Bitcoin Investing 101: Expert Tips and Strategies for Beginners Before Buying BTC
Bitcoin is undeniably back.
Investing in Bitcoin: A step-by-step guide for newbies and beginners to get started.
The initial cryptocurrency is now worth significantly more than $100,000, representing a 160% increase in value over the last year. Crypto aficionados are claiming that 2025 will be a breakout year for digital currencies, thanks primarily to President Donald Trump's vocal backing.
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There's no disputing that cryptocurrency has become one of the most exciting aspects of finance, especially since the asset's worldwide market value has surpassed $3 trillion. According to Scott Shapiro, senior product director at Coinbase, average investors should not dismiss the fast rise of cryptocurrency. He warns that if they do, they may come to regret it.
"At some point, you're left on the sidelines if you don't become someone who has any crypto because the financial world is modernizing and becoming more open, and crypto is the way that that's happening," Shapiro recently told the public.
Most Americans are reluctant to risk their money on cryptocurrency because, in spite of the hoopla, the markets are still poorly regulated and prone to sharp price swings. Ariel Zetlin-Jones, an economics professor at Carnegie Mellon University's Tepper School of Business, says that it is one of the most risky investing asset classes. However, he believes that adding some cryptocurrency to an investor's portfolio is a good idea—as long as the dangers are addressed.
4 Expert Tips and Strategies for Responsible Crypto Investing
Bitcoin has risen by 50% since November, and other prominent currencies have had even greater rises in recent months. It's normal if the soaring cryptocurrency market is causing you FOMO. Consider both the dangers and the opportunities—here are four guidelines for investing in cryptocurrencies securely and ethically.
1. Make a Lot of Research
Crypto is a new and dynamic industry that is continuously evolving, thus the best investment methods are not black and white.
In-depth research is generally the first step in the investment process, but this is especially true for cryptocurrencies. Always base your judgments on facts rather than whims. This involves becoming as knowledgeable as possible about currency, exchanges, and wallets.
Crypto is one of the most popular subjects on platforms such as Reddit, but prudent investors should ignore advice given by anonymous strangers on social media networks. They do not have your best interests in mind. The same applies to research materials provided by cryptocurrency exchanges and platforms.
If a cryptocurrency seems too good to be true, it probably is. Beyond the top three cryptos by market capitalization—Bitcoin, Ethereum, and XRP—the market is rife with memecoins, including Trump's own. Their tremendous price volatility is not your friend, and many are used for fraudulent purposes.
Zetlin-Jones cautions that most memecoins are akin to nonfungible tokens (NFTs), which were popular a few years ago. While they may pique your interest, for most individuals, they are not a wise financial decision.
"We have a lot of evidence now that a majority of people who invested in and bought NFTs ended up losing money," Zetlin-Jones explains. "That's not to say no one gained money, or that there aren't any worthwhile non-fungible tokens left today, but it does mean that the vast majority of investors lost money. I believe memecoins are fairly comparable.
2. Acknowledge Volatility
Markets are inherently volatile, but cryptocurrency prices are particularly volatile. It's clear to observe how much Bitcoin has grown in value over the previous two years. Few individuals will grumble about such results. However, a closer inspection reveals some red flags. For example, between July 29 and August 5, 2024, Bitcoin's price fell by 22%.
"If you look at daily returns over short periods of time, its volatility of its returns is an order of magnitude larger than other what economists or financial market players view as risky assets, like the S&P 500 on a daily basis," according to Zetlin-Jones.
When purchasing coins, be in mind that their prices might fluctuate substantially at any time of day. For some, that sounds like fun, but for others, it might mean financial disaster.
3. Do Not Rely Solely on One Token
There are millions of cryptocurrencies available today, and having a well-diversified portfolio of crypto assets can help lessen significant volatility and reduce long-term risk.
Crypto should only make up a small portion of an investor's overall portfolio, following index funds, ETFs, fixed income assets, and individual equities. Traditional financial assets carry significantly less risk than cryptocurrency.
"I think there's growing consensus that a portion of your portfolio being invested in (cryptocurrencies) is not offering a bad idea," Zetlin-Jones says. "But people should understand the risks they take when they expose part of their portfolio to these very risky assets."
Stablecoins are an option for individuals who want to learn by doing but do not want to take risks. They are linked to assets such as gold or the US dollar, and the strongest have managed to avoid significant volatility. Just keep in mind that the term "stablecoin" does not ensure stability; for example, the Terra / Luna stablecoin platform was embroiled in a catastrophic crypto market crash in 2022.
4. Weigh the Risks and Advantages
Cryptocurrency offers advantages—the market never closes, for example—and it may eliminate hurdles such as interacting with financial market middlemen, crossing international boundaries, and paying fees.
"As opposed to investing in an ownership of company shares through traditional stocks, investing in crypto provides investors opportunity to trade 24/7, support blockchain projects they are interested in, collect and trade digital assets and memorabilia like NFTs, and much more," according to a spokesperson for Crypto.com.
Shapiro also says that the cryptocurrency market is a significantly more efficient method for markets to function.
But there are certain drawbacks to this. Aside from volatility and possible frauds, governments and financial institutions offer significantly less consumer safeguards to cryptocurrency consumers. If you believe you have been wronged in the cryptocurrency market, there may be nothing you can do.
It is important to remember that Americans who trade cryptocurrency, receive cryptocurrency as payment, or engage in other digital transactions are required to include this information in their yearly tax return.
The Takeaway: Be Wary When Dealing with Cryptocurrency
According to Pew Research, less than one in every five Americans has dabbled with cryptocurrency. President Donald Trump has pledged to push the business into the mainstream, and his government is poised to establish a crypto advisory group. Trump's nominee to chair the U.S. Securities and Exchange Commission (SEC) is a prominent cryptocurrency champion.
"We appreciate the new administration's support for crypto and its efforts to encourage innovation in digital assets. We anticipate clearer rules and policies aimed to encourage the responsible adoption of crypto, which will fuel additional development in the worldwide market and the sector as a whole," said a spokesman from Crypto.com.
Depending on who you speak with in the financial business, people may hold dramatically different views on Bitcoin. While some investors refuse to touch it, others use it on a daily basis to save, move, and invest money. Shapiro, for example, says he has used cryptocurrencies to pay rent.
According to Zetlin-Jones, it is unclear how cryptocurrency will compete with established financial networks in the long run. "It's still one of the most volatile asset classes in financial markets … but it's a technology in search of a killer app," the economist says.
If you decide to join the millions of people who have already invested in cryptocurrency, you must understand that it differs significantly from traditional financial markets. The chance of losing money quickly is great. And, while new technology is never flawless, prudent and knowledgeable investors stand to gain.
