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Investing in crypto: Here’s everything you need to know

·4-min read
Pile of cryptocurrency coins composite with lady looking at investment graph on mobile phone
Experts reveal some top tips and advice for cryptocurrency investment. (Source: Getty)

It’s now more than a decade since cryptocurrency trading first began and history tells us that if you’re prepared to ride the highs and lows of trading in crypto, then be ready for a bumpy ride.

There are more than 6,500 different types of cryptocurrencies in existence, so deciding which one to invest in is the first step.

Five years ago, Marty Spargo decided to venture into crypto trading, and his journey as a crypto investor and trader was definitely not an easy one.

“I lost more money than I could afford to lose [and] that caused a huge financial and mental strain. It's easy to get greedy in crypto; the advice that I want to give everyone who's planning to enter the crypto market or currently trading, is to always do a self check and take partial profit,” he said.

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He was drawn to crypto trading because he believed it had huge potential.

“I saw an early opportunity to get into something that's still ‘unknown’ at the time and that really got me interested.”

He put his initial $5,000 investment into Kraken, a US-based cryptocurrency exchange and bank and also has other investments in technology and gaming stocks.

But then things began to go south.

“I was not practising proper risk management back then; this caused me to lose both my capital and gains. I wasn't using a stop loss and just kept watching my position until this was either closed or liquidated,” Spargo said.

“It was indeed a devastating time in my life, I felt like I just experienced something irreversible.”

But despite what has happened, Spargo still has investments in crypto.

“Now, I've implemented proper risk management by playing with small positions with high leverage rather than big positions with small leverage.”

A piece of advice he gives to anyone planning to trade or is currently trading the crypto markets is to never attempt to day trade when you're still a newbie.

“It takes a great deal of technical analysis to be a profitable lower time- frame trader.”

How can I trade crypto?

Andreas Andersen, chief marketing officer at Coinstash, said the main way for Australian investors to invest in crypto is to directly buy through a registered digital currency exchange (DCE).

A number of local crypto exchanges have emerged in Australia in recent years (including Coinstash, BTCMarkets, Coinspot, Swyftx, Cointree, etc).

Australians can also access many offshore exchanges (including Binance, Kraken, FTX, and more).

Interestingly, a 2021 study from Capterra - which analysed the current state of cryptocurrency in Australia, and the attitudes that Australians have towards this new monetary system - revealed that Bitcoin is one of the first cryptocurrencies on the market and still remains the most well-known to date.

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In fact, 80 per cent of the study’s respondents say they buy, or plan to buy, Bitcoin, followed by Ethereum at 51 per cent and Dogecoin, 27 per cent as the second and third most popular choices.

Crypto investment is a volatile market

It should be noted, that cryptocurrency has only been around since 2009 and therefore, is a smaller and more volatile market compared to traditional investments assets such as real estate, stocks and bonds.

Bitcoin and Ethereum are the two biggest cryptocurrencies by market capitalisation and could be considered “blue chip” digital assets.

“Starting with either Bitcoin or Ethereum will depend on an investor’s preferences or risk appetite. Alternatively, many users in the crypto space hold both assets in a diversified portfolio, e.g. 50 per cent Bitcoin and 50 per cent Ethereum to maintain exposure to both assets,” Anderson said.

But most importantly, Andersen advises that anyone starting off in cryptocurrency should invest only what they are comfortable with depending on their risk tolerance.

What’s the difference between Bitcoin and Ethereum?

Bitcoin was the first cryptocurrency launched in January 2009, offering the promise of a decentralised online currency that is secured without any central authority unlike government-issued currencies. It achieves this using a distributed ledger technology known as blockchain, Anderson said.

Meanwhile, Ethereum was launched in July 2015, proposing to utilise blockchain technology for applications that go beyond just a digital currency. Ethereum goes one step further than Bitcoin by enabling the use of ‘smart contracts’ to power decentralised applications such as non-fungible token (NFTs).

As of April 2022, Bitcoin’s market cap is twice as big as Ethereum (US$800 billion vs US$400 billion respectively).

Anderson's 6 steps to investing in crypto

Here, Anderson reveals the 6 key steps for any investor to begin investing in crypto;

  1. Decide how much you are willing invest in crypto

  2. Find an exchange that suits your needs

  3. Register for your account on your chosen exchange

  4. Complete mandatory “know your customer” or KYC

  5. Deposit funds into your account

  6. Start trading cryptocurrencies

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