“Crypto” has become something of a buzzword in the financial world over the past few years, and for good reason! With the emergence of blockchain technology, crypto stands to revolutionize the way we conduct transactions and manage our money. And as Bitcoin and Ethereum have shown us, they also can pay out serious returns.
In this article, we will explore how to invest in cryptocurrency and altcoins in 2023, from using exchanges to the complex (but rewarding) world of self-custody.
Keep in mind that cryptocurrency, especially altcoins, are a very risky and speculative asset. So, as with anything you read online about crypto, just remember to DYOR (do your own research) and that this is NFA (not financial advice.)
Let's get started!
How To Invest In Cryptocurrency Directly
With direct cryptocurrency investing, there’s no middleman involved. You’re holding the actual cryptocurrencies in your digital wallet. To purchase cryptocurrencies directly, you’ll need to go through one of the exchanges that specialize in trading cryptocurrencies.
A few of these are Coinbase, Kraken, Uphold, and Binance. If you’ve never invested directly in cryptocurrencies, it’s important to understand the difference between base coins and alt coins.
Bitcoin and Ethereum are base coins. We have full articles dedicated to how to invest in Bitcoin and how to invest in Ethereum, so we won't go into full detail here. But these are the main starting point of investing in cryptocurrency.
How To Invest In Bitcoin and Ethereum
These coins can be purchased directly with fiat currency (i.e., US dollars deposited into your exchange account or through a debit card). You can do this on an exchange.
There is often a fee for exchanging fiat currency for cryptocurrencies. This might be in a commission or a spread on the bid/ask price of the cryptocurrency.
You can see our full list of the best cryptocurrency exchanges here.
You can also invest in BTC and ETH through various decentralized exchanges, like Bisq.
Essentially, anything that is NOT Bitcoin is considered an altcoin, or alternative coin. Often, these digital assets serve specific purposes or aim to improve upon blockchain technology in some way.
For example, Ethereum’s native token, ETH, serves as the foundation for transactions and smart contract execution on a decentralized platform. Some other popular altcoins include Chainlink, Polkadot, and Dogecoin.
When considering which altcoins to invest in, it's important to do your research and understand the underlying technology and purpose of each asset. It would also be wise to consider general market trends, the coin’s potential for growth, as well as risks and volatility.
Binance is a great place to invest in alt coins.
Benefits and Risks of Investing in Altcoins
It’s no secret that millionaires have been made through altcoins like DOGE. But it’s not always as simple as hitting the big, green “buy” button and then cashing out massive gains. Investors should understand that altcoins are a high-risk, high-reward investment.
Before we talk about how to invest in altcoins, let’s do a quick rundown of the benefits and risks involved.
- High potential returns: Altcoins can offer much higher returns than traditional investments due to their volatility and the potential for rapid price increases.
- Diversification: Investing in a range of altcoins based on solid projects can diversify an investment portfolio, lowering overall risk.
- Innovative use cases: Altcoins often have unique use cases and technologies that can offer new possibilities for investors and businesses.
- Early investment opportunities: Some altcoins in the early stages of development offer investors the chance to get in on the ground floor of a promising project.
- High volatility: Altcoins can be extremely volatile, with sudden price swings and the potential for significant losses.
- Unregulated market: The cryptocurrency market is largely unregulated, which can make it more susceptible to scams and “rug-pulls”.
- Market saturation: There are thousands of altcoins on the market, and more cropping up every day. Obviously, not all of them will succeed in the long term.
- Low liquidity: Some altcoins may have low liquidity. This can make it difficult to sell them quickly if necessary, or result in slippage that can incur additional loss.
Given these factors, investors should approach altcoins with caution and a well-informed strategy.
Researching individual altcoins and understanding their underlying technology, market potential, and risk factors is crucial before making any investment decisions. And as with any speculative investment, buying altcoins should only be done with money that you can afford to lose.
With that understanding in place, let’s talk about 2 of the best ways to invest in altcoins in 2023–through exchanges, and through self-custody.
How to Invest in Altcoins through Centralized Exchanges
Almost every exchange has major coins such as BTC and ETH. But if you’re wanting to dive into the esoteric world of alts, finding an exchange with a lot of coin listings is your best bet.
Here are a few options to consider:
- Largest cryptocurrency exchange in the world by trading volume.
- Over 500 different cryptocurrencies for trading.
- Requires Know Your Customer (KYC) verification for certain account features.
Read our full Binance review here.
- Offers over 400 different cryptocurrencies for trading.
- Does not require KYC verification for basic account features, but certain actions may require verification.
Read our full KuCoin review here.
- Exchange that also functions as a digital wallet
- 250+ cryptocurrencies, 27 traditional currencies, and 4 precious metals.
- Requires KYC verification for account creation.
- Strong reputation for security and transparency.
Read our full Uphold review here.
Using centralized exchanges is the simplest way to invest in altcoins. But it’s not the only way.
Especially in light of the mishandling of funds by prominent exchanges, many crypto investors are turning to our second method: self-custody (or decentralized investing).
How to Invest in Altcoins through Self-custody
Self-custodying your altcoins involves setting up your own personal cryptocurrency wallet and then transferring base coins to your wallet so you can do decentralized transactions.
Here's a quick 4-step guide to investing in altcoins through self-custody:
- Choose a wallet: There are several different types of cryptocurrency wallets, from software to hardware. Research the different options and choose a wallet that meets your needs for security, ease of use, and compatibility with the altcoins you want to invest in. Read our guide to the best cryptocurrency wallets.
- Transfer BTC or ETH: Once you've set up your wallet, you can transfer your BTC or ETH from your centralized exchange to your self-custody wallet.
- Purchase Altcoins: You can then connect to decentralized exchanges like Uniswap or Curve to exchange your BTC or ETH for altcoins.
- Secure your wallet: Especially for long-term investments, you’ll likely want to secure your newly-transferred assets. This often includes setting up a strong password and enabling two-factor authentication, as well as backing up your wallet’s seed phrase.
Self-custody is a great option for investors who want complete control over their assets and are willing to take on the responsibility of securing them.
It also opens the door to other means of investing in alts through chains like Ethereum, BSC, and the Polygon (Matic) Network.
How To Invest In Cryptocurrency Funds and Futures
Holding a fund with exposure to cryptocurrencies can reduce volatility. You also don’t have to worry about exchanging from fiat currencies into a cryptocurrency or maintaining a digital wallet.
Grayscale Bitcoin Trust (GBTC)
GBTC is a fund that does hold Bitcoin. The fund does not track Bitcoin 1-1. Whereas Bitcoin is several thousand dollars, GBTC is currently only $10.86. GBTC is not nearly as volatile as Bitcoin.
However, GBTC’s 2% management fee is much higher than you'll pay for the typical index fund or even actively-managed mutual fund.
The Chicago Mercantile Exchange (CME) has a futures product called the Bitcoin Futures Contract (BTC). It tracks Bitcoin 1-1.
A futures contract doesn’t make the best investment since it expires periodically and must be rolled into the next contract. But if you want to hold a position in BTC using a futures contract short-term, CME’s BTC product may be ideal.
The difference in using CME’s BTC is that you aren’t relying on a cryptocurrency exchange. Going from one cryptocurrency exchange to another can mean liquidity issues and differences in margin requirements.
But CME is a reliable exchange that has been around for decades. There’s also plenty of liquidity with BTC and CME sets the margin requirements.
How To Invest In Cryptocurrency Companies
Some companies are involved in cryptocurrencies through microprocessor technologies that power crypto mining, developing their own cryptocurrency, or creating a platform that powers cryptocurrencies (i.e., blockchain).
Each of the companies listed below have publicly-traded stocks. To invest in them, you simply need to open an account with an online stock broker and buy the number of shares you want to own. To reduce costs, look for brokers that offer free stock trades.
Except for RIOT, none of the stock tickers below are for companies that wholly rely on cryptocurrency-related technologies as their sole revenue driver. Rather, they have integrated cryptocurrency into their other revenue streams.
AMD, INTC, And NVDA
All three of these companies create microprocessors and are involved in cryptocurrencies by helping to supply crypto mining technologies. NVDA is leading the pack in this category. Its popular GPUs are used to mine Bitcoin.
Coinbase Global Inc is the publicly traded company behind the popular Coinbase cryptocurrency exchange. They make money by helping traders execute their trades, as well as through loans and other offerings. As a result, their profits are directly tied to the cryptocurrency marketplace. The more volume that's traded, the more that Coinbase makes.
Salesforce has created a blockchain (Sales Blockchain) that utilizes its platform’s metadata. It includes apps and can be shared with network partners.
V And MC
Visa and Mastercard control the flow of digital credit to and from credit cards and debit cards. They do not issue these cards directly but instead depend on different companies to handle issuing cards and providing customer support. The networks provided by V and MC make digital cash possible.
Both companies have jumped into the cryptocurrency space. V has partnered with Coinbase to issue debit cards linked to Coinbase digital wallets. MC has done something similar through a partnership with Bitpay.
Riot Blockchain, Inc. is a true cryptocurrency pure play company. It is a small company that is focused on building and supporting blockchain ecosystems. RIOT is risky, however, as the company isn’t yet producing any revenues.
There are many ways to invest in cryptocurrency, from direct investments to more indirect routes using funds and stocks. The route you choose depends on your risk tolerance and what you’re most comfortable with.
Some people may want to avoid opening up an account at a cryptocurrency exchange and are fine buying a fund or cryptocurrency-related stock. But others may feel that the potential high reward of investing directly in cryptocurrencies is worth the high risk.
Still others may be prefer to avoid cryptocurrency investing altogether. If diversification and minimal volatility are your top investing priorities, you may be better off sticking with index funds and ETFs or computer-managed portfolios with one of the top robo-advisors.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared toward anyone wanting to earn more, get out of debt, and start building wealth for the future.