How To Invest in Cryptocurrency
Since the mid-2000s, digital currency has been increasing in popularity. In fact, in April 2021, the value of the digital currency market as a whole hit $2 trillion for the first time. So if you’ve been wondering “should I invest in cryptocurrency or digital assets,” now is a great time to explore all the options.
First, let’s break down the difference between cryptocurrency and digital assets. Cryptocurrency, like standard currency, can be bought and sold, and the number of units on the market can fluctuate over time. Digital assets, on the other hand, are non-tangible digital files or assets that, when purchased, grants the owner the rights to it. Digital assets are finite, so the number of units available does not change.
How to buy cryptocurrency and other digital assets
Once you’ve decided to invest in digital currency—whether that’s cryptocurrency or digital assets—the next question you’ll probably ask yourself is “how do I start investing in cryptocurrency or other virtual currencies.” Essentially, it’s a three step process. First, you’ll pick an exchange to purchase from. Next, you’ll purchase the currency. Finally, you’ll store your newly-purchased digital currency in a digital wallet. In actuality, however, there are several things you should do before you click “add to cart” and make your purchase.
Research digital currency exchanges
Before purchasing any digital currency, you must decide which exchange to buy from. Think of this like deciding which broker to use for stocks or which lender to choose for a mortgage. To best select the right exchange, it’s important to understand the difference between the two main types of exchanges.
Centralized exchange: The most common type of exchange is a centralized exchange. These exchanges are private companies that offer a platform for investors to trade digital currency. To use a centralized exchange, you must register for an account and provide identification. Centralized exchanges are typically the easiest for new investors to use. Popular centralized exchanges include Kraken, Coinbase, Binance, and Gemini.
Decentralized exchange: Decentralized exchanges are peer-to-peer marketplaces that follow the philosophy of Bitcoin and blockchain, which means they have no central point of control or regulation. With decentralized exchanges, investors do not have to provide identification and are free to use the platform however they choose—whether legal or not. Examples of decentralized changes include 1inchexchange, Sushiswap, Curve.fi, and Dydx.
Research digital currency types
After you choose what exchange you plan to use, you should research cryptocurrencies and digital assets to select which specific currency you want to purchase. With more than 10,000 to choose from, there are a lot of options. Fortunately, we’ve laid out four high-performing digital currencies with varying price points for potential investors to consider. Cryptocurrency exchange rates change frequently. These estimates were made in June 2021.
Bitcoin (BTC): Perhaps the most famous digital asset, Bitcoin dates back to 2009. As of June 2, 2021 there are 18,725,006 Bitcoins circulating publicly. One of the pricier digital currencies, Bitcoin is currently trading around $36,800, which is up about .2% over the last seven days. While that’s a high price, it’s good to know that investors can purchase part of a Bitcoin.
Ethereum (ETH): Ethereum is a decentralized software platform that supports smart contracts, which allow developers to create decentralized applications without any third-party interference. As such, Ethereum is both a distributed ledger and a cryptocurrency. It is the second largest digital currency, only behind Bitcoin, it launched for presale in 2014. A more affordable option than Bitcoin, Ethereum is currently trading at $2,660, up about 4% in the last seven days.
Polkadot (DOT): Polkadot is another fairly large cryptocurrency and distributed ledger, and it has been around since 2017. It’s considered a “proof-of-stake” currency that aims to create interoperability along their blockchain. Polkadot is currently trading at $24, up about 9% over the last seven days.
Cardano (ADA): Cardano was created with a research-based approach by a group of engineers, mathematicians, and cryptography experts. Because of this process, Cardano is seen as a stand out amongst other proof-of-stake digital assets. Cardano also operates as a distributed ledger. Like Polkadot, Cardano launched in 2017. Cardano is currently trading at $1.70, up about 10% over the last seven days.
Research digital wallet options
Once you’ve chosen an exchange and which currency you plan to invest in, you have to decide how you’ll store it. Digital currency is stored in a digital wallet. There are a few different options, including wallets provided by centralized exchanges, hot storage, and cold storage options.
Many centralized exchanges provide storage services—a wallet—for users. This can be an especially useful option for those just starting out with digital currencies, as everything will be available in one place. As with hot storage wallets, users should research the security features of the wallet and use a secure password.
Hot storage wallets are directly connected to the internet. Most hot storage options are free, but like everything connected to the internet, they are susceptible to theft. Users should use a secure password to protect their wallet. Hot storage options are best for storing digital currency for quick trades. Options include:
- Desktop wallets are apps that run and store crypto on your desktop
- Mobile wallets are apps that run and store crypto on your smartphone or tablet
- Web wallets are browser-based wallets that can be used on any internet-enabled device
Popular hot storage wallets include Exodus and Mycelium.
Cold storage wallets are devices, similar to USBs, that allow users to store and download their digital currency. Cold storage wallets should be encrypted to allow for maximum security. And, because the currency is stored offline, they’re considered to be much more secure. Cold storage wallets are best for storing bulk amounts of digital currency that won’t be traded frequently. Popular examples include Ledger and Trezor.
Where to buy cryptocurrency and digital assets
After you’ve done all your research about exchanges, currencies and wallet options, your final question is likely “how do I start investing in crypto?”
Let’s walk through how to invest in cryptocurrency and digital assets on the platform we recommend, Kraken.com. First, you’ll need to create an account. After your account is created, you will need to deposit funds via a credit/debit card or ACH online banking. Next, you’ll need a digital wallet. Kraken does not offer wallets through their platform, so you’ll need to set one up before purchasing any digital currency. Kraken can be used with hot or cold storage wallets. Finally, the quickest way to instantly buy and sell currency is by using the “Buy Crypto” button that will appear at the top of Kraken.com’s page. You can also read about all the details of buying and selling on Kraken.
Invest with Delta Wealth Advisors
Digital currency, like all investments, is best utilized as an investment in a diversified portfolio that contains stocks, bonds, and index funds. While other advisors don’t advise on digital currency investments, at Delta Wealth Advisors, our team of experienced financial planning professionals can help you create or update your portfolio to include cryptocurrency or digital assets in a way that makes sense for your financial goals. Contact us today to talk about your investments.