To get started cryptocurrency investing, pick a strategy based on the amount you'll invest, the timelines for your investment goals, and the amount of risk that makes sense for you.
Cryptocurrency has been one of the most exciting investment opportunities of recent years and things could be about to get even more interesting after 2020 saw more traditional financial institutions offering support for DeFi.
Another major development for crypto in 2020 was leading online payments platform Paypal beginning to support the buying and spending of Bitcoin, Ethereum, Litecoin, and Bitcoin Cash - giving over 350 million users access to cryptocurrency for real-world transactions. This means that cryptocurrency is continuing to step away from its ‘socially constructed’ value and making inroads as a legitimate and functional means of commerce.
Inevitably, these developments have led to renewed interest in investing in cryptocurrency. In fact, cryptocurrency investment has never been more in-demand - as a record number of crypto wallets were opened in 2020. All things considered, the next 12 months could be very profitable for savvy crypto investors.
However, if you’re new to cryptocurrency investment, or financial investment in general, you may be at a loss as to where to start. That is why we have put together the following guide on how to invest in cryptocurrency in 2021, which will tell you everything you need to know to start developing your portfolio.
Table of Contents
A Brief History of Cryptocurrency
Unless you’ve been living under a rock, you’re probably already familiar with cryptocurrency to some degree. However, before we take a look at how to invest in cryptocurrency in 2021, it’s important to know why digital finance has become such a hot topic for investors.
Blockchain first came to the world’s attention in 2008, when Satoshi Nakamoto published his now-legendary white paper establishing a model for the world’s first major cryptocurrency: Bitcoin. Of course, the technology wasn’t developed overnight and Nakamoto’s work was actually the culmination of decades of development. But for the purposes of learning about cryptocurrency investment, 2008 is a good starting point.
Bitcoin then came into being in 2009, amid a flurry of media speculation that it would soon become the norm for traditional transactions. BTC may not have made any real inroads into replacing fiat currency over the next couple of years, and many exchanges were still reluctant to start listing digital currency, but investing in cryptocurrency early on had proven to be a very smart decision by 2013, by which time BTC had soared to $1,242.
When numerous tech insiders who knew little about investment suddenly made a fortune from BTC, it didn’t take long for the rest of the world to catch on and by 2017, Bitcoin had topped $10,000 per token. Investing in cryptocurrency was now an established portfolio option for even the most ardent traditionalists.
Fast forward to the end of 2020 and the cryptocurrency market is now worth over $1 trillion in terms of combined coin value - proof that investing in cryptocurrency can be a very smart decision.
Why Invest in Cryptocurrency in 2021?
After markets around the world were hugely disrupted due to the COVID-19 pandemic that struck in 2020, most economies have demonstrated a certain resilience and early indications have shown that they soon begin to bounce back when restrictions are lifted.
Economic recovery is a huge opportunity for investors and many are looking ahead to a successful year in 2021. Investing in cryptocurrency has, until recently, been seen as somewhat niche, but as we have already mentioned, things seemed to be changing in 2020, as an increasing number of mainstream investors and financial institutions turned their attention to digital currency.
Whilst it may have once been viewed as a chaotic market, that only really held interest for day traders, Cryptocurrency investment is now viewed as a much more viable investment strategy and many high-level investors include at least one digital currency in their portfolio - a trend which is expected to continue in the coming months.
Of course, the cryptocurrency market remains highly unpredictable, but if you’re prepared to take on a little risk and are looking for a developing market to invest in, now might be the perfect time to start investing in cryptocurrency.
Cryptocurrency Investment Strategies
If you’re new to the cryptocurrency investment market, then you may have heard various things about it already, such as how unpredictable it can be and how novice investors frequently lose money - both of which are, of course, completely true. However, they are also true of numerous other financial instruments.
Investing can, however, be potentially very lucrative. But in order to start in the strongest possible position, there are a few basic strategies that novice investors can adopt when learning how to invest in cryptocurrency in 2021.
1. Buy and forget
Known in the industry as HODLing, you can invest in cryptocurrency the same way as you would in stocks and shares - simply identify the token that you believe will increase in value over the long term and make your investment.
The benefits of this should be fairly obvious. As we have noted above, Bitcoin started trading for less than a dollar a token in its early days, but at the time of writing a single Bitcoin is worth over $36,000. So as you can see, investing in cryptocurrency offers potential for significant returns if you are prepared to play the long game.
HODLing differs from trading in that you will actually purchase the underlying asset. In other words, you own the cryptocurrency you are investing in, as opposed to trading a derivative.
Averaging is an established investment technique that isn’t particular to cryptocurrency. However, the fast-changing crypto markets make it highly suitable for new investors.
Averaging involves splitting your capital across several, separate investments into a target asset. Effectively, this is a way to mitigate price volatility over time. The purchases are made at regular intervals, regardless of price movement.
The advantage of averaging is that it reduces the chance of you investing at a bad time - something almost impossible to accurately predict in the crypto market. Averaging also sees you stick to an established plan and reduces the emotional component of investment - crucial for those new to the crypto market.
Of course, the most significant disadvantage of averaging is that the price of an asset tends to climb over time, which means you stand to make a higher profit overall by investing a lump sum earlier on. But the idea here is to mitigate risk.
Any experienced trader knows that diversification is key to a successful portfolio. In a nutshell, diversification means spreading your investment capital across multiple assets. This can be achieved within and without the cryptocurrency market.
For example, CNBC finance writer, Darla Mercado, advises that investors commit just 1% of their total investment capital to Bitcoin, thus gaining exposure to the market whilst minimizing risk through more conservative investments elsewhere. Similarly, tech investor Pondering Durian has invested less than 15% of available capital in the digital markets.
How much of your capital you allocate to cryptocurrency investment will of course depend on how much risk you are prepared to take on. It’s also worth noting that you can diversify within the crypto sector. For example, BTC is a much more stable investment than Tellor, but the latter has plenty of potential for growth. As such, you can include both coins in your investment strategy, balancing the comparatively risky TRB against the ‘safe bet’ that is BTC.
Which Cryptocurrency to invest in 2021?
Inevitably, one of the first questions asked when learning how to invest in cryptocurrency in 2021 is which token to invest in?
There’s no getting away from it, Bitcoin is by far the biggest cryptocurrency on the market. Since its launch in 2009, BTC has consistently held the top spot in terms of market capitalisation and, at the time of writing, one Bitcoin token is worth an impressive $59,000. Even if you’re completely new to cryptocurrency investment, you are likely to know Bitcoin.
As an investment opportunity, BTC is arguably the first point of call for investing in cryptocurrency. Numerous industry experts have predicted big things for Bitcoin in 2021, including Citibank analyst, Tom Fitzpatrick, who believes BTC will soar past $300,000 in the coming months. As such, Bitcoin is a good option for your first cryptocurrency investment.
Next to Bitcoin, another cryptocurrency that has generated a lot of investor attention is Ethereum. With a market capitalisation approaching $70 billion at the time of writing, ETH has held the number two spot behind BTC for quite some time now.
From a technical point of view, the Ethereum blockchain can do things that Bitcoin cannot. For example, whereas Bitcoin is simply a digital payment system, the Ethereum ecosystem allows for the creation of smart contracts and programmes, developed with its own programming language - as well as hosting its own native cryptocurrency, Ether.
Looking ahead to 2021, a technical analysis conducted by LongForecast has Ethereum set to grow by over 200% in the coming months, which certainly makes Ethereum an investment worth considering.
Another well-known cryptocurrency that is consistently amongst the top ten in terms of market capitalisation is Litecoin. Often described as the silver to Bitcoin’s gold, the two are actually very similar in how they operate, but Litecoin has improved scalability and faster block-creation times.
LTC started 2021 trading at over $140 and popular crypto website Coinswitch has suggested the altcoin may reach $600 by the end of the year - which would equate to around 300% growth. Naturally, this makes Litecoin a very attractive investment opportunity. However, as always, crypto price predictions should be approached with caution and altcoins should be part of a diversified portfolio rather than a standalone investment.
4. Bitcoin Cash
The three cryptocurrencies detailed above should be enough for any novice investor to start building their portfolio. However, if you are already looking at stepping further into the world of digital currency then Bitcoin Cash is also worth consideration.
Bitcoin Cash is an offshoot of the original cryptocurrency, formed when the Bitcoin blockchain experienced a hard fork in August 2017. While it's fair to say Bitcoin Cash has never really gotten close to rivalling Bitcoin, it has established itself as one of the top cryptos on the market and has rarely been outside of the top ten in terms of market cap since its inception.
As far as investing in the cryptocurrency goes, Bitcoin Cash saw declining prices throughout 2020 and many industry insiders believe it is due a significant recovery in 2021. However, novice investors should approach with caution: BCH does not have the stability of its predecessor and is certainly a more risky investment.
Another token that it is definitely worth being aware of is XRP, commonly known as Ripple.
Ripple experienced some misfortune at the end of 2020, when the US Securities and Exchange Commission ruled that XRP was classed as a tradable asset rather than a currency.
If you’re looking at investing in cryptocurrency, then XRP inevitably presents an opportunity - albeit a more risky one. The SEC ruling saw the price of the altcoin drop by around 50% in December 2020. Now the eyes of the crypto world are on Ripple to see if the token can make a recovery.
Ripple’s strength is that it focuses on facilitating fast, low-cost transactions, for banks and financial institutions looking to make interbank and cross-border transfers. As such, there is still plenty of potential for XRP and given that prices are now comparatively low, 2021 could be a good time to take a punt on Ripple.
How to Invest in Cryptocurrency in 2021
If you are seriously looking into cryptocurrency investment, then the more research you can do before committing funds the better. However, if you have already shortlisted the tokens you believe will perform well in the coming months or years, then the next step is looking at actually how to invest in cryptocurrency in 2021.
Where to Buy Cryptocurrency
The first step in investing in cryptocurrency is finding out where you can actually buy tokens. There are numerous platforms on the market and there are a few factors that should be considered when choosing the right provider. Consider the following:
- Whether you plan to hold cryptocurrency
- Are you interested in day trading?
- Will you be investing in other assets?
- How much do you know about investing?
- Are you good with complex metrics and info streams?
These are just a few important factors to weigh up when choosing a platform with which to conduct your cryptocurrency investment. For example, if you are interested in day trading, you’ll need an exchange that allows you to buy and sell derivatives. Or if you are a novice investor, you might want to seek a platform that has plenty of educational resources.
One of the top brokers for both new and more experienced investors is eToro. The platform has a straightforward onboarding process and plenty of information on how to invest in cryptocurrency. You’ll also have the opportunity to get to know the interface with a practice account - making dummy investments without risking capital.
How to Buy a Cryptocurrency
Once you’ve set up a trading account, then you are ready to start making transactions. Typically, a cryptocurrency exchange will have a chart listing the current price of a given asset. You’ll also be able to see how the price has been moving over a specified time period, which can further inform your investment strategy.
Most platforms are aimed at the everyday consumer and usually involve little more than clicking the ‘buy’ option. You should then have the option to specify the amount of a token you want to buy, given either in the token value or its equivalent in your chosen currency.
Let's say you want to invest in Bitcoin. Here is what the process might look like:
- Open a trading account with your chosen broker
- If necessary, deposit funds to your trading account
- Choose the option to buy BTC
- Enter the amount you wish to buy
- Confirm transaction
One of the things that often seems confusing when learning how to invest in cryptocurrency is where you store your tokens.
Once cryptocurrency has been acquired, it must be stored - just like any other form of currency. Anyone serious about investing in cryptocurrency will need to set up a crypto wallet. These are effectively just a means to store crypto keys - long strings of numbers designating your token allocation.
There are several types of wallet available, including hardware wallets, desktop wallets and web-based wallets. Typically, hardware wallets are the most secure form, but some convenience is sacrificed and it is not as simple to send and receive cryptocurrency as it is with wallets that are permanently connected to the web.
You might find the exchange you choose to use offers a crypto wallet as standard, but if you are investing in cryptocurrency for the long term, it is advisable to back them up onto a hardware wallet.
Managing your Cryptocurrency Investment
Learning how to trade cryptocurrency is an ongoing process - the market is still in its infancy and is subject to much more volatility than the more established financial indexes. Once you’ve made your investment, it’s important to keep up to date with developments in the crypto world and react accordingly.
One of the main things to be aware of is regulation. Most nations and jurisdictions are still getting to grips with digital currencies and, as we have already noted with the Ripple/SEC case, changes in legislation can have a significant effect on the price of cryptocurrency. In addition to regulation, many cryptocurrencies experience forkings - which can directly affect your holdings.
Of course, if you are sticking to strategy you should be able to ride out general market volatility, however, it’s important to keep abreast of developments in the crypto world to ensure you aren’t caught unaware by significant changes.
Anyone serious about learning how to invest in cryptocurrency in 2021 must be prepared to carry out extensive research - understanding the difference between the different cryptocurrencies is often key to understanding whether they hold any investment potential.
Digital markets present a fantastic opportunity for both long-term investors and day traders, but it’s important to remember that cryptocurrency investment differs from the traditional financial markets and novice investors should bear in mind that they are exposing themselves to risk.
However, with a sensible strategy in place and plenty of careful research, investing in cryptocurrency has the potential for huge returns and the market is only getting stronger as more and more consumers and institutions embrace the concept of digital currency.
eToro – The Best Cryptocurrency Platform
eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.
Virtual currencies are highly volatile. Your capital is at risk.
Cryptocurrency Investment FAQ
Where can I learn how to invest in cryptocurrency in 2021?
Learning how to invest in cryptocurrency in 2021 is an ongoing process, but the best place to start is by reading through a few guides and how-tos from a trusted platform. Trading Education offers guides on everything from how to choose a cryptocurrency wallet to which cryptocurrencies are likely to be good investments in the year ahead.
Is now a good time to invest in cryptocurrency?
The COVID pandemic caused a downturn in most economies around the world. Cryptocurrencies actually showed surprising resilience, with many having already recovered by summer 2020. Heading into 2021, cryptocurrency investment has generated a lot of interest, as many analysts predict significant price increases for the major tokens.
How do I buy cryptocurrency?
Learning how to invest in cryptocurrency in 2021 includes learning where and how to actually buy digital currency. The easiest way to get started is by opening an account with a retail broker, such as eToro, which will allow you to be up and running in minutes as well as giving you access to plenty of educational resources.
Which cryptocurrencies should I invest in?
Once you understand how to invest in cryptocurrency for 2021, you’ll need to choose which tokens you want to add to your portfolio. Research is key here and one of the best ways for novice investors to make sensible picks is to check out reliable analyses of the best cryptocurrencies to invest in as these will collate several information streams to present a realistic picture of what can be expected in the months ahead.