Updated: Mar 1, 2021
Bitcoin. Ethereum. Litecoin. Tether. DOGECOIN?? There are thousands of different cryptocurrencies available today. At the time this article was written, 15 new cryptos have been created today alone. Assuming you want to invest in cryptocurrency, how do you know which ones to buy and which ones to avoid? Are cryptocurrencies even a good investment? It is imperative you understand some basic terminology and the risks involved with crypto trading before you get started. Most importantly, talk to your Certified Financial Advisor before you start trading cryptos (or anything else). If you do not have a CFA, reach out to firstname.lastname@example.org, and we can put you in touch with a CFA near you.
What is a cryptocurrency anyway?
Think of a cryptocurrency as acting like a digital dollar, or a digital asset. The most popular cryptocurrency you may have heard of is Bitcoin (BTC). Much like a dollar bill (USD), a Bitcoin is unique. It has a unique line of code the same way a dollar bill has a unique serial number printed on it. Also like a dollar, a Bitcoin can be used to purchase goods or services (assuming the seller accepts BTC as a form of payment). Unlike a dollar, a Bitcoin is mined online by a community, whereas a dollar is printed by the government. Also unlike a dollar, the buying power of a Bitcoin can fluctuate dramatically over the course of a day, or even an hour. Today, 1 BTC is worth just under 50,000 USD. One year ago, on 2/14/2020, 1 BTC was worth 10,312.12 USD. That is a pretty dramatic change in buying power. How would you feel if you bought some pizza with 10,000 BTC when 1 BTC was worth about 0.003 USD? Ask this guy. This extreme volatility in exchange rates between cryptocurrency and widely accepted standard currencies is what attracts some investors, and what scares others away.
Where can you buy and sell cryptocurrencies?
Cryptocurrencies are generally bought and sold on exchanges. When choosing an exchange, you should try to understand all the fees associated with buying and selling cryptos on that exchange. Many of the larger exchanges such as Crypto.com, CoinDesk, Binance, or Coinbase will make it very easy for you to create an account and get started trading cryptos. In some cases, your brokerage may allow you to invest in some of the more common cryptocurrencies. Most people can even buy and sell cryptos using their smart phone. For example, the popular brokerage app Robinhood currently has 17 cryptocurrencies available to buy and sell. With so much interest worldwide surrounding cryptocurrencies these days, a growing number of online brokerages are now offering up crypto to their customers. But just because something is available to trade does not guarantee that it is a good investment.
Should you invest in crypto?
All investments carry some degree of risk, and crypto is no different. Cryptocurrencies are extremely volatile. Many finance professionals compare crypto trading to gambling; there are a lot of unknowns, and absolutely no guarantees. There is not wealth of historical and macro-level data that allows you to accurately predict price movements or build an investment plan based around cryptocurrency like there is with mutual funds or other investment vehicles. Still, one strategy to get a little bit of exposure to the crypto space without taking on a huge amount of risk may be to put a very small portion (1%) of your portfolio into a few popular cryptocurrencies. However, your financial situation is uniquely your own, and you should talk to your CFA before making any important moves with your money.
We’d love to hear about your experience with cryptocurrency, so come get involved on our Crypto Forum! Reach out using the comment box below or email email@example.com. You can also reach us on Facebook, Twitter, or Instagram.
Coast to Coast Finance may earn a commission from purchases you make through affiliate links. Coast to Coast Finance does not own a position in any of the cryptos mentioned in this article. This article is for educational purposes only and is not intended to be taken as investment advice.