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Investing in Cryptocurrency – Investopedia

Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies.
Cryptocurrency is digital money. This type of currency uses blockchain technology, which is considered secure because it is capable of establishing distributed consensus even among untrustworthy parties. Cryptocurrency blockchains resemble old-fashioned bookkeepers’ ledgers, except that the ledger is electronic, and everyone with access to the ledger can also be the bookkeeper.
Investors worldwide have invested and are starting to invest in cryptocurrency. While Bitcoin is likely the best-known digital money, thousands of cryptocurrencies already exist. Cryptocurrency can be considered as one of the newest and most exciting asset classes that is available to investors.
When you think of investing in cryptocurrency, you might think about buying and holding one or more crypto coins. Buying cryptocurrency directly is probably the most common way to add crypto exposure to your portfolio, but when it comes to investing in cryptocurrency, you have a few different options:
If you want to invest in cryptocurrency directly, then you can use a cryptocurrency exchange. Here’s how to buy cryptocurrency through an exchange:
As an investor in cryptocurrency, you need to decide how much of your portfolio to allocate to digital assets.
A best practice among investors is to periodically review your entire portfolio to perhaps rebalance your holdings. That might mean increasing or scaling back your crypto exposure, depending on your investment goals and other financial needs.

Investing in cryptocurrency is considered to be risky. The prices of cryptocurrencies, even the most established cryptocurrencies, are much more volatile than the prices of other assets like stocks. The prices of cryptocurrencies in the future could also be affected by regulatory changes, with the possibility that cryptocurrency becomes illegal and therefore worthless.
Many investors are nonetheless attracted to the potential upside of investing in crypto. If you decide to invest in cryptocurrency, it's important to carefully research any digital coin before buying it. Pay attention to transaction fees when making crypto purchases, as these fees can vary widely among currencies.
The cryptocurrency space is evolving rapidly, so it’s also important to pay attention to new developments that may affect your crypto holdings. Cryptocurrency investors need to understand the tax consequences of using crypto, especially if they purchase something or sell their crypto holdings.
Given the riskiness of cryptocurrency as an asset class, it's especially important not to invest in crypto more money than you can afford to lose.

CoinMarketCap. "Today's Cryptocurrency Prices by Market Cap." Accessed Jan. 10, 2022.
Internal Revenue Service. "Virtual Currencies." Accessed Jan. 10, 2022.
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