How To Invest In Cryptocurrency

Ok, so you’ve heard about Bitcoin. You’re interested. Then you realized that Bitcoin is just one of a category called “cryptocurrency”. And now you’ve heard of all sorts of other coins such as Ethereum, XRP, Litecoin, Cardano, EOS, Bitcoin Cash, etc. You agree its revolutionary and that it will change the world, with some cryptocurrencies having more potential merit than others. You’ve done your research and you’re cautiously, or excitedly, ready to buy your very first Satoshi/fraction of a Bitcoin. But… how? Everyone talks about cryptocurrency and how great it is, but no one really gave you a step by step lesson on how to invest in cryptocurrency.

That’s ok! You’ve found MarkshireCrypto.com and here you’ll learn how to invest in cryptocurrency!

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When you want to buy stocks/shares of a company, you need to set up a “trading” or “investing” account either with a bank or a brokerage company. There are many different types of accounts, and we won’t go into those here. In the cryptocurrency space, there are a few ways to invest directly in cryptocurrency.

  1. Over the counter (OTC)
    • From a miner
    • From someone you know
    • From Local Bitcoin
  2. Exchanges

1) Buying Cryptocurrency Over The Counter

The first three are significantly less common for the average person. Over the counter refers to buying cryptocurrency pretty much any way that is not on an exchange. This can be directly from a miner of cryptocurrency, someone you know who is selling cryptocurrency, or from localbitcoins.com. These over the counter trades are on the blockchain, however, not on any exchange and so the volume and price of OTC buying does not affect exchange volumes or prices.

2) Buying Cryptocurrency on Exchanges

The cryptocurrency exchange is currently the most popular onramp for the average investor. However, not all cryptocurrency exchanges are created equal. You will need to do your research and pick an exchange that is right for you. Things to consider about which exchange to use include the country it operates in (i.e. is it likely to get shut down by the government), its history (has it been hacked? how long has it been around?), its reputation (check out social media or reviews on it), its daily/monthly volume, does it insure its assets, etc.

Once you have chosen an exchange the general process goes like this:

Create an account:

  • Create a username – ideally something that does not directly identify with you/your name.
  • Email – ideally a trusted email provider such as ProtonMail, a securely encrypted email provider based in Switzerland
  • Create a password
  • Comply with KYC/AML (below)

Remember to write down, with pen and paper, both your username and password. I also created a new email account with ProtonMail and wrote down on pen and paper the email password. It is critical that you use a pen and paper and do not write it down on a word document or note app on your laptop, mobile phone or computer.

Investing in cryptocurrency today requires a level of diligence and caution to protect your digital assets. There are many people out there ready to steal/phish for your cryptocurrency. Writing down usernames and passwords on paper (that is then hidden securely) is one way to protect yourself from hackers.

Ideally, your passwords for your cryptocurrency exchange account and your new email account should be different. Quick password tip: make it alphanumeric with at least one symbol and make it >8 characters (I try to make mine >12 characters). No birthdays or family/friend names or names of streets/cities you’ve lived in or favourite pets or favourite TV shows. Make it random enough, but not so random that you can remember it.

KYC/AML:

What is KYC/AML?

KYC stands for “know your customer”. This basically means that the exchange has to know who the legal entity opening the account it. Whether it is an individual or a corporation, and who exactly that person is. This usually means that you must enter your legal name, legal address and sometimes a phone number. Then you must be able to verify who you are with a government-issued ID. Usually, a picture of a driver’s license or passport suffice. For one exchange I actually had to take a picture of me holding my driver’s license in one hand and a piece of paper in the other with the date and a note that the purpose of the photo was for account verification for the exchange (that one was QuadrigaCX). Basically, the exchange needs/wants to know who you are, legally.

AML stands for “anti-money laundering”. This consists of a set of laws, that vary from country to country, in place to attempt to prevent individuals and corporations from laundering money. Every country will have slight variations of their rules for anti-money laundering. A legitimate cryptocurrency exchange will follow the AML laws in their country of operations. This helps to lend legitimacy to the exchange as cryptocurrencies will exist in the world and work with everything in the world so cryptocurrency on ramps need to comply with existing rules to integrate cryptocurrency into society. For the most part, there is nothing that you need to do for AML as it is behind the scenes legal work that the exchange completes.

It is good to know if an exchange follows KYC/AML because it is a lot more work to follow those rules so an exchange that allows us to infer that: they are serious about their company/exchange, they take your privacy seriously, and they are organized and have teams in place to set this all up. Moreover, it means that the exchange is responsible and accountable to the governments of the countries it operates in. This is reassuring as it means that they are less likely to be shut down or hacked if the government has approved them, because they must comply with strict security measures and also typically have insurance in place.

Sometimes it can take a few days for exchanges to set up/confirm your account.

Secure your account:

You are almost done. You are about to fund your account. But wait. Do not fund it yet. You should secure your account before you send your hard earned dollars ?/pound ?/euro?/yuan ?/yen to an exchange to invest in cryptocurrency.

Make sure that you set up 2FA (two-factor authentication). Ideally, this is done with a security key. The next best option is an authenticator app on your phone (like Authy or Google Authenticator or LastPass Authenticator). The least best 2FA is an SMS message.

This helps to prevent a hacker from stealing your funds.

Great, now you have created your very first account on a cryptocurrency exchange and you have secured it with 2FA. Now it is time to fund your account so that you can convert fiat into cryptocurrency.

Fund your account

There are numerous ways to fund your account. Each way is significant in that this is the bridge between the legacy financial world and the new age cryptocurrency world.

  • Interact e-Transfer – essentially email transfer of money. The exchange will give you information to enter on the email transfer with your bank and the money typically is sent within a couple hours. Amounts range from $100 to $3000.
  • Wire Transfer – These are secure for sending large amounts of money and costs anywhere from $20-$100 per transfer. It also uses SWIFT (what XRP/Ripple is trying to replace) and takes 3-5 business days (if you are lucky). Moreover, you must physically visit your branch to set up the wire transfer. Usually for larger amounts of money. Minimum fund amount of $3000.
  • Bank Draft – You must visit your bank to have them mail the Bank Draft (yes SNAIL MAIL). Then it takes 1-7 days. A minimum in the range of ~$1,000 to $3,000, to a virtually unlimited max ($9,000 and up depending on the exchange and your account history).
  • Credit Card – For amounts of ~$100 to ~$5,000. Likely less time to transfer than the Bank Draft or Wire Transfer. However, likely charges a fee as most credit card companies charge for withdrawing cash (which sending money to an exchange essentially is), so do not be surprised to see a fee show up on your credit card. Secondly, on most exchanges, there is a withholding period of 7 days.
  • Money Order – Similar to a bank draft in that it is delivered by snail mail. Ranges between $100 to $1000.
  • Flexepin – you can buy a Flexepin voucher online or in physical stores. This is basically an online account funded in fiat money from your bank account or credit card. This allows you to make quick and easy payments online. Some cryptocurrency exchanges may allow you to fund your account with Flexepin.

Ironic that some of these methods are archaic when compared to using cryptocurrency. The Wire Transfer method uses the legacy SWIFT system with a 6% error rate and notoriously long waits (>3-5 business days). Other methods require you to physically visit your local bank branch and then send snail mail to the cryptocurrency exchange.

Another way to fund your account is with actual cryptocurrency. If you have cryptocurrency that you bought previously from a friend, OTC or perhaps you were a miner in the early days. Funding your account with cryptocurrency is easy, fast (at most a few hours if the Bitcoin network is congested, but otherwise seconds to minutes) costs only the network fees (which are lower and lower) and is convenient and secure.

Simply input the amount of cryptocurrency to send, copy/paste the recipient address and carefully verify it, then click send. Cryptocurrency is quick, and hassle-free.

Buying Cryptocurrency:

Ok, so you’ve researched an exchange, set up your account, secured your account, funded your account (in the least complicated way) and were patient while your account was verified and your old fiat money slowly made its way over to your account. Now its time to invest in cryptocurrency.

Please, always do your own research and make your own informed decision about which cryptocurrency to buy. I am not a financial advisor, I have no fiduciary duty.

If you’ve ever bought a stock before on a stock exchange this will be quite intuitive as its pretty similar. If you haven’t bought any stocks before, do not worry. It really is not complicated. Unless you plan on being a trader (which is unlikely if you’re reading this basic post on how to invest in cryptocurrency), then you do not need to even look at a chart. Forget the chart. You see lots of pictures of charts and people on YouTube doing complicated TA (technical analysis). Forget. It. All. For now, just learn how to buy some crypto.

There are ways to make it complicated, but I will only cover the two very basics here. Each exchange will have variations on the presentation or UX (user interface). They are all similar though. The basics:

  • Selected the cryptocurrency that you wish to buy.
  • Click “buy” and then you will be brought to a page or pop up that gives you several options. Only pay attention to Market and Limit.
    • Market order: select how much you wish to buy. This can be denominated in fiat or crypto. This is ordering the exchange to buy a certain amount of BTC at the market price. Or to spend a certain amount of dollars to purchase BTC at the market price.
      • Using BTC as an example, you can input “buy 0.5 BTC” and the dollar value will be displayed for whatever half a bitcoin is worth. Or you can input how much you want to buy in dollars. So “buy $2000 worth of BTC” and that might be 0.555 BTC (variable depending on the current BTC price, right now roughly $3600 USD).
      • If you denominate in BTC you will buy the specified amount. However, the downside is that if the price spikes you will dish out more dollars than perhaps anticipated because the exchange algorithm will work to ensure that it fills your order for 0.5 BTC, no matter how much it costs, as long as you have the funds.
      • If you denominated in dollars, the exchange will purchase as much BTC for your set dollar amount (i.e. $2000), so if the price of BTC is falling you may end up with more. But if it is going up you may end up with less BTC. The good thing is that the exchange will only use $2000 to purchase cryptocurrency.
    • Limit order: The limit orders are a combination of the above two parts of the market orders. In a way, it is a little simpler. You input how much of a cryptocurrency that you wish to purchase at a certain price. For example, you input “buy 0.5 BTC at a price of $3600USD/BTC”. This means that the exchange will buy 0.5 BTC at the rate of $3600 USD, which would be $1800 USD. These orders can take longer to fill as you must wait for the price to match your limit price and for there to be a seller(s) selling the amount of BTC you want. This is why it is important to select an exchange will high volumes because that means there are more people buying/selling on that exchange, giving you a higher chance of being able to purchase at your desired price.

Once you have bought cryptocurrency you can buy/sell/trade crypto-to-crypto trading pairs that are supported by your exchange. Just be cognizant of your jurisdictions tax laws on cryptocurrency trading. If you are a high-frequency trader you may have more taxes to pay. Always set aside some profits to pay taxes because you do not want to lose your money and then owe a big tax bill. Talk to a certified financial accountant familiar with cryptocurrency tax law in your local jurisdiction.

Personally, I have only used fiat to purchase cryptocurrency. I am not a trader, I am a HODLer and I have not sold any. I do not plan on selling any, anytime soon. I want the tax laws in my country/jurisdiction to be more clear and I will need a tax accountant familiar with cryptocurrency tax law.

Withdrawing Funds:

What? You want to take your funds off the exchange? Good idea.

You can withdraw your cryptocurrency off the exchange and keep control of your own private keys, which I recommend. The whole industry is new and its hard to know which exchanges to trust. I would only trust a very, very small handful out of the hundreds of exchanges out there.

Or you can sell your cryptocurrency into fiat and withdraw your fiat back into your bank account. Very similar methods as depositing/funding your account. Usually bank eTransfers or Wire Transfers. Again, they take a few days and have high fees associated with them. Personally, I would wait for cryptocurrency technology/XRP-Ripple to take over and make these transfers exceedingly fast and cheap/near free before selling and sending fiat anywhere.

However, back to withdrawing your cryptocurrency. I definitely recommend removing your cryptocurrency to a cold hardware wallet. The next best thing is a hot wallet. But cold wallets are the gold standard. Ledger Nano S, Ledger Nano X, and Trezor are the top cold wallets.

  • Always buy your cold wallet directly from the company since buying from a secondary seller adds the risk that the hardware device has been tampered with.
  • Ensure that your cold wallet is stored in a secure place with your passphrase stored separately in a more secure location.
  • Verify the wallet address that is displayed on your computer screen on the hard cold wallet device.
  • Copy and paste the address in the sender field on the exchange. Click send. You’re not done yet.
  • For your protection, many cryptocurrency exchanges have instituted a confirmation process for withdrawals. The exchange that I use sends an email confirmation with a link that I must click in order for the transaction to be verified. Some other exchanges may have some alternative form of 2FA.

If there is no 2FA/email confirmation for the withdrawal process you may want to reconsider using that cryptocurrency exchange as it may not take the security of your cryptocurrency seriously.

If you are into a little trading of cryptocurrency, then you may want to keep a smaller amount of cryptocurrency on an exchange readily available to buy/sell.

And that about sums it up, folks.

Conclusion:

You made it through this very long post, congrats! Now you know how to invest in cryptocurrency! You may have even followed along this post while creating your very own account on an exchange, which would be wonderful. Remember that information is only power if you take action on that information. There is no rush to buy into cryptocurrency. It is a developing world. I was in a rush to buy in at the start of 2018, and well… you know the story there! Prices kept dropping. I kept buying because the prices were lower. But had I waited even 4-6 months to get started with the same amount of fiat I could have had so much more cryptocurrency. Alas, hindsight is 20/20.

Exercise your own discretion in investing in cryptocurrency and never invest more than you can afford to lose.

As many old, wise traditional investors say, its “time in the market” that counts, not “timing the market”.

Please let me know if you have any questions or want to add to this post in the comments below! We would love to hear from you.

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Author: Markshire Crypto

Millennial cryptocurrency investor, researcher, and writer. Medical professional, avid reader, proud nerd, and intellectual. Founder of Markshire Crypto. Mark has been into cryptocurrency since 2017, following the industry daily and creating content.

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