How to Invest in Crypto: The Ultimate Guide 2022
With well-known individuals such as Elon musk tweeting about crypto regularly, the naming rights to the Staples Center having been bought out by Crypto.com, and large companies such as AT&T now accepting virtual coins as payment, it’s undoubtedly clear that there is a heightened awareness and increased interest in virtual assets. With this comes a rise in the need for basic information on how to invest in crypto. For this reason, I’ve created a 2022 guide on how to get started investing in cryptocurrency with the hope that it will provide a good foundation for those wishing to launch their digital asset investment portfolio.
Steps Beginners Should Take When Learning How to Invest in Cryptocurrency
Because your hard-earned money is involved, it’s essential to know how to invest in crypto upfront instead of learning as you go. Of course, you’ll actually “learn as you go” on your way to becoming a seasoned investor, but what I mean is that there are a few basics you really should become familiar with ahead of buying or selling any digital assets for the first time. With that said, I’ll start with the most basic – having a general understanding of cryptocurrencies.
Step 1: Understand What You’re Investing Your Money Into
Smart investors spend time studying and analyzing a potential asset to understand what they’re investing in, as well as to ensure it has a chance of performing well before funneling any money into it. So, learning about your chosen investment type is a great place to start, and fortunately, cryptocurrency is an engaging topic.
What is Cryptocurrency?
Cryptocurrency, such as Bitcoin, and various altcoins, are digital assets that are utilized as a medium of exchange, invested in as a store of value, as well as bought, sold, and traded on crypto exchanges with the intention of making a profit.
These digital currencies, also referred to as virtual coins, are built on what’s called blockchain technology, which is basically a distributed ledger of transactions that stores data pertaining to your crypto transactions. This data is distributed across a large network of computers, utilizing peer-to-peer consensus as verification, and it’s what enables cryptocurrency to be decentralized, as opposed to being under the control of a single entity.
Once a block of data is at full capacity, it’s timestamped, as well as encrypted, and attached to another block that precedes it – this process is what forms a blockchain. The blocks are able to cross-reference each other and verify information, making the data related to your transactions unchangeable, secure, and transparent.
Why is Cryptocurrency Considered a Good Investment Choice?
There are several aspects of cryptocurrency that make it a wise investment – let’s take a look at a few:
1. Hedge Against Inflation and a Great Store of Value
Crypto is known for being a hedge against inflation because its value has a good potential to keep growing even when the economy is not doing so well, while fiat currency has been known to decrease in value. For example, with the government continuing to print money out of thin air the way they have over the past few years, with nothing to back it up, the value of the dollar will just keep decreasing, along with any savings associated with it.
In contrast, the total number of a particular cryptocurrency is typically capped, with Bitcoin being limited to 21 million. Because of this, the closer it gets to that limit number, the more valuable Bitcoin can become, and this makes it a good long-term investment and a great store of value.
2. Decentralized & Secure
Due to the nature of blockchain technology, crypto assets are considered well-protected and less likely to be hacked or falsely altered. Additionally, because these virtual assets are decentralized, they come with additional safeguards, such as halting the ability of a government or bank to seize crypto funds. Keep in mind that an offline cold crypto wallet, where you hold your private keys, is needed to fully safeguard your digital assets.
3. Cryptocurrency Has Become More Mainstream
In the past, there were a great number of people who never even heard of investing in crypto, as well as those who were familiar with it but felt it wasn’t legitimate compared to common Wall Street investments. However, cryptocurrencies are on the rise because this particular investment type is getting the attention it deserves, is finally being taken seriously, and becoming more mainstream. This all greatly increases the possibility of a steady increase in value over time.
Before Diving in Know that Cryptocurrency Can Be Volatile
Although there are many advantages to investing in digital assets, those looking into how to invest in crypto need to know that it can be a volatile investment, just like many other assets out there. This is why it’s best to be well informed on the topic.
Imagine hearing incredible news regarding Bitcoin, and you then proceed to invest a large sum of money because of it, only to see it drop sharply the next week. It can happen, but if you’re well informed on its fluctuation possibilities, and make moves based on your knowledge of the market, then you limit your chances of having an unexpected loss of funds.
Step 2: Figure Out a System for Properly Keeping Track of Crypto Transactions for Tax Purposes
This action doesn’t necessarily have to be the second step; it can be saved for later, but I highly recommend doing it right from the start. Ok, now let’s talk taxes! I know it’s not an exciting topic, but it’s an essential one, and that’s why it’s near the top of my list.
I think it’s important to know that many people have invested in numerous cryptocurrencies on various exchanges, only to realize at the end of the year that they have to figure out their gains and losses to report them to the IRS – and then…total confusion sets in, and maybe some panic.
To provide the IRS with the information they require, you would need to figure out how to calculate the gains or losses on your crypto trades. In simple terms, this is done by subtracting the price you paid for the cryptocurrency from the amount you received for them. If the result is positive, then you have a gain and will need to report it as income on your tax return. If the result is negative, then you have a loss and can deduct it from your income in the same year. However, this calculation is easier said than done – but let me backtrack for a moment; it actually can be easy if the crypto exchange calculates it for you. But if it turns out they don’t, then you’re on your own in determining your gains and losses – so now what?
Calculating All Your Gains & Losses Can Be a Bit Confusing
Many investors will download CSV files from their crypto exchange that has a record of all their transactions, only to realize that they can’t make any sense of it all and wish they had planned better.
In addition to this, you’re also taxed on other crypto transactions that have nothing to do with you actually trading. For instance, you would need to report any digital assets you receive while mining, as well as report any purchases you made using crypto. Ok, now you can see why it’s so important to have a smart tax strategy in place.
If you don’t think you can keep track of all this on your own, there are a few paths you could take – hire an accountant that’s experienced in cryptocurrency taxes, or utilize reliable crypto tax software. There are several software programs out there that are worth looking into; here are a few you can check out:
Each of these tax platforms offers a different level of service, so be sure to read the reviews and compare them before choosing one.
Step 3: Determine Your Investing Strategy
You could just randomly buy crypto for fun, or when you hear some promising news about a particular digital asset climbing the charts, and do so all without having a clear plan in mind. However, employing a specific approach while investing is the better way to go about it if you want to maximize profits and keep your funds safeguarded.
An investment strategy is a plan of action designed to achieve a specific goal, such as minimizing losses. There are several strategies that are commonly utilized, but they can all be boiled down to two basic categories: active and passive. Active investment strategies commonly involve making frequent trades in an effort to beat the market. Passive investment strategies, on the other hand, can involve buying and holding investments for the long term in order to ride out market fluctuations.
Which Strategy is Best for You?
There is no single perfect strategy for everyone. Each person’s financial situation and investment goals are unique, so you would need to develop a plan that fits your individual needs. To get a jump start on determining which strategy may be right for you, read through the most common strategies below:
1. HODL (Buy & Hold)
The first strategy is referred to as HODL. Yes, that’s right, it’s spelled this way on purpose. This strategy simply involves buying cryptocurrencies and holding them for an extended period of time, and it’s considered a more passive form of investing.
Many people favor this approach because it can allow them to take advantage of price appreciation over time, sort of like buying a piece of real estate and seeing its value appreciate as the years go by. Also, with the HODL approach, there is the benefit of having the ability to maximize profits. This is because when you’re trading less, there are fewer fees and commissions due.
2. Day Trading
Day trading is an active form of investing where various cryptocurrencies are bought and sold all within the same day. This type of trading is typically used by those who are looking to make quick profits on short-term price movements.
In addition to this, the potential profits and losses associated with day trading can be substantial, so if you’re interested in learning how to invest in crypto to pursue day trading, it’s important to understand the risks, as well as acquire the ability to make decisions quickly in response to changes in the market.
3. Dollar-Cost Averaging
The final cryptocurrency investing strategy that I’ll discuss is dollar-cost averaging. This approach involves buying a fixed dollar amount of cryptocurrency at fixed intervals. It can be a way to reduce some of the impacts of market volatility, as well as reduce the stress that’s commonly associated with deciding when to invest and how much, and it tends to be a good strategy for those who are just beginning their journey into learning how to invest in crypto.
Which investing strategy is right for you? It really depends on your goals and risk tolerance. If you’re looking for a lower-risk option, then buying and holding, or using the dollar-cost averaging strategy may be the best choice for you. For those looking to take on more risk in order to potentially earn higher profits, then day trading may be a good fit.
Step 4: Figure Out How Much Money You Should Invest
There is no one definitive answer to how much an investor should spend on crypto investments. However, there are a few factors to consider when making this decision; the amount of money you have to invest, the volatility of the cryptocurrency market, and your own risk tolerance.
In general, it’s recommended that new investors only play with a small percentage of their funds when learning the ropes. This is important because your investment could unexpectedly go up or down in value quickly. So, shelling out an insignificant amount of money when educating yourself on how to trade crypto can help protect you financially, and will most likely keep you on the path of investing only what you can afford to lose.
I won’t go into too much detail here because I have an entire write-up that I created that will help you figure out how much money is appropriate to invest for your particular situation – How Much Should I Invest in Crypto as a New Investor.
Step 5: Carefully Choose the Cryptocurrency You Will Invest In
Anyone learning how to invest in crypto can run into a huge roadblock when it comes time to select which virtual assets to buy, because, well, there are actually thousands of them. BTC, ETH, ADA, and LUNA are just a few of the more popular digital assets on the market in 2022, but as I mentioned, there are many more to consider. So, with the vast amount of crypto out on the market, how do you go about deciding which cryptocurrencies are good investments?
What to Consider When evaluating Virtual Assets:
Review the information below to get a few great ideas on how to determine if a particular cryptocurrency is a worthy investment or not.
1. What is the Purpose or “Use Case” of the Cryptocurrency?
Some cryptocurrencies, like Bitcoin, were created specifically as a medium of exchange. Others, like Ethereum, have a wider range of uses, including smart contracts and decentralized applications. Its use case can say a lot about a particular cryptocurrency, revealing where it might be headed in the future, or what “needs” it might be meeting that can make it more valuable. Most virtual assets such as these have detailed white papers that provide data on the project as a whole, its use case, and more, so that’s a great place to start.
There are also crypto coins or tokens that have very specific uses, such as PRO, which is a utility token used to power a platform called PROPY. This platform is utilized to make real estate purchases on the blockchain. I imagine once this innovative and transparent way of buying real estate catches on, the value of the PRO token will skyrocket – this is just one example of a great use case. You can read up on the topic of investing in real estate through the blockchain in this interesting post – How Real Estate Purchases are Being Transformed by the Benefits of Blockchain Technology.
When looking into use cases, to get started, you’ll want to check out Ethereum, Solana, and Cardano.
2. Choose Based on Technical Analysis
Cryptocurrency technical analysis is the study of past and current cryptocurrency price movements with the aim of forecasting future price trends. By studying these indicators, investors can get a better idea of where the market is likely heading, and they will then be able to make more informed investment decisions. Imagine being empowered with the ability to know when Bitcoin is going to surge or take a dive, and you’re able to buy or sell based on that knowledge.
I highly recommend that all crypto investors learn how to read price pattern charts. It may sound overwhelming, but you can easily learn how to master technical analysis by reading the same book that I did – you can view it over at Amazon; it’s called Technical Analysis for Dummies.
3. Consider Top Coins by Market Cap
While you’re on your way to learning how to invest in cryptocurrency, if you haven’t had a chance to research specific crypto coins, you can always choose from the top 10 or 20 coins by market cap on coinmarketcap.com. This site displays information on total coins in circulation, day-to-day trading volume, price, and more, and it’s all organized in such a way that lets you know which coins might be a favorable investment at any given time.
A lot of investors evaluate cryptocurrencies based on market cap because it can reveal a more complete story and contrast value across many digital coins. Overall, it can suggest the growth potential of a digital asset and whether it appears to be a possible secure investment in comparison to other crypto coins out there.
The list of top coins by market cap can be helpful because looks can be deceiving for those with limited experience on crypto picks; here is a prime example:
Crypto coin (A) has 500,000 virtual coins in circulation, and each coin is worth $1; its market cap is $500,000.
Crypto coin (B) has 200,000 virtual coins in circulation, and each coin is worth $2; its market cap is $400,000.
Although the price of virtual coin (B) is $2, which is greater than virtual coin (A), making it appear to be worth more, in reality, cryptocurrency (As) overall value is more than cryptocurrency (Bs).
This is what I meant by how a bigger picture is revealed – you can’t go off price alone.
As of this writing, the current top ten coins by market cap are:
- Bitcoin (BTC)
- Ethereum (ETH)
- Tether (USDT)
- Binance Coin (BNB)
- USD Coin (USDC)
- Ripple (XRP)
- Terra (Luna)
- Cardano (ADA)
- Solana (SOL)
- Avalanche (AVAX)
Step 6: Sign Up with a Reputable Crypto Exchange
So, you understand what crypto is and how it works, you’re prepared to deal with the taxes, and you have a general idea of which cryptocurrencies you would like to invest in. With all that checked off your list, now it’s time to pick a crypto exchange.
There are a variety of crypto exchanges to choose from – so how do you pick the best one for you? You can start by making a list of what you may need from an exchange. For example, what cryptocurrencies would you like to trade? Are there any specific features you require for buying and selling? This is important because some exchanges offer limited cryptocurrency choices, while others have a wider range, and a number of exchanges offer more features than others, such as margin trading or stop-loss orders.
You would also need to take into account where you reside. If you live within the United States, you won’t be able to trade on certain exchanges without a VPN. This is the case with Binance. Although, Binance does offer a U.S. version but with limited digital coin options compared to their international version. With that said, do your due diligence and research several exchanges, read reviews, and so on. I recommend starting your research by looking into Binance, Coinbase, and Crypto.com, which are all excellent options.
Once you decide which crypto exchange fits your needs, the platform should walk you through the account creation and verification process, as well as provide instructions on how to connect a payment option, and then you’ll be ready to start trading – which brings us to my next talking point:
Step 7: Invest Time into Learning How to Navigate the Exchange Platform
I recommend taking some time out to learn the ropes of the exchange you’re going to use before actually investing your money. In fact, I suggest that you practice on a crypto trading simulator. Most reputable exchanges provide one, and they’re referred to as a paper trading account – it’s a great way to learn how to invest in crypto without losing all your money.
A paper trading account enables you to play with fake funds, allows you to buy, sell, and trade without all the risks. If the exchange you signed up with does not offer a practice account, then just start with very small amounts of money; even just ten to twenty dollars will allow you to experiment with buying and selling. You’ll also find that most crypto exchanges offer tutorials or training videos to help jumpstart your investing experience.
Step 8: Continue Using the Crypto Exchange Wallet or Purchase Your Own
First off, let’s talk about what a crypto wallet is and why it’s important. A cryptocurrency wallet is commonly referred to as a place where digital assets are stored and safeguarded, but in reality, virtual coins are not actually stored within a wallet. Instead, your holdings, or the data pertaining to them, live on the blockchain, and your crypto wallet stores what are known as public and private keys. These keys are what allow you to store, send and receive cryptocurrencies, as well as make purchases. Without these keys, no transactions can take place on the blockchain.
Hot & Cold Crypto Wallets
There are a few different types of crypto wallets, with the two main categories being hot and cold. Wallets that are referred to as hot are connected to the internet, and cold wallets, such as a USB-type device, are offline.
When you get situated on a crypto exchange, you’re typically automatically assigned an online hot wallet, and the exchange handles your keys for you. Because this type of wallet is connected to the internet, it’s therefore not as secure as a cold wallet that keeps your data offline. As a result, a crypto exchange wallet should really only be used for short-term storage or when you need easy access to your funds.
With that said, it would be a wise idea to eventually invest in a cold offline wallet, like the Ledger Nano X. This is what I use, and it keeps my crypto safe from hackers. To learn more about hot and cold wallets, dive into the following articles I put together. They will provide you with all the information needed to choose which type of wallet will work best for your needs.
Step 9: Keep Yourself Informed on the Latest Crypto News in 2022 So You Can Invest with Intelligence
The cryptocurrency space is rapidly growing and evolving, so it’s important to keep up with the latest news and developments in this sector. By staying informed, you can keep track of new investment opportunities, as well as potential risks. Also, it’s worth emphasizing that with any investment – real estate, stocks, crypto, and others, investing without being properly informed may lead to costly mistakes. With that in mind, I recommend diving into my Crypto News Daily channel to keep on top of your investment game.
Below you can view a video from this channel that I think you’ll find very interesting:
I Hope You Now Have a Handle on How to Invest in Crypto and You’re Ready to Dive In!
So there you have it, a comprehensive guide on how to invest in cryptocurrency in 2022! The interest and the technology behind cryptocurrency are only going to keep growing, so don’t be left behind by waiting to get started. If you’re seriously thinking about diving into the world of crypto assets, now is definitely the time to go for it. Just follow the steps I outlined in this guide, and you’ll be on the path to becoming a seasoned crypto investor.