not always a good investment. Most of your portfolio should be in more secure, traditional assets like growth stock mutual funds or real estate holdings. And you shouldn’t touch crypto unless you’re out of debt and have an emergency fund that’ll cover a few months of your expenses.
But provided you’re never spending more than you can afford to lose, it probably doesn’t hurt to dedicate a sliver — most experts recommend no more than 5% — of your portfolio to investing in cryptocurrency.
Do Your Research
There are thousands of digital coins out there, with more popping up every day. And it’s a mistake to think they’re all exactly the same. If you’re going to invest in one, you need to know how it works and what distinguishes it from other types of crypto.
Most cryptocurrencies have whitepapers, which you can access through an online database, explaining how they work. If you’re having a hard time understanding how a certain coin will earn profit, it’s probably best to steer clear.
Some people take investing in cryptocurrency to mean only dealing in Bitcoin. But portfolios flush with different types of crypto are more resilient, because they leave you less exposed to the volatility of news affecting any one coin.
To be fair, the market is top-heavy — the five largest coins make up 76% of all cryptocurrency value. So it’s true that most of your crypto position should be in Bitcoin or another reputable digital token.
But if you spread your crypto investments out, you have a better chance of picking a coin that outperforms the pack. Crypto portfolios with a mixture of coins that have high, medium, and low market caps give you the best chance of finding those overachievers.
Diversified portfolios also help you rebalance your crypto investments when they get too heavy on any one coin. Say, for instance, you own three coins. You decide you want one to make up half of your crypto investments, and the other two to share a 25% split.
If that first coin spikes in value and balloons to become 60% of your portfolio, you can sell off some of that coin to fund your other two crypto assets and maintain the 50-25-25 split. This way, you’re using gains you’ve already made to fund a more stable position.
Manage Your Risk by Sticking to a Plan
Investing in cryptocurrency is so risky because the sudden, short-term price explosions can cloud your judgment on how to trade it responsibly. To avoid any costly losses, every crypto investor should have hard rules about how much they’ll buy and when they’re willing to sell.
This, of course, varies from person to person. If you’re in crypto as a long-term investment you may resolve never to sell, even after a big downswing in a coin’s price. Whereas short-term traders may be better off always selling when a coin drops 10% in value, so they avoid big losses later on.
Regardless, newer investors should never go over the (remember — small!) amount of money they’ve dedicated to crypto, and consider even trading just a portion of that slice for starters. This way, you’ll always have some available money for crypto in reserve if their position moves against them. And no matter your financial goals, it helps to have an exit strategy in mind before you enter into any crypto trade.
The 5-Step Guide to Investing In Cryptocurrency
Now that you’re equipped with tips for investing in cryptocurrency the smart way, it’s time to learn how to actually trade it. Luckily, this is the easier part.
1. Choose an Exchange or Broker
If you want to invest in crypto, you need access to a platform that lets you buy and sell it. This comes in two forms: exchanges and brokers.
Exchanges are online meeting places for cryptocurrency trading. They typically have low fees, but the more beginner-friendly interfaces are more expensive. If you’re new to crypto, look out for exchanges that are easy to use, provide educational resources, and have reliable customer support.
The most popular cryptocurrency exchanges are Binance and Coinbase. But there are several others, including Kraken, Gemini, and Bisq. Before committing, it’s helpful to use comparison tools online to see how the exchanges differ.
Cryptocurrency brokers make trading even easier by providing platforms that trade on the exchanges for you. The tradeoff: they often charge higher fees than exchanges, and sometimes sell your trading information to other companies. Brokers can also prevent you from storing your crypto in a wallet outside their native platform. The two most popular cryptocurrency brokers are Robinhood and Sofi.
2. Fund Your Account
After verifying your identity with the crypto exchange or broker you choose, you need to put money into your account to start trading. Most platforms accept fiat currency like U.S. dollars and euros. And you can typically fund them with debit card payments, wire transfers, or ACH transfers. No matter which method, expect to pay small fees.
Some exchanges let you buy crypto with credit cards, but this isn’t recommended. Some credit card issuers treat cryptocurrency purchases as cash advances, meaning they’ll incur higher interest rates and bigger fees.
3. Make an Order
With money in your account, you’re just a few clicks away from buying and selling crypto.
Exchanges and brokers won’t offer every cryptocurrency. But you’ll have at least dozens, including most of the popular options, to choose from. You can also buy fractional shares of most coins, which is recommended for something like Bitcoin, which has been worth anywhere between $30,000 and $60,000 in recent months.
Exchanges and brokers also let you choose which kind of order you want to make on a given cryptocurrency. The three most common order types are spot, margin, and futures trading. Spot trading lets you make a transaction as soon as a coin’s price hits a specified target. Margin trading lets you borrow funds from other users, and futures trading lets two people agree to make a transaction at a specified, later date.
4. Store Your Crypto In a Digital Wallet
Since cryptocurrency exists online, it’s susceptible to hacks and theft. A digital wallet is a virtual location that stores such funds. If you have a good one, you have a secure space to protect all your coins.
Hot wallets use online software to store your digital assets. Some crypto exchanges provide them automatically, but there are also separate hot wallet providers.
For extra security, you can opt for a cold wallet, which further backs up purchases with a piece of hardware (devices that look like flash drives or SD cards).
Keep in mind that exchanges may charge a small fee to take crypto off the platform into a separate wallet. And most brokers won’t let you take it out of their platform at all.
5. Choose a Portfolio Tracker that Helps You Manage Crypto
While you can always manage your portfolio manually, a crypto portfolio tracker is a tool that makes it easier to tell how much money you’ve invested in every coin you own. It also helps you quickly evaluate which coins are performing best.
And since your crypto position should be just one piece of a more comprehensive portfolio, the absolute best tracker lets you monitor all of your investments in the same place.
Let’s learn more about that.
Tracking Crypto — And All Your Other Investments
Whether you’re a new or experienced investor, it’s important to keep a watchful eye on every asset you own. And while diversity is key to any healthy portfolio, keeping track of every position can be a huge headache without the proper tools.
That’s especially true for your crypto assets. If you invest in different types of digital currency — bought on multiple exchanges and stored in separate wallets — it can be confusing to determine how much your entire crypto portfolio is worth.
A crypto portfolio tracker simplifies this by combining all of your digital assets into one dashboard. You get real-time updates on how every coin is performing at all hours of the day, and get a longer-term sense of how your crypto is performing over time.
The problem? Many portfolio trackers of today are fragmented. Traditional tools don’t support crypto investments. And many crypto-specific tools aren’t compatible with fiat currency, which means they fall short if you want a comprehensive view of all your assets together.
Many, but not all.
The All-In-One Solution: Kubera’s Modern Portfolio Tracker
The best portfolio trackers organize all of your disparate investments into a single place. This makes all of your financial information easy to look at, which helps you set and stick to your goals. It also helps you diversify your portfolio and stay attuned to new market opportunities.
One such tracker is Kubera.
Kubera has every tool you need to ensure none of your investments slip through the cracks. The web-based app is powered by custom-made architecture that connects with banks, stock brokerages, crypto exchanges, and other financial institutions across the globe.
The result: a live dashboard that funnels every investment in your portfolio into one place. See how traditional investments in stocks and real estate holdings are performing alongside all of your crypto investments. You can throw any other asset you own into the mix, too — web domains, collectibles, you name it.
Kubera supports tens of popular exchanges — including Coinbase, Binance, and Kraken. It also tracks digital wallets for Bitcoin, Ethereum, and other digital assets and can even connect to some cold wallets.
Kubera is as easy to use as a spreadsheet — only smarter. You can add rows of crypto holdings as you buy them, pooling them all onto a single dashboard.
But you don’t need to update anything yourself. After connecting the platform to your online bank, crypto, and other investment accounts; your holdings will update automatically, in sync with your transactions. And, crypto values and exchange rates are updated in real-time.
Its sleek interface and data analysis features give you a best-in-class snapshot of your overall asset performance, total net worth, and every other question you have about your current finances. Since it’s compatible with EstiBot, Zillow, and other leading asset experts — you can even get real-time value estimates of your home and car.
Investing in cryptocurrency can be a useful step to a resilient wealth management portfolio. One that equips you for the uncertain decades ahead. But you need to trade responsibly. The best way to do that? Having the right tool to manage all your assets in one place.
Sign up for Kubera and get a single tool to track your crypto along with all other investments.
Or, if you work with a financial professional, find out how you might be able to access Kubera for free when they adopt the customizable white-label solution.