Investing in Crypto Made Easy

Key Takeaways

• Many investors buy cryptocurrency as a speculative investment or hedge against inflation, often driven by confidence in blockchain technology.
• Cryptocurrency has no centralized regulator, trades continuously, and isn’t backed by traditional assets, making it highly volatile.
• You need a crypto wallet and exchange account to invest, but you can start with a small amount of money.
• The IRS treats cryptocurrency as property for tax purposes, which makes disposing of it a taxable event, similar to stocks.
• Committing to a long-term strategy and avoiding emotional decisions are key to successful crypto investing.

Cryptocurrency ownership rates have steadily increased among U.S. investors, growing from just 2% in 2018 to 17% in 2025. This reflects a clear shift: buying crypto may once have required tech skills and a leap of faith, but now it’s easier than ever—if you understand the basics.

From what makes crypto unique to how it’s taxed, this guide covers what you should know to get started.

What Is Crypto and Why Do People Invest in It?

Cryptocurrency is a form of decentralized money that only exists in digital form. Unlike dollars, it isn’t issued or controlled by a government or central bank. Instead, it runs on a blockchain: a public ledger spread across a network of computers that permanently records all transactions involving a cryptocurrency.

“Blockchain is similar to a spreadsheet everyone can see but no one can change,” said Ron Levy, CEO of The Crypto Company. “It gives your digital money real-world credibility, ensuring ownership, transfers, and supply are all verifiable and secure.”

Cryptocurrencies are primarily created through mining, a process in which computers solve mathematical puzzles that validate blockchain transactions. The first to solve the puzzle earns new coins, adding supply to the network and supporting security.

Many choose to invest in cryptocurrency because they believe in this underlying technology. Others buy it as a speculative investment, hoping prices will rise, or use it as a hedge against inflation and instability in traditional markets.

“Blockchain changes how we think about trust in finance,” said Charley Brady, vice president of investor relations at BitFuFu. “It enables genuine peer-to-peer value transfer on a global scale without relying on traditional financial infrastructure. That decentralization is the true innovation.”

What Makes Crypto Different From Other Investments?

Cryptocurrency differs from other investments in fundamental ways. For instance, while stock exchanges are open during limited hours, most cryptocurrency markets never close. As a result, shifts in supply and demand can cause rapid price fluctuations, especially after traditional trading hours.

“The structural differences are significant,” said Brady. “Crypto markets run 24/7, and anyone with internet access can participate. You’re looking at volatility that far exceeds what you see in stocks or bonds.”

This volatility introduces additional risks, especially since cryptocurrencies aren’t backed by traditional assets or a central authority. Along with potentially wider bid-ask spreads, investors face a higher potential for market manipulation, such as pump and dumps.

Tip

Pump and dump schemes involve artificially inflating asset prices—typically through coordinated buying or by spreading false information—then selling for a profit.

The decentralized nature of the asset class also creates opportunities for crypto-specific scams and fraud tactics, like rug pulls. This is when developers offer a new coin to attract investor funds, then abruptly disappear with the money.

“There’s no central authority backing these assets, which fundamentally changes the risk profile,” said Brady. “And frankly, regulation is still catching up, which unfortunately leaves room for bad actors and fraudulent projects.”

What Do You Need To Get Started?

Exchange Account

A crypto exchange is a platform where you can buy, sell, and trade digital assets. New investors generally fund their accounts with fiat money, such as dollars, but exchanges also let you swap one cryptocurrency for another.

These platforms charge various fees, such as maker-taker transaction fees and withdrawal charges when transferring funds to your bank account. Because the U.S. lacks a defined regulatory framework for crypto, these costs can vary significantly, as can each exchange’s availability and security.

Tip

Some exchanges provide more intuitive interfaces for beginners, such as Coinbase and Crypto.com, two of Investopedia’s best crypto exchanges.

Crypto Wallet

A crypto wallet stores your cryptocurrency’s private keys, which are randomly generated alphanumeric codes that control access to your digital assets, like advanced passwords.

Crypto wallets come in two main types: custodial, like those built directly into exchanges, and non-custodial.

“A custodial wallet is like keeping your money in a bank,” said Levy. “A third party holds your crypto for you and handles the security, but you’re trusting someone else with your funds. A non-custodial wallet means you hold your own keys. It gives you full control, but also full responsibility.”

It often makes sense to start with a custodial wallet when you’re new to crypto. Once your experience and investments grow, you can move your funds to a non-custodial wallet for greater autonomy. Just know that mismanagement could cost you your assets.

“Lose your keys or your seed phrase, and your funds are gone permanently,” warned Brady. “There’s no customer service to call.”

Understanding Taxes and Reporting

In the U.S., the Internal Revenue Service (IRS) taxes cryptocurrency as property, similar to stocks. As a result, selling, trading, or spending crypto is a taxable event that can trigger capital gains or losses.

Meanwhile, cryptocurrency you earn through activities like mining, staking, or yield farming is generally taxable as ordinary income.

Many exchanges now issue 1099 forms to help you report your activities correctly. However, transferring coins between wallets or exchanges can complicate your cost basis, which is the value used to calculate gains and losses.

Tip

Crypto tax software, such as CoinTracker or Koinly, can help you track transactions across platforms and calculate your tax liability accurately.

How To Choose and Buy Your First Crypto

If you’re new to crypto, follow this step-by-step process to purchase your first digital assets safely:

1. Use a beginner-friendly exchange: Start with a platform that has an intuitive user interface and strong educational resources, like Coinbase. Advanced exchanges may offer more coins or features, but they can be overwhelming to new investors. 
2. Choose a well-known coin: Stick to established cryptocurrencies like Bitcoin or Ethereum. Altcoins are harder to evaluate and have smaller market caps, which can make them more volatile and speculative.
3. Link a payment method: Typically, the most efficient way to fund your crypto account is through bank transfers. Some exchanges let you use debit or credit cards, but at the cost of higher fees. Using a credit card may also trigger cash advance fees—and means taking on significant risk.
4. Start with a small amount: Many exchanges have no minimum investment amount, and buying fractions of coins is the norm. Consider keeping initial investments to $50 or $100 as you learn how exchanges work and gauge whether crypto investing is right for you.

Tip

Only invest money that you can afford to lose. Cryptocurrency investing is highly speculative, even with established coins like Bitcoin and Ethereum.

What Happens After You Buy?

After purchasing your first cryptocurrency, it can be tempting to check prices constantly. However, crypto markets are notoriously volatile. While it’s important to monitor your portfolio, don’t let short-term market swings influence your decisions.

Decide on a long-term investment strategy and commit to it. Some traders try to capitalize on crypto’s volatility by trying to “flip” it for short-term profits, but this is difficult to execute consistently.

Instead, many financial advisors recommend the strategy popularly called “HODL,” short for “holding on for dear life.” This long-term approach mirrors traditional investing wisdom: buy quality assets and hold them through market cycles.

“Don’t obsess over daily prices,” said Brady. “Set price alerts at levels that matter, stick to your plan, and don’t let volatility shake you. Emotional decisions are usually bad decisions in this space.”

Do I Need a Wallet To Invest in Crypto?

You need a wallet to invest in crypto, but it doesn’t have to be one you control yourself. Many exchanges offer custodial wallets that store your crypto and handle security for you. This is convenient as a beginner, and you can always move your holdings into a non-custodial wallet for more control later.

Can I Invest in Crypto With a Small Amount of Money?

You can often invest in crypto with a small amount of money. Buying fractions of cryptocurrencies is common, and exchanges typically don’t have minimum investment requirements. Starting with $50 or $100 can help you learn how the process works before you risk larger amounts of capital.

What Are the Tax Rules for Crypto?

The IRS treats crypto like property for tax purposes, similar to stocks. As a result, disposing of digital assets by selling, trading, or spending them is a taxable event. You must report it on your tax return and pay capital gains taxes on any profits. If you receive crypto as payment, the fair market value is generally taxable as ordinary income.

The Bottom Line

Cryptocurrency investing is more accessible than ever, but it’s still complex and risky. Learn the basics of volatility, security, and taxes before getting started, and keep initial investments conservative while you learn the ropes. If you later make crypto a more significant part of your investment portfolio, don’t let short-term price fluctuations scare you into making emotional decisions. Decide on a long-term strategy and stick to it.