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Take these 3 steps to dip your toes in crypto investing responsibly | Cryptocurrency

Take these 3 steps to dip your toes in crypto investing responsibly | Cryptocurrency
Take these 3 steps to dip your toes in crypto investing responsibly | Cryptocurrency 

Before taking the plunge, here are three steps to responsibly dip your toes into the crypto pool

It seems that the crypto world is completely affected today. From the highly successful Coinbase Super Bowl commercial to A-list celebrities like Justin Bieber and Gwyneth Paltrow collecting NFTs, everyone is trying to get in on the action. But however tempting it may be, taking the first dive into the volatile crypto market can be super risky.

Those curious about crypto can follow these guidelines before diving in at all.

1. First make sure you have a strong financial foundation 

Before investing in crypto, you will want to make sure that you have a solid financial foundation that can withstand the risks, uncertainty and potential pitfalls that come with investing in crypto.

Tony Molina, CPA and senior product specialist at investment platform Wealthfront, CPA and robo-advisory investment platform Wealthfront, told Select, “The crypto world is moving fast, but it is also important to remember that cryptocurrencies are high-risk investments that can be extremely volatile. " "First assess your current savings and then decide what kind of risk you want to take from there."

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In addition to having an emergency fund, or savings, to fall back on, you'll also want to make sure you've selected a few other financial goal boxes like paying off high-interest credit card debt that can eat into any potential investments. Return. And you'll want to put money into a retirement account like an IRA, Roth IRA or employer-sponsored 401(k). And if your employer offers a 401(k) company match, make sure you're contributing enough to meet that match before investing in crypto, as the match is essentially free money. For example, if your company matches 6% of your salary, contribute 6% so that you're doubling what you can take out before strategizing to invest elsewhere.

2. Find the Right Crypto Platform for You

Fortunately for beginners who are ready to take on the risk of crypto, there are several ways to go when you are just starting out.

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You can easily buy cryptocurrency through traditional finance apps such as Cash App, Block, Inc. (formerly called Square) that allows users to simply buy bitcoin, or PayPal, which allows users to buy four different cryptocurrencies: bitcoin, ethereum, Bitcoin Cash and Litecoin. Robinhood, the popular trading app, supports seven cryptocurrencies for purchase by users, and personal finance provider SoFi allows crypto purchases of 21 different coins and crypto tokens on its app. These apps will not allow you to send your tokens to the crypto wallet that you own.

The above apps that support crypto trading offer a limited selection, however, which can make crypto buying on a centralized exchange (managed by one company) more favorable. Popular crypto exchanges include Coinbase, Gemini and Kraken. With a centralized exchange, investors get some insurance in case of cyber security breaches, regulatory clarity as they are licensed businesses and help protect assets. In return, however, there is essentially a middleman between you and your assets, and your funds can be frozen or frozen at any time.

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If you want more ownership of your crypto after purchasing from a centralized exchange like Coinbase, you can transfer your assets to a crypto wallet that you have more direct ownership of.

Crypto Trust

“For those looking to gain crypto exposure through a more traditional brokerage account, you may consider doing so through crypto trusts,” suggests Molina. A crypto trust is very similar to any other financial trust except that it exclusively holds cryptocurrency. For example, Grayscale Bitcoin Trust allows you to "buy" in bitcoins through a brokerage account.

Trusts are a good option for those who don't want to manage the security of their own cryptocurrencies, and want to transfer money from coins to their loved ones later down the line. Robo-advisors like Wealthfront allow you to invest up to 10% of your portfolio in these trusts so that you eliminate some of the risk.

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3. Diversify Your Investments Beyond Crypto

Molina's rule of thumb is to allocate a maximum of 10% of your portfolio to crypto, then use a long-term passive investment strategy for the rest of your financial assets. “It is important to understand crypto as another part of your long-term investment strategy,” he adds.

Diversification ensures that you are spreading your risk effectively. That way, when the crypto market experiences some volatility, you have more opportunities to make money off any losses to other pieces of your portfolio.

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Ground level

To start investing responsibly in crypto, first make sure you have met other financial goals that allow you to take on substantial risk. You can then shop around for the crypto platform that works for you, knowing that you will not allocate more than 10% of your investment portfolio to buying coins.

Source: Sri Taylor, CNBC, Direct News 99