You’re not too broke to cash in on the crypto craze. Just follow this complete guide on how to invest in crypto with as little as $100.
If you had invested $100 in Bitcoin in July 28, 2010, it would have been worth $28,341,266 in December 2017.
Is it too late to invest in crypto and make returns? Well, no one can predict the future, but with the market capitalization of all cryptocurrencies pushing one trillion dollars, the market certainly think so.
But, this is a volatile space, and to invest in it, you need to know what you’re doing. If you’re unsure, don’t worry! I’ll tell you everything you need to know.
First we’ll go over the four golden rules of investing in crypto, then we’ll move on to a step-by-step guide on how to do it. Let’s get started!
Golden Rule #1: Only Invest in Crypto What You Are Willing to Lose
Cryptocurrencies are highly volatile, high-risk investments — even more so than the stock market.
Nobody knows for certain what will happen to prices in the future, both short-term and long-term. Yes, big returns are possible — but so are big losses.
Before you invest in crypto, remember rule #1: “Only invest what you are willing to lose.”
A hundy might not seem like much, but if you need it to pay bills, or if you’ll need to take out something like a Bonsai Finance Loan to get it, then it would be better to wait until you have more spare cash.
Golden Rule #2: Be Informed
Personally, I find cryptocurrencies a fascinating subject and can spend hours reading articles and watching YouTube videos about them. Not everyone is that interested, I’m aware — but you should still become informed.
Don’t just blindly invest because you heard something about a gold rush. That’s a great way to lose your investment. Anyone who wants to invest in crypto should know what they are getting into. As a bare minimum, learn:
- What is a blockchain?
- How are crypto transactions verified?
- What is mining?
- What does proof-of-work mean? How does it differ from proof-of-stake?
- What are public keys and private keys?
YouTube is a great place to start — you can find many videos aimed at complete beginners.
Oh, by the way, the cryptocurrency space is filled with jargon, slang, and acronyms. You might feel like people are talking a different language at times! So become acquainted with all the industry jargon.
Consider this an ongoing process. Always keep learning.
Golden Rule #3: Don’t Day Trade
Day trading means to make regular trades between two cryptocurrencies, exploiting the volatility in the market to make small but regular profits. You do this on an “exchange” — a website that facilitates cryptocurrency trades.
It works like this:
Buy some crypto before a price spike. When the price rises, sell. When the price drops, buy again. Wash, rinse, repeat.
Think that sounds good?
Think again! Unless you’re a highly skilled investor, this is an excellent way to lose all your money!
When day trading, you’re making a bet with someone. If you buy some Bitcoin, you’re betting the price will go up, while the person selling is betting the price will go down.
To win the bet, you have to have better knowledge about price movements than the other person. Don’t assume you can invest in crypto better than the pros!
Golden Rule #4: Hodl
To invest in crypto is to take a seat on a roller coaster. It’s a wild ride. Your investments might drop in value by 50% one day, only to soar to an all-time-high the day after.
If your investment drops, you’ll think about selling. It’s a natural temptation — you think the bubble has burst, and you had better cut your losses.
This is where the hodl philosophy comes in. The name comes from a forum post in which the poster misspelled “Hold” as “Hodl” — and it’s kinda stuck.
If you want a return from cryptos, you will have to suffer periods where the price dips massively. Don’t panic! If you sell, you lock in the loss. If you hodl, you give the markets chance to recover.
OK, that’s the golden rules out of the way. Now let’s look at how to buy cryptos.
Step 1: Choose a Coin to Invest In
In the spirit of Golden Rule #2, you’re going to research and choose a coin – or coins – to invest in.
Coins inside the top 10 by market capitalization are less risky. They usually have a good potential use-value in the real world, a crack programming team behind them, and established or potential links to industry.
However, the potential reward is lower, as they have already been through several large price increases already.
For coins ranked 11-100, quality varies massively. There are some solid prospects, and some outright money-grabbing scams.
Avoid coins beyond the top 100 — these are the badlands, where you need immense knowledge to separate the wheat from the chaff.
When conducting your research, look into the following factors:
- Research the team behind it. What is their background and experience?
- What is the actual, real-life use of the coin? How and where will it be used?
- Does the project have any relevant business partnerships?
- Does the website look professional? Do they have a road map and whitepaper?
- What is the history of the coin?
Remember — you don’t have to put the whole hundy in one coin. Many people who invest in crypto split their investments — maybe put 75% in top 10 coins and 25% in riskier coins with good potential.
Step 2: Buy Your Cryptocurrencies
Most exchanges where you can invest in crypto with dollars offer a limited range of coins. Coinbase and CoinMama are two of the most popular and reputable choices.
Using these sites is pretty straightforward. You make an account (you’ll have to send a copy of your photo ID), and pay for your crypto with debit or credit card, or by bank transfer.
Once you’ve bought it, it will sit in the exchange until you sell it back for dollars, trade it for another crypto, or transfer it to another exchange or person.
Other exchanges like Binance, BitFinex, or Bittrex offer a wider range of coins, but don’t deal in fiat. You don’t need ID for these sites.
If you want to buy a coin from these exchanges, you should first buy Ethereum or Litecoin (which have low transaction fees) from a site like Coinbase. Then you transfer it to the second exchange, and trade it for the coin you want.
Step 3: Store Your Coins Securely
You’ve bought some coins and they are currently sitting in the exchange. Congratulations! You have managed to successfully invest in crypto. Now you have a few options over where to store your coins.
Keep Them On the Exchange
This is the easiest thing to do, but it’s not a good idea. If your coins are on an exchange, you don’t control them. If the exchange gets hacked, you could lose your entire investment.
It’s safer to move them off the exchange.
Use a Software Wallet
A wallet is a software program designed to store cryptos. Almost all cryptos have their own official wallet which you can get from the coin’s home page.
Each wallet has a unique “address.” This is the “public key.” It’s what you give to people when you want to receive funds.
Copy your address from your wallet, go to your exchange, and find the “transfer” facility. Then paste in your address, send the coins, and wait for the network to confirm the transaction.
Official software wallets are generally safe, but as it is stored on your computer, which is connected to the internet, you are still susceptible to viruses, malware, and spyware.
Use a Hardware Wallet
A hardware wallet is an encrypted USB stick which work in a similar way to the software equivalent. These will probably cost more than your $100 investment, however.
Use a Paper Wallet
Perhaps the safest way to invest in crypto is to use a paper wallet. This is just a print out of your private keys. Your private key is the secret code that allows you to access any cryptocurrency that has been previously sent to your public address (do not share it with anyone).
Paper cannot be hacked, but it can be stolen, so store your paper wallet in a very safe location (or locations).
To access the coins in the future, get a software wallet, and enter the private key into it.
Step 4: Pay Your Tax
When you decide it’s time to cash in your gains, make sure you pay your tax. The IRS loves to audit people, and people who invest in crypto may come under particular scrutiny.
In the US, cryptos are treated as property, not currencies, so you are liable for capital gains tax on any profit you make.
Make sure you declare any returns you make, and put aside a portion of your profit to cover your tax. Consult a tax attorney if you’re unsure about this.
Now you have enough information to get started! This could all be summed up in two points: do your research and hodl!
Beyond your journey into cryptos, are you looking for other ways to make money? Maybe it’s time to take the leap into entrepreneurship and start a business? Check out our small business ideas forum — it’s an active community of awesome people who will help you get started!