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Cryptocurrency seems to have the world completely entranced nowadays. From the overwhelmingly 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 while it may be very tempting, diving head first into the volatile crypto market can be super risky.
Before taking the plunge, here are three steps to dipping your toes into the crypto pool responsibly.
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1. First make sure you have a strong financial foundation
Before investing in crypto, you’ll want to make sure you have a solid financial footing that can withstand the risk, uncertainty and potential loss that comes with investing in crypto.
“The world of crypto is moving fast, but it’s also important to remember that cryptocurrencies are high-risk investments that can be extremely volatile,” Tony Molina, a CPA and senior product specialist at robo-advisor investment platform Wealthfront, tells Select. “First assess your current savings and then decide what kind of risk you want to take on from there.”
Beyond having an emergency fund, or savings, on hand to fall back on, you’ll also want to make sure you have ticked a few other financial goal boxes like paying off high-interest credit card debt that can eat away at any possible investing returns. And you’ll want to be putting money into a retirement account like an IRA, Roth IRA or employer-sponsored 401(k). And if your employer does a 401(k) company match, make sure you are contributing enough to meet that match before investing in crypto, since the match is essentially free money. For example, if your company matches up to 6% of your salary, contribute 6% so you’re first doubling what you’re able to put away before you’re strategizing investing elsewhere.
2. Find the right crypto platform for you
Luckily for beginners who are ready to take on the risk of crypto, there are several methods when you’re just starting out.
You can easily buy cryptocurrency through traditional finance apps like Cash App, a peer-to-peer payment service owned by Block, Inc. (formerly called Square) that allows users to buy bitcoin only or PayPal, which allows users to purchase 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 for crypto purchases of 21 different coins and crypto tokens on its app. These apps will not let you send your tokens off to a crypto wallet that you own.
The above apps that support crypto trading offer a limited selection, however, which may make buying crypto on a centralized exchange (managed by a single company) instead more favorable. Popular crypto exchanges include Coinbase, Gemini and Kraken. With a centralized exchange, investors get some insurance in case of cybersecurity breaches, regulatory clarity since they are licensed businesses and help safeguarding assets. In exchange, however, there is essentially a middleman between you and your assets, and your funds can be frozen or constrained at any time.
If you want more ownership over your crypto after making a purchase from a centralized exchange like Coinbase, you can transfer your assets to a crypto wallet that you have more direct ownership over.
Crypto trusts
“For those who want to get crypto exposure through a more traditional brokerage account, you might consider doing this through crypto trusts,” Molina suggests. A crypto trust is pretty similar to any other financial trust, except it exclusively holds cryptocurrency. For example, the Grayscale Bitcoin Trust allows you to “buy into” bitcoin through a brokerage account.
Trusts are a good option for those who want don’t want to manage safeguarding their own cryptocurrency, and pass on wealth from coins to loved ones later down the line. Robo-advisors like Wealthfront allow you to invest up to 10% of your portfolio in these trusts so you can eliminate some risk.
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 longer-term passive investing strategy for the rest of your financial assets. “It’s important to understand crypto as a another part of your long-term investment strategy,” he adds.
Diversification ensures that you are effectively spreading out your risk. This way, when the crypto market does experience some volatility, you have more opportunities to have other pieces of your portfolio make money to offset any loss.
Bottom line
To start investing in crypto responsibly, first make sure you’ve 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 won’t allocate more than 10% of your investment portfolio to buying coins.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
