Crypto isn’t just a niche market anymore. Worldwide financial players like Blackrock and Fidelity are placing their bets with proposed crypto exchange traded funds (ETFs). Entire nations like El Salvador have made Bitcoin legal tender, alongside the dollar.
Blockchain, the tech that powers crypto, has the potential to reshape our world and the rewards for early inventors have been massive. $100 invested in Bitcoin in 2010 would have grown to more than $48 million by 2021. Crypto assets like Bitcoin have been the best-performing asset class of the past decade.
To get in on the action, you’ll need to buy some crypto.
In this beginner’s guide, we’ll walk you through the steps to get started. You’ll learn how to buy cryptocurrency, where to buy crypto, and how to choose a cryptocurrency to buy. We’ll also discuss ways to pay, how to put your crypto to work (to earn more crypto), and some of the risks you should consider.
How to Invest in Cryptocurrency in 5 Simple Steps
Making your first crypto purchase is easier than you might think – you can get started simply by following these steps.
- Choose a cryptocurrency trading platform: A trading platform or crypto exchange offers a way to buy crypto or trade one cryptocurrency for another. For example, eToro makes a good choice for beginners with newbie-friendly features like a demo account and copy trading tools — so you can practice crypto trading in a sandbox before using real money and copy experienced traders.
- Open a crypto trading account: Regulated crypto exchanges require proof of identity, much like a bank or brokerage account. Exchanges like eToro and Coinbase have this down to a science, making onboarding a simple process that usually takes less than 15 minutes.
- Fund your account: Connect your bank account (or even PayPal in some cases) with your trading account so you can buy crypto. Some exchanges support debit and credit cards, but it’s almost always cheaper to fund your account with a bank deposit.
- Decide which cryptocurrency to buy: Crypto exchanges like Coinbase and Kraken offer hundreds of cryptocurrencies. Most beginners start with well-known cryptos like Bitcoin or Ethereum, or both. These cryptocurrencies are widely traded and therefore have high liquidity, allowing you to sell your crypto virtually anywhere when it’s time to close your position. Also, they’re usually much more stable than meme coins (more on that later).
- Invest in cryptocurrency: It’s time to start building your crypto stack. Many exchanges like eToro let you set up recurring deposits so you can buy crypto on a fixed schedule. This strategy, called dollar-cost averaging (DCA), means you don’t have to guess the right time to buy. By investing the same amount on a fixed schedule, you’ll automatically buy more when prices are lower and less when prices are higher
Where to Buy Cryptocurrency – Best Platforms Reviewed
There are hundreds of crypto exchanges out there, but some are geared toward more experienced traders. In this guide, we’ll focus on some of the best crypto exchanges that are well-suited to first-time buyers. That means easy onboarding, beginner-friendly interfaces, simple-to-understand fees, and support for the leading cryptocurrencies.
1. Etoro – Beginner-Friendly Crypto Trading Platform With Demo Account and Copy Trading Tools
eToro makes crypto buying easy and the platform offers no-fee trades. That doesn’t mean free trades, however. Instead, eToro uses a “spread,” which is a price buffer to ensure your buying price won’t change between the time you click buy and when your newly purchased crypto is delivered to your account. This structure makes both pricing and the buying process easy to understand.
Expect to pay about 1% in spread fees. This is higher than you’ll pay with exchanges like Binance or OKX, but lower than the trading fees for Coinbase’s simple trades.
From the ground up, eToro was designed to deliver features and tools well suited to beginners. While you’ll have access to charts, you don’t need to be an X-Wing pilot to navigate simple trades. Just choose your crypto and a purchase amount, and then choose a limit order that fills at a specified price or a market order that fills immediately.
eToro also brings some extras like copy trading and virtual accounts. Here’s how each works:
- Copy trading: With eToro’s copy trading tools, you can follow the trading moves of successful traders in your own account. They buy Bitcoin, you buy Bitcoin. They sell, you sell. It might seem like a leap of faith to follow someone else’s trading moves — and it is, but you can also view their past trading performance to compare against the other traders. Some beginners prefer this strategy as it can reduce the need of having to do fundamental and technical analysis yourself, but bear in mind there’s no guarantee you’ll make money by copying other traders
- Virtual accounts: Test your trading strategies and timing without risking any real money with eToro’s demo accounts. You’ll get $100,000 in imaginary money with which you can make real-world trades. Learn How to buy and sell cryptocurrency without the risk of losing any real money.
While eToro doesn’t offer as many coins or the lower fees you’ll find on platforms like OKX or Binance, its copy trading tools, smart interface, and demo account make it a solid choice for beginners and casual crypto traders.
These beginner-friendly features make eToro one of the best places to invest in cryptocurrency.
|Trading Fees||Bitcoin Buying Fees||Minimum Deposit||Top Features|
|1% spread, no additional trading fees||No special tiers for Bitcoin||$2 minimum||
- Support for crypto, stocks, ETFs, and options
- Copy trading to follow successful traders
- Virtual account to practice trading and test strategies
- eToro Academy learning center
- “Spread only” trading costs are higher than some other exchanges
- Crypto withdrawals limited to certain assets (including BTC and ETH)
Don’t invest unless you’re prepared to lose all the money you invest.
2. Coinbase – Easy-To-Use Exchange With Staking and Crypto Rewards
Coinbase has become a household name in markets throughout the world, synonymous with both ease of use and transparency. As a publicly traded company, the crypto exchange publishes its financial statements online, including SEC Filings and Quarterly Earnings, making it one of the most trusted crypto exchanges.
Expect easy trades using Coinbase’s Simple Trade feature – or, if you’re more experienced, save on fees with Coinbase Advanced. The latter looks and feels much like a trading interface on a common stock brokerage account.
Fees for Simple trades range from $0.99 up to $2.99 for trades up to $75, with variable fees above $75. Generally, you’ll pay less if you trade higher amounts. Like eToro and other “simple” trading interfaces, Coinbase also uses a spread to lock in the price for simple trades above $75.
However, when using Coinbase’s simple trades, you’ll pay more than you would with eToro. There’s a way to bring trading costs under control, though, by using Coinbase’s advanced trading platform.
Advanced trades interact directly with the order book of buy and sell orders placed by other traders, so Advanced trading does not use a spread. Instead, you’ll pay a flat fee of 0.6% for limit orders (you set the price) or 0.8% for market orders (you buy at the price offered by other traders). This option is less costly than simple trades, which use a variable fee, and also lower than using eToro, which has a 1% spread.
You’ll find over 250 cryptos on Coinbase, including top names like Bitcoin (BTC) and Ethereum (ETH). If you need to move your crypto to a self-custody wallet, Coinbase is one of the better options because the exchange supports withdrawals on a wide range of crypto networks, including Layer 2 networks like Arbitrum and Polygon.
Self-custody wallets let you hold your crypto in a wallet you control. They also allow you to use your crypto on alternative blockchain networks that have lower costs compared to Ethereum’s Layer 1. These are called Layer 2 networks. For example, you could buy ETH on Coinbase and then send it to Abitrum (Layer 2) to use your ETH in decentralized finance applications on the Arbitrum network.
Lastly, Coinbase offers staking for a handful of cryptocurrencies. Stake Ethereum, Solana, Cardano, and more to earn a yield that can help you grow your crypto stack. We’ll cover more detail on staking later in the guide.
|Trading Fees||Bitcoin Buying Fees||Minimum Deposit||Top Features|
|$0.99 up to $2.99 (trades up to $75), variable fees above $75 + spread; 0.6% maker and 0.8% taker fees for Coinbase Advanced||No special tiers for Bitcoin||$10 minimum||
- Over 250 cryptos supported
- Built-in staking support for ETH, SOL, and ADA
- Available advanced trading platform with lower fees
- Promotional interest offers on assets like USDC; make money while waiting for your next trade
- Limited crypto purchase options in the US
- Staking not available in all US states
- Higher fees for Simple trades and DCA purchases
3. Kraken – Security-Focused Crypto Exchange With Low Fees
Founded in 2011, Kraken was among the first crypto exchanges on the scene and is still one of the best platforms to buy cryptocurrency today, particularly from an integrity standpoint. The company was first to offer a proof of reserves, which is a way to prove that the exchange actually has the crypto it says it has. Not all exchanges offer such indisputable assurances.
Like Coinbase, Kraken offers staking services for a handful of cryptos, like ETH, but the exchange no longer offers staking services in the US. Blame the SEC, which sued Kraken for the alleged offering of unregistered securities (staking services). Kraken settled for $30 million.
Staking challenges aside, Kraken provides a comparatively safe crypto playground, with easy-to-use “Instant Buy/Sell” boxes found throughout the site. You’ll find the lowest fees with Kraken Pro, which is available at no extra cost and provides an advanced trading interface. Trading fees for Kraken Pro start at less than a third those of Coinbase Advanced, with maker (limit order) fees starting at 0.16% and taker (market order) fees starting at 0.26%. Lower fees are available with higher 30-day trading volumes.
Currently, Kraken offers trading for over 200 cryptos, including top names like BTC, ETH, and SOL.
|Trading Fees||Bitcoin Buying Fees||Minimum Deposit||Top Features|
|Instant Buy: 0.9% for stablecoins and 1.5% for other cryptos; Kraken Pro uses 0.16% maker fees and 0.26% taker fees, with additional discounts based on volume.||No special tiers for Bitcoin||$10 minimum||
- Proof-of-reserves: verify that Kraken has the crypto for your account
- Low trading fees for Kraken Pro
Support for recurring buys (DCA)
- No staking services in the US
- Leverage and futures trading limited to “qualified” accounts
4. OKX – Full-Featured Platform With Trading Bots and a Demo Account
To be fair, OKX might seem overwhelming to new crypto buyers. The platform offers a lot of features, including programmable trading bots. Imagine a digital trader never sleeps and that makes trades according to rules you define. That’s a bot, and it’s powerful stuff.
However, the platform also offers a “demo account,” so you can learn your way around the platform and crypto trading in general without risking any money at all.
You can even test out the trading bots before turning those digital critters loose with real money. Think of OKX as an exchange that’s well-suited to experienced traders but which also offers newer traders a risk-free way to learn and room to grow as they master the basics.
For the simplest of platforms, you’d want to consider eToro or one of the best crypto apps for beginners. If you think you might want more tools (and much lower trading fees), OKX deserves a place on your list.
Trading fees vary based on trading volume or by the amount of OKB (the exchange’s official token) held by the account. For lower volume accounts and accounts holding less than 500 OKB, you’ll pay 0.08% for limit orders and 0.1% for market orders. This puts the OKX base trading fee among the lowest available anywhere. Earn trading fee discounts by holding more OKB or increasing your 30-day trading volume.
Note: OKX is not available in the US.
But for crypto buyers in supported regions elsewhere, OKX offers some hard-to-find features that can supercharge your trading and crypto earnings.
- Earn interest through lending or crypto staking.
- Use trading bots to put trading strategies on autopilot.
- Be among the early investors with Jumpstart, a program that gives access to new projects like SUI and others.
|Trading Fees||Bitcoin Buying Fees||Minimum Deposit||Top Features|
|0.08% maker and 0.1% taker fees for regular accounts, 0.06% maker and 0.08% taker fees for VIP accounts ($100,000 monthly trading volume)||No special tiers for Bitcoin||$10 minimum||
- Proof of reserves
- Trading bots
- Demo account
- Futures, perpetual futures, and options
- Not available in the US
- Higher fees for low-volume accounts
5. Binance – Low Cost Exchange With a Wide Crypto Selection
Although the Binance.US exchange is experiencing some changes in the states, the main exchange at Binance.com is still going strong and servicing the rest of the world. Currently, the US site does not support USD deposits from banks.
Binance made our list as one of best platforms to buy cryptocurrency for several reasons, including a massive selection of 350+ cryptocurrencies and a full suite of crypto services on the Binance.com exchange. It’s an easy-to-use platform that offers more features as your trading needs grow. Start out simple and then expand to lending, staking, trading bots, futures and options, or even peer-to-peer trading.
Binance’s low trading fees for standard users let you purchase more crypto compared to exchanges with higher fees like eToro or Coinbase. You’ll pay 0.1% for both market and limit orders. However, you can save 25% on fees by paying fees with Binance’s BNB token. Higher 30-day trading volumes and accounts that hold a BNB balance also earn a discount on fees.
Binance brings a user-friendly interface, a wide range of 350+ crypto assets, and room to grow when you’re ready for more advanced strategies like staking and futures trading.
Looking for a less common cryptocurrency? Binance is the best place to buy cryptocurrency if you’re looking for new and hard-to-find cryptos.
|Trading Fees||Bitcoin Buying Fees||Minimum Deposit||Top Features|
|0.1% maker and taker fees for standard users||No special tiers for Bitcoin on Binance.com; Binance.US offers no trading fees for USD-based (USDC/USDT) BTC trading pairs||$0 minimum||
- Low everyday fees on Binance.com
- Trading bots, futures, perpetual futures, and options
- No BTC or ETH fees for Binance.US (USDC/USDT only).
- Binance.US exchange does not support USD deposits
Discover more of the best crypto exchanges.
What is Cryptocurrency?
Cryptocurrencies, like Bitcoin or Ethereum, are digital coins or tokens that represent value on the blockchain. A blockchain is a ledger, a record of transactions. Each block contains transactions and these blocks are chained together, with the newest blocks and transactions added to the end of the chain.
If Bobby sends 0.1 Bitcoin to Suzie to pay for a freelance job, the transaction is immortalized on the blockchain and can’t be reversed. Wallet A sent 0.1 Bitcoin to Wallet B, and the balances for each wallet are adjusted accordingly. When Suzie later sends some of her Bitcoin to a vendor to purchase computer equipment for her freelance business, that transaction is also recorded on the blockchain.
Some cryptocurrencies, like Bitcoin, are best suited to storing and transferring value. Others, like Ethereum, are used to pay for “computing power” on the blockchain. Ethereum and similar blockchains like Solana and Cardano can run computer programs called smart contracts. This makes the cryptocurrencies for these blockchains both a utility token – used to pay for computing power – and a store of value.
Some crypto tokens are better described as speculative, however. The PEPE token is a good example, a meme cryptocurrency that adopts Pepe the frog as the project’s mascot. Despite having no real utility, following its launch in April 2023, PEPE brought gains of up to 430,000% before prices settled.
Should I Buy Cryptocurrency? Potential Benefits of Crypto Investment
Although the crypto market has come a long way since the 2008 Bitcoin Whitepaper detailing the blueprint for a peer-to-peer electronic cash system, crypto is still speculative. There’s no guarantee of future returns and there isn’t enough history to make trustworthy predictions based on trading patterns. That hasn’t stopped an estimated 88,000 crypto millionaires worldwide from finding success in crypto as an asset class.
Adding some crypto to your portfolio could make sense. Here are some of the potential benefits of investing in crypto.
The most obvious reason investors flock to crypto is the potential for price gains. Bitcoin is up over 444 million percent since 2009. Ethereum is up over 58,000% since its launch in 2015. Meme coin PEPE compressed its gains into a much shorter time frame, gaining more than 6,000% between mid-April and early May of 2023.
However, since its peak, PEPE is down nearly 83%; timing is everything.
For those investing for the long run, time-tested cryptos like Bitcoin and Ethereum offer a safer starting point. To smooth out the peaks and valleys, you can dollar-cost average your position, investing a fixed amount at set intervals, a strategy that often works well with volatile assets.
On the other hand, meme coins can sometimes present opportunities for big gains over much shorter time spans, but their increased volatility also means they are riskier assets that can tank at any time.
Many households have investments in mutual funds, ETFs, stocks, or even money market accounts. Crypto offers a way to diversify your holdings, introducing an asset class outside traditional finance.
Adding a crypto position to your portfolio offers two potential diversification benefits:
- Outsized gains: Your crypto portfolio might see higher gains compared to other assets. In recent years, this has been largely true. However, in 2022, Bitcoin swooned, losing as much as two-thirds or its value. Then, in 2023, Bitcoin rallied over 60% in the first 10 months, outperforming the S&P 500 by more than four times as shown in the chart below.
- Different price influences: Prices for traditional investments like the S&P 500 index can move for different reasons compared to cryptocurrencies. For example, when Apple has news, AAPL’s 7% weighting in the S&P 500 moves the entire index, but crypto markets might be unphased. By contrast, news of an approved BTC spot ETF could move BTC and ETH prices dramatically while the stock market trades in its own universe.
Traditional currencies like the US Dollar and British Pound change in value as the money supply contracts or expands. The latter is inflation, an increase in the money supply. As we’ve all seen, when the money supply increases, the prices of goods and services also increase. In 2022, inflation ran hot at 8.7 globally.
Unlike traditional currencies, many (but not all) cryptocurrencies have a fixed supply. Bitcoin, for example, has a maximum supply of 21 million. Ethereum, while not a fixed supply, uses a burning mechanism that keeps the ETH supply relatively stable and could even cause ETH to become deflationary.
Some crypto investors feel that cryptos with a stable supply like BTC and ETH could be an effective hedge against inflation.
Passive Income Opportunities
Beyond price appreciation, there are several other ways to earn money with cryptocurrencies.
- Crypto staking is among the most popular ways to earn more crypto. The term refers to pledging (staking) your crypto assets to help validate transactions on a proof-of-stake blockchain like Ethereum, Solana, or Cardano.
- Crypto lending is another way to earn a yield on crypto. Much like you can earn a yield on cash you deposit in a money market fund, you can earn a yield by lending your crypto through an exchange like Nexo or a decentralized platform like Aave.
Both staking and lending come with risks, meaning you could lose some or all of your crypto. Generally, staking comes with less risk for major cryptos like ETH. By comparison, lending brings greater risks, as seen with the collapse of crypto lending platform Celsius.
Crypto as an Alternative Currency for Purchases
The world still runs on traditional currencies like dollars and pounds, but there’s a growing market for goods and services that use cryptocurrency payments. Microsoft allows Bitcoin payments for some of its apps and games. AT&T now accepts Bitcoin payments in the US market. Tech retailer Newegg supports several cryptocurrencies for payments, including Bitcoin, Dogecoin, Ethereum, and 11 other crypto assets.
For some, crypto is a way of life. Some people have even managed to live in the crypto world without using traditional money at all.
However, it’s important to note that spending crypto can have tax consequences. We’ll dive a bit deeper into the topic later in the guide but here’s the basic overview: Many governments around the world treat cryptocurrency as property, meaning if there’s an appreciation in value while you held the cryptocurrency, capital gains taxes may apply when you spend your crypto.
Short Term Crypto Trading vs. Long Term Investment
Much of the crypto hype revolves around short-term trades and the latest tokens being discussed on social media. This is a very different approach compared to long-term investing. Both strategies can lead to profits (or losses), but long-term investing allows you to evaluate your options independent of the market’s daily ups and downs.
Short-Term Crypto Trading
If you’re knowledgeable about technical trading, including chart buy and sell signals – and you have the ability to read the social media tea leaves, short-term crypto trading can be very profitable.
Newer trading tools like perpetual futures that let you bet on the direction of major crypto assets allow you to multiply your gains through leverage and without all the exchange fees and without buying the asset itself.
As another option, you could trade cryptos on an exchange, playing on short-term moves in the hourly, daily, or weekly charts. In this case, you’re trading real crypto, or trading the “spot” market.
Short-term trading is a hands-on activity. You have to live it. If you time your trades right (and with a healthy helping of luck), you can make exceptional returns trading a token like PEPE, which rewarded early investors with over 400,000% profit. By contrast, investors who bought at the peak and held their tokens are down over 80%.
Meme coins and alt coins offer trading opportunities you won’t find with staples like BTC or ETH. Massive spikes of up to 400% or more on the daily charts aren’t uncommon, as seen on the DEXTools trending page.
The risk is often found in the exit strategy, however. Alt coins or meme coins that pump in price but which don’t have any real utility are sure to fall back to earth at some point. You have to time your exit well to avoid losing your gains — or possibly even your initial investment.
Short-term trading often requires constant attention to the markets. For many investors, it’s a stressful way to play the markets with no chance to relax until you close your position. Historically, day traders lose money, but that’s not always the case. As always, be careful and don’t trade with money you can’t afford to lose.
- Potential outsized gains
- Fun and fast-paced
- Potential for sudden losses
- Trading fees can reduce gains
- Possible short-term capital gains taxes
Long-Term Crypto Investment
Long-term crypto investment is a different animal, the tortoise to short-term trading’s hare. When making a long term-investment, you have the luxury of time to evaluate a given project and its potential. You can also digest news as it occurs with no pressure to change your position.
But perhaps the biggest advantage of long-term investing is the ability to dollar-cost average your position. With dollar-cost averaging, you invest a fixed amount at a set interval. The strategy can be helpful to stabilize your cost for volatile assets like cryptocurrencies and removes the emotion from investment allocations.
For example, maybe you decide to buy $200 per month in Bitcoin, or even $2,000 or $20,000, depending on your budget. When the price of Bitcoin spikes, you’ll buy less with the same $200 investment. When the price drops, your $200 buys more Bitcoin. The strategy automatically optimizes for lower-cost purchases.
Coins and tokens that have a utility are best suited for long-term investments. For example, ETH is the fuel that powers transactions on the world’s largest smart-contract blockchain. While there’s no guarantee of price appreciation, the utility and the demand that utility creates makes ETH a crypto to consider as a long-term play.
Long-term plays to consider include:
- Bitcoin (BTC)
- Ethereum (ETH)
- Cardano (ADA)
- Solana (SOL)
- Polygon (MATIC)
- Ripple (XRP)
- Chainlink (LINK)
- Aave (AAVE)
- Curve (CRV)
- Litecoin (LTC)
Some cryptos, like LINK and AAVE, are tokens for popular protocols used in blockchain apps rather than tokens for the blockchains themselves.
- Opportunity to use dollar-cost averaging
- More time to evaluate market moves
- Limited crypto purchase options in the US
- Not well-suited to meme coins
- Bearish cycles can last months or years
- Often lower returns due to focus on established cryptocurrencies
When to Trade and When to Invest
Established cryptos like BTC and ETH are suitable for both short-term trades and long-term investing. You can even do both simultaneously, keeping a core position as a long-term investment while trading the daily market movements with a designated amount of capital.
When looking for an investment-grade crypto, consider its value proposition. Ether (ETH) powers the world’s biggest smart-contract blockchain. Its value is unlikely to go to zero. Bitcoin is regarded by many as the most secure blockchain, and with its fixed supply of 21 million and growing worldwide acceptance, BTC isn’t likely to go to zero soon either. To the contrary, ARK Invest predicts Bitcoin could reach $1 million by 2030.
Other cryptocurrencies may not have the same long-term value – either because they don’t have any actual utility or because the supply is constantly growing, which can affect the value. Another possibility is that the project might be abandoned at some point. Not every crypto is a buy-and-hold candidate.
You can have a lot of fun and possibly even make a lot of money by short-term trading tokens like PEPE or SHIB or whatever meme coin comes next. Just keep the trade in perspective: it’s a short-term gamble.
Moving beyond BTC and ETH, you can also consider other projects for long-term investments.
Here are some examples from the top cryptocurrencies by market capitalization:
- Polygon (MATIC): The Polygon network primarily serves as both a Layer 2 network, a way to process Ethereum network transactions faster and more affordably.
- Solana (SOL): The Solana network boasts some of the fastest transaction times in the blockchain world, and most transactions cost just pennies.
- Cardano (ADA): Similar to Ethereum, Cardano offers smart contract functionality combined with the stability that comes with a slower development pace.
- Litecoin (LTC): Many see Litecoin as silver to Bitcoin’s gold. In fact, Bitcoin was a fork of Bitcoin, built to be 4 times faster.
Do your own research to determine which might fit your long-term investment goals.
Other Methods of Investing in Crypto
Blockchain is becoming more prevalent in industries ranging from gaming to financial services and even insurance and healthcare. More widespread usage means more ways in which you can invest in crypto.
Be sure to research how each platform works before you start clicking buttons. For instance, staking (covered in just a bit) often requires a time-based commitment. This means if the market gets choppy, you’re along for the ride.
Gaming might not be the first thing you think of when it comes to crypto investing, but there’s money to be made. Axie Infinity, The Sandbox, and Decentraland are three popular examples of crypto-based play-to-earn games.
All three feature NFTs (non-fungible tokens), which are digital representations of elements in the game. These NFTs might be virtual real estate, gear, or even the characters themselves in the case of Axie Infinity. Unlike the in-game assets in most games, these NFTs have a thriving market, meaning you can sell them for crypto like ETH.
Proof-of-stake blockchains like Ethereum use staking as a consensus (agreement) mechanism to validate transactions. In plain English, these networks require crypto as collateral for validator nodes, computers on the network that vote on which transactions are valid. If a validator breaks the rules, some or all of the “staked” crypto collateral is at risk through a process called slashing.
But there’s an upside to staking. First, slashing is very rare because there’s a strong disincentive for validators to misbehave. And for those who stake their crypto, there’s typically a monetary reward, called staking rewards.
You can stake ETH, for example, to earn a yield of 3% to 5% – or even more, depending on the network’s needs. The yield is typically paid in more staked ETH, allowing you to put the magic of compound interest to work. The interest you earn as staking rewards also earn interest.
But there are also ways to earn more crypto on specific protocols. For example, you could stake the AAVE token to help provide an insurance fund for the Aave decentralized lending platform. Similar to validator staking, there’s a risk you could lose some of your crypto. However, safeguards built into the protocol shift the risk to borrowers and reduce the risk for AAVE stakers. In exchange, you earn a yield.
Some other popular staking coins include Solana, Chainlink, and Polygon.
In the previous section, we discussed Aave, which is the largest decentralized lending platform. Decentralized means that the app is powered by smart contracts, computer programs that govern every interaction on the platform. You can also choose to lend through centralized platforms like Nexo.
In both cases, you’re making your crypto available to others to borrow and earning a yield in exchange.
You don’t always have to buy crypto directly to get crypto exposure in your portfolio. As an example, Nvidia (NVDA) is seen by many as a crypto play because the company’s graphics cards (GPUs) are often used in crypto mining. Cryptocurrencies like Dogecoin and Monero can still be mined with GPUs.
Here are a few other examples:
- Microstrategy (MSTR): This software company owns over 150,000 BTC, with an estimated value of $4.6 billion.
- Coinbase (COIN): As the largest publicly traded crypto exchange on the planet, Coinbase offers a way to get exposure to the crypto space without buying any crypto. Revenue for the company comes from fees and crypto custody services.
- Marathon (MARA): Bitcoin mining and sustainability don’t often appear in the same sentence, but Marathon is bringing the two together as a company. The company’s commitment to planet-friendly crypto mining includes moving miners to new locations to meet sustainability goals and utilize sustainable energy sources.
Exchange-traded funds (ETFs) give you the opportunity to dabble in crypto assets without owning any actual crypto.
These funds use various strategies ranging from ETFs that track key bitcoin mining companies, such as The Valkyrie Bitcoin Miners ETF, to ETFs that attempt to track the price of Bitcoin or other crypto assets using futures contracts, like ProShares Bitcoin Strategy ETF.
A third group of crypto ETFs tracks crypto stocks like those in the section above. One example is Bitwise Crypto Industry Innovators ETF, which holds MARA, COIN, and more.
In Summer of 2023, Europe saw the launch of its first spot Bitcoin ETF. Canada already has spot Bitcoin ETFs, and several large players including Blackrock have put in bids to launch spot Bitcoin ETFs in the US. Spot crypto ETFs differ from other variations because they are backed by the actual cryptocurrency rather than derivatives or companies with exposure to crypto.
Potential Risks of Investing in Cryptocurrency
Risk and reward walk hand in hand, and while there are plenty of risks in the crypto space a big part of staying safe is knowing where and how these risks arise.
There are two basic ways to store your crypto: You can hold it in a self-custody crypto wallet like MetaMask (Ethereum) or Electrum (Bitcoin) – or you can trust an exchange or platform to hold your crypto for you. Both come with risks, but we’ll discuss the latter in the next section.
Self-custody is generally regarded as safer, but it also comes with some responsibilities. Namely, you have to safeguard the “keys” to your wallet. The keys are generated from a 12 or 24 word recovery phrase. If anyone else gets this phrase, they can control the crypto in your wallet.
Before you start downloading wallets and moving crypto around, invest some time in learning about crypto wallets, how they work, and ways to keep your wallet safe.
Many new crypto investors use the platform where they purchased their crypto to store their crypto as well. This strategy is more convenient because access is typically just tied to your login credentials. But that’s also part of the risk. Anyone who gains access to your account login info may be able to liberate your crypto, sending it to another wallet.
And there’s another risk to consider with platforms: Sometimes, they become insolvent. The FTX collapse is one infamous example. In the case of FTX, or Celcius, or BlockFi, all of which declared bankruptcy, investors who held crypto assets on the platform have to wait months or years for the bankruptcy to play out in courts. Some or all of the crypto held in these accounts may be gone forever.
Even after you identify the best place to buy crypto, you may want to move your cryptocurrency off the exchange for safety.
Liquidity refers to the ability to transact, meaning whether there is enough willingness to trade or whether there are sufficient available assets to back the trade.
Both aspects of liquidity can bring risk to your crypto portfolio.
- Illiquid coins or tokens: A healthy market requires enough buyers and sellers. Exiting a position on a newer or less-popular cryptocurrency can be challenging and you might not be able to exit at your desired price. Illiquidity can even happen for leading cryptocurrencies on a single exchange. In June of 2023, Bitcoin trading on Binance.US became a roller coaster, trading well below the market at times and up to $100,000 over the market price on other exchanges.
- Platform illiquidity: Not all platforms are transparent, and some may not have all the crypto they’re holding for investors. This situation could be similar to banks, which also don’t have all your deposits on hand, but might also foretell something more ominous, like a looming collapse. In both cases, the results can be suspended trading, delayed withdrawals, or other moves that prevent you from accessing your crypto.
Rug Pulls and Abandonware
In 2021, about $60 million in ETH disappeared from a planned project called AnubisDAO. Promised to be a decentralized crypto representing a basket of other assets, the project instead became a black hole draining 13,556 ETH of investor funds just 20 hours into the project’s fundraising launch.
Was it a rug pull by the project developers? An exploit by someone else?
The result is the same either way. Since the incident, some of the funds have been sent through Tornado Cash, a protocol that can obscure the receiving address for cryptocurrencies.
Similarly, although less nefarious, projects can simply die off over time, taking the value of the cryptocurrency down as they fade into crypto history.
Some governments around the world embrace crypto, like El Savador’s legal-tender experiment with Bitcoin. China on the other hand, banned cryptocurrency, citing concerns over financial crimes and financial instability.
Most governments around the world fall in between the two extremes, with many still coming to grips with this new technology and its potential roles. The real risk is that even crypto-friendly governments could turn on a dime, making crypto illegal, enacting cost-prohibitive tax rules, or disrupting markets in other ways.
Because blockchain is a new and disruptive technology, it may make sense to limit crypto to a smaller part of your total portfolio. You can always adjust to your position as the rules where you live become more clear.
What Payment Methods Can You Use to Buy Cryptocurrency?
Depending on where you choose to buy crypto, you might have several payment options available.
ACH Bank Transfer
Many exchanges like eToro and Coinbase allow you to link your bank account to make ACH (Automated Clearing House) transfers directly to your trading account. In most cases, this is the least expensive way to fund your crypto purchases. Typically, there’s no fee for deposits made through ACH. However, you may have to wait a few business days before you can use the transferred funds to make your trades.
Credit Card or Debit Card
As a convenience, many crypto exchanges also support debit or credit card transactions. These are typically available to spend immediately, but at a cost. You can expect to pay 3% or more in fees for using debit or credit cards.
Additionally, debit cards are more commonly offered as a payment option, with some exchanges pulling support for credit cards in some markets. For example, Kraken no longer supports credit cards in the US, but debit cards are still accepted.
PayPal and Payment Apps
Payment apps are another option for buying on some exchanges. eToro now supports PayPal deposits. Coinbase also offers PayPal as a payment option. European-focused exchanges like BitPanda bring additional ways to pay like Neteller and Skrill.
However, you may be able to buy crypto directly with the payment app.
- PayPal: Buy PayPal USD, Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.
- Cash App: Bitcoin only
- Strike: Bitcoin only
- Neteller: Choose from 40+ cryptos, including Bitcoin, Ethereum, Dogecoin, Cardano, and more.
- Skrill: Use your Skill balance to buy more than 40 cryptocurrencies, including Bitcoin, Litecoin, Cardano, Ethereum, and others.
Much like foreign currency trading (Forex), crypto trades in trading pairs. For example, USD/BTC would be a trading pair for US dollars and Bitcoin. By using pairs, you’re not limited to buying crypto with traditional currencies.
The best way to invest in cryptocurrency when it’s time to diversify your crypto holdings may be to buy a new cryptocurrency with the crypto you already hold. As an example, Binance offers an ETH/BTC trading pair. You can trade ETH for BTC, or vice versa.
How to Decide Where to Invest in Cryptocurrency
Later in our guide on how to buy crypto, we’ll do a walk through on eToro, which is best described as a broker that also sells cryptocurrencies. You can also choose from exchanges, wallet apps, or payment platforms to get started with your crypto buying journey.
- Brokers: Some online brokers like eToro and Robinhood offer cryptocurrencies alongside their standard offering of stocks or ETFs. Typically, you can get started with a small deposit of $10 or less. Expect an easy-to-use buying interface, although with fewer options than you’ll find on a full advanced exchange like Coinbase or Kraken. You’ll also find a smaller selection of crypto with brokers, but the big names like BTC and ETH are typically available.
- Crypto exchanges: If you want the widest selection of cryptos paired with more powerful buying tools like charts and advanced order types, you’ll probably want to use a crypto exchange. If you use the advanced trading platform, purchase fees are often lower compared to brokerage accounts, allowing you to buy more crypto for your money. For example, Kraken charges just 0.16% for limit orders on its advanced trading platform.
- Wallet apps: MetaMask and similar apps let you buy crypto directly in the app. In most cases, you’re buying through a third-party provider and limited to one or two types of crypto supported by the app. Expect purchase fees in wallet apps to be much higher compared to exchanges. For example, MetaMask takes a 1% fee on crypto purchases. Fees for the crypto provider are additional and could add another few percent to your purchase cost.
- Payment platforms: PayPal and similar platforms offer a convenient way to buy crypto, especially if you’re already using the service for other daily transactions. Fees vary, with some using a “display fee” that you see before completing the transaction and others using a spread, which is a buffer designed to give you a defined price and quantity. The Strike payment app, for example, uses a spread, earning about 1% on Bitcoin purchases made through the app.
Which one is right for you? It’s largely a matter of preference. But some platforms are better suited to certain situations than others.
Here’s what to consider before you make a choice:
Pricing and Fees
Using Coinbase’s simple trades, the handy buy and sell box found throughout the site can cost nearly 10% for smaller purchases. The example below shows fees at nearly 4% on a $100 purchase.
By contrast, Coinbase Advanced brings standard fees of 0.6% for limit orders. Over the course of year, $10 per week invested would cost over $50 in fees with simple buys compared to less than $3 using Coinbase Advanced. Simple trades also use a spread, adding about 1% to your cost.
Lower fees translate to more purchasing power. However, if you trade infrequently or prefer to buy and hold, fees may be a lesser consideration.
You should also consider the user experience on the platform. Is the platform easy to use and can you find the tools you use frequently? For example, eToro has a higher cost due to spread fees compared to Coinbase Advanced, but the platform is clean and simple to use.
People who are new to buying crypto might prefer eToro, whereas more experienced users or seasoned stock traders might prefer the feel and lower fee structure found on advanced trading platforms like Coinbase, Kraken, or OKX.
Trading Tools and Learning Center
Trading tools like charts and indicators may be of lesser importance to newer traders, but a learning center that can help you understand the basics of trading may be indispensable.
Consider your trading needs before making a big deposit. Many platforms and exchanges let you get started for less than $10 and some, like eToro and OKX, give you a demo account so you can learn the ropes before putting real money to work.
Licensing and Security
Consider the importance of security features, licensing, or even insurance policies before choosing a platform.
- Security features: Which steps does the exchange take to secure user funds? Things to look for here include two-factor authentication to prevent someone else from accessing your account. Another feature to consider is whether the exchange uses cold storage. This refers to keeping a sizable amount of crypto assets in separate wallets that aren’t accessible online.
- Licensing: Is the exchange or platform licensed in your country? A platform licensed in your jurisdiction may bring additional financial protections.
- Insurance policies: Some exchanges, such as Coinbase, carry crime insurance that helps protect against losses due to hacks against the platform itself. Some exchanges, like eToro, also offer US residents pass-through FDIC insurance through partner banks on cash balances. (Crypto balances aren’t insured by the FDIC, however.)
Can You Transfer Your Crypto?
It’s not always clear what you can do with your crypto once you buy it. On most exchanges, you can transfer your crypto to an external wallet like MetaMask or Electrum.
From there, you can HODL (Hold On for Dear Life), spend it, send it to someone else, or even put it to work in decentralized finance.
But that’s not always the case. Some platforms only support transfers for certain crypto assets, or perhaps none at all. If your crypto isn’t on the supported list, your choices are limited to sell or hold.
Transferability is less of an issue than it once was, but it’s still something that’s good to know before you make a purchase.
How to Decide Which Crypto to Buy
Most new crypto investors start their crypto journey with Bitcoin or Ethereum, and sometimes both. Bitcoin was the first cryptocurrency and remains the most valuable in market value, making up about half of the total crypto market capitalization.
If you’ve already decided on Bitcoin as part of your portfolio, learn how to buy Bitcoin with a detailed comparison of Bitcoin exchanges.
Other cryptocurrencies, including the second largest, Ethereum, are often called alt coins, meaning they’re alternatives to Bitcoin. Both Bitcoin and Ethereum have seen impossibly high returns compared to traditional finance instruments like stocks. Does that mean you should invest in another lesser-known cryptocurrency to catch the next wave?
Probably not, or at least not as a first investment.
The old wisdom of starting with Bitcoin likely still applies for several reasons.
- Bitcoin has a fixed supply and worldwide name recognition. An entire planet clamoring for an asset that has a fixed supply bodes well for the future price.
- Bitcoin is available everywhere. Nearly every platform that sells crypto offers Bitcoin trading. Lesser known cryptos may prove difficult to use or sell.
- Bitcoin is decentralized. There is no President of Bitcoin or a Bitcoin Board of Directors calling the shots. The network changes through a democratic process that requires nodes (computers that host a full copy of the blockchain) to install software utilizing a newly proposed feature. The estimated number of Bitcoin nodes ranges from 50,000 to over 200,000. Decentralization means no one is steering the project in a way that benefits certain groups over others.
- Bitcoin is money. Unlike many newer cryptocurrencies, Bitcoin was intended to be peer-to-peer cash. With its limited feature set, it does one thing well and it’s much less susceptible to the crypto exploits you often read about in the news.
But if you want to do more with your crypto, like earn a yield in decentralized finance (DeFi), you’ll have to open the field to other cryptocurrency options like Ethereum, Cardano, Polygon, Solana, or others. Bitcoin doesn’t fully support smart contracts, which are central to DeFi.
The best strategy might be to start slow with well-known cryptos like BTC and ETH and then expand to other alt coins as you learn more about the technology and decide how (or if) you want to interact with decentralized applications.
Some traders are attracted by the rapid growth often seen by meme coins, but bear in mind these are generally speculative assets that are extremely volatile
To learn more about up and coming crypto coins and tokens, check out our best cryptocurrencies guide.
Is it Safe to Buy Cryptocurrency?
Buying crypto is much safer now than it once was, but it’s still very much a hands-on, do-your-own-research investment.
Buying cryptocurrency comes with some risks that aren’t common to traditional investments like stocks. Notably, crypto markets aren’t regulated in the same way as equities and don’t come with the same consumer safeguards, like insurance to protect against brokerage insolvency (SIPC protection in the US).
Instead, cryptos trade similarly to other currencies around the globe. Traders have to take responsibility for their own safety, choosing platforms that make a commitment to safe trading and moving crypto assets off the exchange as it becomes prudent.
For example, here’s what Kraken shares on the topic:
Despite language suggesting that you’re on your own, Kraken implements a number of security measures, including two-factor authentication (2FA), proof-of-reserves verification, and ongoing security testing.
eToro, another popular exchange, also offers 2FA, biometric authentication, and pass-through FDIC insurance on cash balances for eligible accounts.
These measures help reduce the risk of investing in cryptocurrency.
Is Cryptocurrency Taxed?
In jurisdictions like the US and UK, the tax treatment for crypto follows similar rules. In effect, the government sees crypto as property for tax purposes. This means that you may have to pay capital gains tax if your crypto increases in value and you sell or spend your holdings. Simply holding the asset that gains or loses value doesn’t create a capital gains tax liability.
For example, let’s say you bought 1 BTC when it dropped to $16,000 in 2022. In 2023, you sold 0.1 BTC at $26,000 to buy a new electric scooter. The gain on the 0.1 BTC you sold is taxable. The remaining 0.9 BTC is still yours, so no tax is due on the unsold balance in jurisdictions like the US and UK.
Spending your crypto works similarly. The government sees a spending transaction as a conversion to fiat currency (USD in the US or British Pounds in the UK). This is true even if you paid the vendor with crypto rather than traditional currency. If you had a capital gain, taxes are due. In effect, you would report the transaction based on the value of the crypto at the time you made the purchase with crypto.
If you had a loss on your crypto, however, you may be able to use this to offset other capital gains, such as those from stocks, or the sale of other property, or other crypto gains.
We cover how crypto taxes work in our crypto tax guide. But the basic theme is that if you made money with your crypto endeavors, there’s likely a tax bill.
How to Invest in Cryptocurrency Walkthrough
Once you’ve chosen the best place to invest in cryptocurrency, it’s time to walk through the process of how to invest in crypto.
Let’s use eToro. It’s a people-friendly platform with multiple ways to deposit money and support for the top cryptocurrencies.
Here’s the step-by-step guide on how to invest in cryptocurrency for beginners on eToro.
Step 1: Open an account
You can use your Facebook or Google login to start an account with eToro. However, you might want to use a separate account login using your email address and a unique username.
If you choose to connect a Facebook or Google account, you’ll still choose a unique username and then agree to eToro’s terms of service.
Step 2: Complete KYC
Jurisdictions like the US and the UK require centralized exchanges to verify your identity. This is to comply with government regulations collectively known as KYC (Know Your Customer) requirements.
The process is similar to what you’d complete to open a bank account. Here’s what you need to provide, although requirements may vary depending on where you live:
- Proof of identity: A passport or valid driver’s license are typical examples.
- Proof of address: This could include a bank or credit card statement, or a current utility bill.
- Tax identification number: In the US, this is your Social Security Number (SSN). In the UK, it would be your National Insurance Number (NIN).
Platforms like eToro have KYC verification down to a science and the process typically just takes minutes, although eToro advises that identity verification can take several days in some cases.
Step 3: Connect a funding source and deposit funds
eToro supports PayPal, ACH bank deposits, and debit card deposits in the US. Other areas bring support for additional payment services like Neteller and Skrill.
To connect your bank account, provide your bank login information.
Then, choose a funding source from your available accounts at your bank.
The process is similar for PayPal. eToro will pass you over to PayPal to login and confirm the transaction.
Now, let’s make a deposit to fund your account.
Shortly after you authorize the transfer, you have the money in your eToro account.
Step 4: Select a cryptocurrency to purchase
Now it’s time to choose a cryptocurrency to buy. In this example, we’ll buy two types of crypto, splitting the available funds.
Let’s buy some Bitcoin and Ethereum. You can also find additional options using the search box at the top of the page.
Step 5: Make your purchase
eToro offers two order types: Trade and Order. Trade is the simpler of the two.
Using Trade, you’re buying from the available inventory for sale at the market price.
Order lets you choose the price or your order. The caveat is that your order might not ever fill if no one else is selling (or buying) at your desired order price.
Let’s keep it simple and use Trade, investing $50 in BTC.
Next, let’s buy some ETH, using the remaining $50.
Once again, a trade confirmation shows the trade executed successfully.
You can also set up automatic deposits so you can invest on a fixed schedule. Just visit the settings tab and choose recurring deposits. Then, just set a reminder for yourself to log in and make your trades.
Step 6: Choose your storage location
The easiest way to store your crypto is to just leave it in your account on eToro. However, for security or to use your crypto elsewhere, you may want to move your crypto to a self-custody wallet.
eToro doesn’t support direct withdrawals to standalone wallets like MetaMask (Ethereum) or Electrum (Bitcoin) or hardware wallets like Ledger. Instead, you’ll need to move your crypto to the eToro Money app first. This is a mobile-only application and minimum transfer amounts vary by cryptocurrency.
From eToro Money, you can transfer supported assets to the wallet of your choice.
Just choose “Get Wallet App” from the menu on the left.
Remember, minimum transfer requirements apply. The BTC purchase we made earlier falls short of the minimum, so it can’t be transferred to eToro Money.
In this case, we’ll just let eToro hold the crypto for us. If you decide to sell and convert your crypto back to cash, you can do so at any time.
In this guide on how to buy cryptocurrency, we covered the basic steps you’d need to take to make your first crypto purchase, ranging from opening an account to making your first buy. In most cases, well-known cryptos like Bitcoin and Ethereum offer the safest way to get started.
We also discussed where to invest in cryptocurrency. A crypto platform like eToro provides a beginner-friendly experience for those new to buying crypto, combined with innovative tools like copy-trading that let you follow the moves of successful traders.
Don’t invest unless you’re prepared to lose all the money you invest.