Buying crypto can be super exciting, but it can also be overwhelming and even scary for a new investor.
There are so many types of cryptocurrencies, exchanges, crypto wallets, and strategies available, that even an experienced crypto user can get stressed.
In this guide, we will outline some important tips for buying cryptocurrency.
From making informed decisions to choosing the right platform and crypto wallet for storing your assets, we are going to walk you through it, step-by-step.
Tip Overview: What to Consider When Buying Crypto
- Understand Market Volatility – Be prepared for price fluctuations.
- Never Invest More Than You Can Afford to Lose – Set a budget and stick to it.
- Assessing the Potential of a Project – Choose cryptocurrencies with strong use cases.
- Consider Founders, Technology, and Competitors – Research the team and tech behind the project.
- Centralized vs. Decentralized Exchanges – Choose the right type of exchange for your needs.
- Pick a Secure Exchange – Look for good security features and regulatory compliance.
- Use Dollar-Cost Averaging (DCA) – Invest in small amounts regularly to reduce risk.
- Diversify Your Portfolio – Spread your investments across multiple cryptocurrencies.
- Use a Crypto Wallet for Storage – Opt for hardware or software wallets to secure your assets.
- Avoid Storing Crypto on Exchanges – Protect your funds by using private wallets.
- Don’t Fall for FOMO – Avoid impulsive decisions driven by market hype.
- Avoid Projects with No Clear Fundamentals –Don’t bother with cryptocurrencies that don’t have strong foundations.
- Understand Tax Implications – Be aware of how your transactions are taxed.
- Stay Compliant with Local Regulations – Know and follow the legal rules in your area.
What You Should Know Before Buying Cryptocurrency
TIP #1. Understanding Market Volatility
The crypto market is notorious for its wild price swings. Things can change in a matter of minutes, influenced by a variety of factors, such as news about regulations, adoption, tech advancements, or geopolitical issues.
It’s important to understand these changes and grasp that volatility can be both a chance for opportunity and a risk.
For traders who are looking for a quick gain, this can be a fast chance to make some extra money (although timing and skill are everything!)
On the other hand, for long-term investors, staying calm during the volatile downs and holding onto your assets can pay off. But you need to be ok with waiting it out.
Try to stay on top of markets, and learn about crypto regulations and other blockchain changes.
TIP #2. Never Invest More Than You Can Afford to Lose
This is the golden rule for making any type of investment. Especially when it comes to crypto since it can be so unpredictable.
Make sure to have a budget for investing, especially when you are first getting started. This allows you to get a feel for crypto and test your boundaries before going all-in.
Take into consideration your personal finances and long-term objectives before making any crypto investment. This will help to avoid any emotional decisions.
Evaluating Cryptocurrencies
TIP #3. Assessing the Potential of a Crypto Project
When buying crypto, one of the most important things is to evaluate a project’s utility. For example, does this new project solve a problem?
Ethereum is the second largest cryptocurrency, after Bitcoin. It has gained this position because its platform enables dApps and smart contracts. These are important to industries like gaming, finance, and even real estate!
Another key factor to consider in a crypto project is partnerships. Look at the established companies or institutions that the project has partnered with.
Lastly, review its community support. There are some cryptocurrencies with large community followings like Solana, which help with actively developing these blockchains.
You can check platforms like X or Reddit to research a crypto community and discover new emerging cryptocurrencies.
TIP # 4. Know the Founders, Technology, and Competitors
The team behind a cryptocurrency project plays a big role in its success or failure.
Typically, well-known figures in the crypto and tech world will have a proven track record, which will give investors more confidence.
Cardano founder, Charles Hoskinson, was also the co-founder of Ethereum. This gives the Cardano project strong credibility in the eyes of many.
Evolving technology is another critical factor. So much changes so quickly, that you want to make sure that you’re investing in something that can compete with fast transaction speeds, lower fees, and an overall better blockchain.
Finally, competition can deeply affect the value of crypto. Many projects fail, simply due to saturation! Always compare a project with its competitors and see how well it stacks up to them.
Choosing the Right Platform
TIP #5. Centralized vs. Decentralized Exchanges: Which One Is Best For You?
Before you can buy crypto, you need to decide where you will be purchasing it from.
There are two types of exchanges: centralized exchanges (CEX) and decentralized exchanges (DEX).
There are pros and cons to both, so let’s go over them:
Centralized exchanges, like Binance, Coinbase, or Kraken, are operated by companies that are the “middle-man” between buyers and sellers.
They have user-friendly interfaces, support for a wide variety of cryptocurrencies, and provide customer support.
✅PRO: Liquidity – Centralized exchanges usually have higher trading volumes, which means it’s easier and faster to buy or sell assets.
❌CON: More vulnerable to hacking since the exchange controls user funds. For example, in 2019, Binance was hacked and lost around 7,000 BTC, which was worth around $40 million at the time.
Decentralized exchanges, like Uniswap and PancakeSwap, allow users to trade crypto without the need for an intermediary.
This means decentralized finance (DeFi) offers more control over your assets.
✅PRO: Decentralized exchanges are less controlled by regulations. This is appealing to those who want anonymity and privacy.
❌CON: They have lower liquidity, which means higher fees and slower transaction speeds.
So, Which is best for you?
If you’re new to crypto and are looking for convenience and available customer support, a centralized exchange might be the better option.
On the other hand, if you prefer more control over your assets and value privacy, a decentralized exchange is worth exploring. Just keep in mind, that DeFi is much better suited for experienced crypto users.
TIP #6 Pick a Secure Exchange
No matter which type of exchange you choose, security should be your top priority.
Did You Know?
As of June 2024, over $1.38 Billion worth of crypto has been stolen off exchanges through hacks and scams.
This is why it is so important to take your crypto security seriously. Here are 4 factors to consider:
1️⃣Regulatory Compliance: A reputable exchange should comply with local and international regulations. This includes Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. Always check whether the exchange is regulated in your country to avoid potential issues, especially when it comes to crypto taxes.
2️⃣Security Features: Look for exchanges that offer extensive security features, such as two-factor authentication (2FA), encryption, and the ability to move crypto to one of the best hardware wallets available for long-term holding.
3️⃣Ease of Use: For beginners, a user-friendly interface can make all the difference. Most centralized exchanges are designed to cater to both new crypto investors and experienced traders.
To make things even easier for a new user, rely on a cold hardware wallet, like Material Bitcoin, where you can directly purchase BTC. You simply scan the QR code on the wallet and enter the amount of Bitcoin you wish to purchase and the crypto is transferred to your secure cold wallet.
Buying Strategies to Reduce Risk
TIP #7. Dollar-Cost Averaging
One popular crypto investing strategy that helps to reduce the risks of market volatility is Dollar-Cost Averaging (DCA).
DCA is when you invest a fixed amount of money into crypto at regular intervals, no matter the current price.
You don’t time the market and make a large, one-time purchase, instead, you spread out your investments over time. In the long run, this helps to balance out the highs and lows of the market price.
TIP # 8. Diversifying Your Cryptocurrency Portfolio
Just like in traditional investments, like stocks, bonds, and real estate, diversification is key to reducing risk.
Don’t invest in one digital asset, but rather spread your investment across different cryptos. This will help to protect you in case one coin or token crashes.
For example, Bitcoin is a great cryptocurrency to invest in, as it is strong, established, and has demonstrated to give high returns over the past decade.
But also investing in Ethereum, Cardano, and Solana are some good options to spread yourself across different markets and technologies.
It’s also important to consider stablecoins, like Tether and USDC, to make up part of your crypto portfolio.
These stablecoins are pegged to a “stable asset”, like fiat currency or gold. They provide a hedge against crypto volatility and some security during market twists and turns.
Safe Storage: Protecting Your Crypto Investment
TIP #9. Educate Yourself about Types of Crypto Storage
When it comes to storing your cryptocurrency, there are many things to know. For example, what is the difference between a self-custodial vs. custodial wallet? What is a software wallet? What about cold storage vs. hardware wallets?
Here is a simple breakdown for you:
Self-custodial wallets can be either software wallets or hardware wallets, but they mean that you hold custody of your private keys and not a third-party platform.
A custodial wallet typically linked to an exchange holds your crypto and private keys on its system. This can make your crypto vulnerable to hacking.
A software wallet is an app or web-based platform where you can store your private keys. Some popular examples are MetaMask and Exodus. They are usually easier to set up as there are fewer security steps to activate. However, they lack strong security features and are often easy targets for hackers and scammers.
A hardware wallet is a physical device. From this type of wallet, you can have cold storage hardware wallets, that are a level up in security.
These types of wallets are ideal as they are 100% offline and truly keep your private keys away from any hacker.
They are best for long-term investors.
TIP # 10. Do Not Store Your Crypto on an Exchange
A very common mistake that many users make is leaving their crypto on the exchange after buying it.
Although exchanges are convenient, they are online platforms which means that your crypto and personal data is accessible.
Yes, most reputable exchanges have insurance coverage or programs to reimburse you if your crypto is stolen, but why jump through all the hoops when you can easily withdraw your crypto after purchasing into a secure cold storage wallet?
Common Mistakes to Avoid When Buying Cryptocurrency
TIP #11. Don’t Fall for FOMO
You would be surprised by how many people invest in assets simply due to the “fear of missing out”. When everyone is talking about the “next big thing” and social media is buzzing with influencers hitting it big, prices start to skyrocket!
This might be tempting, because you can see that the asset is gaining value, but keep in mind that this usually means that you would buy the asset while it is on top, to later plummet once all of the buzz is gone.
We saw this happen in 2017 when Bitcoin famously rose to almost $20,000 and then later crashed by 80%.
We know that it can be hard to wait it out. Sometimes, a professional and experienced investor can take advantage of these peaks, but please take a step back. Research the crypto and make an informed decision before putting money into possible hype.
TIP #12. Beware of Crpyot Projects with No Clear Direction
Going back to Tip #3, know what you are investing in! There are thousands of cryptocurrencies available, so take your time to learn about new investments.
Check the team behind the project, its technology, and how it can be used before putting money into it.
Taxes and Regulations
TIP #13. Tax Implications For Buying and Selling Crypto
Cryptocurrency transactions are subject to tax in many countries. In the U.S. profits are treated as capital gains and therefore the IRS requires detailed reporting of all crypto transactions.
Make sure to keep accurate records of your buys, sells, and trades to avoid penalties and ensure proper crypto tax filing.
TIP #14. Stay Compliant with Local Regulations
Each country has its own set of rules for cryptocurrency trading and investing.
It’s important to understand and follow your local regulations, including licensing requirements, reporting obligations, and any restrictions on crypto usage in your area.
Final Thoughts for Buying Crypto in 2024
Understanding and taking part in the world of crypto can be complex.
We hope that these tips for buying cryptocurrency have left you feeling better equipped to make smart crypto investments.
From choosing the right platform to using strategies like DCA and diversifying your portfolio, each tip is meant to help you reduce risk.
Always remember safe storage for your crypto, and never leave any large amounts on exchanges. Instead, opt to store your cryptocurrency in cold storage wallets, like Material Bitcoin for safe and stress-free protection.
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