When you're just starting to dabble in cryptocurrency investments, whether you're planning on buying and holding Bitcoin (BTC 3.31%) or an exotic memecoin, you'll need to be mentally, financially, and technologically prepared if you want to succeed. So do the following three things right now, and you'll be well on your way to becoming more experienced.
1. Decide how much capital to allocate
The very first thing a new cryptocurrency investor should do is have a serious conversation with themselves about how much hard-earned cash should be committed to crypto instead of more conservative investments like stocks, bonds, and real estate.
If your portfolio is already adequately diversified, as it should be before approaching anything at all in crypto, the decision is intertwined with your risk tolerance. Cryptocurrencies are highly risky, volatile, and speculative assets, and the more uncomfortable that thought makes you feel, the smaller you should size your portfolio allocation to start. Similarly, picking the most established coins, like Bitcoin, will help to keep your risk exposure lower.
If you expect to be investing for many decades, it's acceptable to allocate around 5% of your portfolio to crypto, or perhaps even a little bit more than that once you know what you're doing. On the other hand, if you're approaching retirement, an allocation of 1% is probably a better idea.
Above all, remember to never invest more than you can afford to lose without experiencing any material hardship whatsoever, even in a worst-case scenario. If there's a painful economic recession, the odds are good that at least some of your crypto investments will be worth next to nothing, so make peace with that before proceeding and plan accordingly.
2. Set up your accounts and stage assets on the blockchains of your choice, if needed
The next thing to do to get started with investing in crypto is to set up your various accounts and crypto wallets. You only need to worry about setting up wallets if you want to have direct control of your holdings rather than parking them on an exchange, which will handle most of the logistics for you.
If you're looking for the lowest-friction solution that's broadly suitable for most investors, just signing up for Coinbase (COIN -2.45%) and connecting your bank account will be more than sufficient to get your feet wet. It's completely fine to invest within the ecosystem that it offers and never look at frontier coins that haven't yet been listed on the major exchanges.
But be aware that there are many lucrative opportunities that lie beyond the walled gardens of Coinbase and other exchanges if you're willing to deal with a bit more friction in the investing process, especially on the more popular blockchains right now, like Solana (SOL 2.83%).
Trading "on-chain" rather than with an exchange means that nobody else has custody of your coins, and also that you can invest in projects that are quite early stage. It tends to be riskier than what exchanges offer, and is only suitable for people interested in doing a lot of serious cryptocurrency investing.
For stocks, the equivalent would be trading shares over-the-counter (OTC). The catch is that you'll need to work a bit harder to access opportunities compared to what the exchanges have ready for you to buy, and you'll also need to hold your coins in a self-managed wallet using a service like Phantom.
So when you're just starting out, regardless of where you choose, park your cash near to where you plan to deploy it, preferably in something that'll hold its value.
3. Curb your enthusiasm
The third thing to do if you're new to crypto is to calm down and curb your enthusiasm.
How many get rich quick schemes have you heard of that actually ended up getting participants in the scheme any money at all? Probably zero. And approaching cryptocurrency investing with the idea that it'll bring you quick and easy wealth is, regrettably, the road to ruin.
There's no rush to buy anything, no matter how excitable internet commentators may be about a particular coin. There will always be another juicy opportunity to find. Money is made by patiently holding quality coins, not buying the flavor of the day.
If you don't feel like you have time to research or fully plan out what you'll do with an investment before buying it, you've already missed the window, and chasing it won't cause it to reopen. But it could leave you broke.
Furthermore, there's no possibility of hitting a home run investment before you've learned which types of opportunities to swing at, how many of your resources to commit to each swing, and how to manage your own psychology when you've got a winning investment gaining value on your hands.
So slow down, and screen your investments with a sober and responsible mindset. Keep your expectations in check and follow your plan. The rest will come with time.
