Introduction to Crypto Investing

Cryptocurrencies have been rapidly rising in value, dwarfing returns from any other investment category. Bitcoin rose from $434 in the beginning of 2016 to almost $5000 in September 2017. That is over 1100% in less than 2 years!
And still, most people don’t know how to start investing in the crypto space. This article will provide an overview for getting started, and explain some of the risks involved.

Fundamentals

Cryptocurrencies are decentralized, digital assets secured by cryptographic algorithms. In comparison to traditional money, where central banks and governments control the money supply, there is no single entity that controls a cryptocurrency.

There are many different cryptocurrencies, and many more are created each month. As of September 2017, over 1100 cryptocurrencies are tracked by CoinMarketCap, a website that monitors prices of cryptocurrencies. The first and biggest one is Bitcoin, with a market cap of almost 70 billion USD.
There are 11 other cryptocurrencies with a market cap above 1 billion, namely Ethereum, Bitcoin Cash, Ripple, Litecoin, Dash, NEM, Monero, IOTA, Ethereum Classic, OmiseGo and NEO.
All others have market capitalizations of less than 1 billion, some being at few hundred million, others only at a few thousand.
Not every cryptocurrency is tradeable though, exchanges support only a very small subset, and they also don’t support all the same currencies.

Buying and selling Cryptocurrencies

The safest and easiest way to buy cryptocurrencies is through exchanges. Exchanges bring buyers and sellers of cryptocurrencies together. They work similarly to stock market exchanges.

The first step is finding an exchange you trust. There is an excellent guide for that: Best Cryptocurrency Exchanges: The Ultimate Guide.
Note that there are 2 types of exchanges, the ones that support non-crypto currencies (= fiat currencies, like USD or EUR), and the ones that don’t. To start investing in the crypto space, you need an exchange that supports fiat currencies!

After you pick one, you need to create an account. This is the same as with any other account you create on the internet.
But before you can transfer money to the exchange, you need to verify your account. Every trustworthy exchange enforces this. You do that by sending them proof that you are the person you claim to be, in most cases by providing your full name, date of birth, phone number and address.
It will take some time for them to verify the information, but in most cases less than a week.

Once you’re verified, you can start depositing money and buy cryptocurrencies.

Most people don’t want to start to invest thousands of dollars to buy 1 Bitcoin, and they don’t have to. Cryptocurrency coins are highly divisible: it is possible to buy tiny fractions of them, so it is not necessary to buy 1 whole Bitcoin to start investing ;-)

The crypto market is a very liquid one, typically you can buy and sell at market prices in a few seconds.
There is no minimum investment, and most exchanges do not charge flat fees, only a percentage of the amount you invest, normally 0.1 - 0.3 %.

Risks

Although there have been exceptional returns over the years, and some people became millionaires, coining the term crypto-millionaire, there are many risks involved.

First of all, cryptocurrencies are very high risk investments. It can go to 0 in the blink of an eye.
Additionally, there are huge price swings. It is quite common that a cryptocurrency loses 20% of its value in just 24h, and there have been times when the value dropped by 80%.
So don’t invest money you cannot afford to lose!

Since the market is unregulated compared to traditional markets, e.g. the stock market, and it is relatively young, there are many risks other than price changes.

Some countries may regulate cryptocurrencies so that they become essentially untradeable, or outright ban them.

The exchange you are using may go bankrupt, or it can get hacked and all your money stolen.
Similarly, your account can get hacked, and the hacker transfers all your money to another account. Since there is no centralized authority, you have nowhere to complain to, no one to help you recover your stolen money.
At least the risk of your account being hacked can be greatly reduced by standard account security advice: use a strong password, don’t write it down, don’t tell it to anyone, enable 2-factor-authentication if possible, only log in on your own devices, and don’t give 3rd party software access to your account.

Especially for low-cap altcoins, it is possible that exchanges stop trading them. This means that if you have tokens of such a currency on that exchange, you cannot sell them anymore and therefore, their value becomes essentially zero.
Also, some altcoins may be scams. Since there is essentially no regulation, the creators can promise value that they never intend to fulfill.

Conclusion

The best time to have invested in Bitcoin was years ago, at the very beginning. The second best time is likely now. The infrastructure is in place, it is easier than ever to buy into cryptocurrencies.
The main threat right now is governmental regulation, but it can also be the main benefactor of crypto prices. Through regulation, governments can shut down trading, or pave the way for bigger players to enter the space.
If the latter happens, prices will skyrocket to heights no one would have ever dreamed about in the early days.
Before we reach this state, there will be many ups and downs. Just keep in mind, cryptocurrencies are risky, they are not an investment for the faint hearted.

Further Resources

The most popular resource for crypto prices is CoinMarketCap, but for accurate real-time prices please refer to your exchange.

Cryptowatch also shows current crypto prices, but different to CoinMarketCap, lists the prices on popular exchanges.

If you are interested in current events, there are some great accounts to follow on Twitter:
* Chris Burniske
* Gavin Andresen
* Roger Ver
* Bitcoin News
* Bitcoin Magazine
* CoinDesk

blockchain curated is a weekly podcast covering the best cryptocurrency articles.

I am also maintaining a public list of Twitter accounts I follow.
It also includes traders and speculators, who also post their views on specific coins.
Just remember, everything you do is your own responsibility.

Glossary (typical terms in crypto space)

Fiat currency: “normal” currencies, issued by central banks, like USD and EUR
Altcoin: every cryptocurrency except Bitcoin is considered an altcoin
Market capitalization: The combined worth of all tokens of a specific cryptocurrency
HODL: holding a coin for a longer period of time, usually at least a year (origin)
Wallet: basically the equivalent of bank accounts in the crypto space

Collaborators

Big thanks to everyone who helped improve this article:
Manu Wallner, Felix Krause, Sebastian Mayr, Sara Stoppacher, Michael Stöcklmayr