How to invest in cryptocurrency: a beginner’s guide
To invest in cryptocurrency, verify an account at a US exchange, link your bank, place a spot buy, and move coins to a self-custody wallet for safety.
Vahe HakobyanEditor-in-chief
Updated Oct 5, 20264 min readFact-checked
On this page
- Crypto prices can fall sharply, and a coin can lose most of its value.
- Crypto held on an exchange is not FDIC-insured like a bank deposit.
- A seed phrase is not a password; anyone who gets it can move the funds.
- A token listed on a major exchange is not necessarily registered with the SEC.
- The IRS treats crypto as property, so trades and sales can be taxable.
The process has three parts: preparing an account, buying, and securing what you own. You will need a government ID, a bank account, and a safe place for a recovery phrase. The Bitcoin blockchain records transfers in a public ledger, which is the oldest example of the technology.
What to know before you start
Crypto prices are volatile, and a coin can lose most of its value. Regulators say virtual currency cash markets can be manipulated and may lack essential safeguards for customers. Scammers pose as exchange staff or giveaway hosts and ask you to send coins or share your seed phrase. If someone steals your crypto, you have no guarantee of getting your money back.
How to invest: step by step
An exchange that follows US anti-money-laundering rules collects your identity before you can buy. You then fund the account from your bank and place a spot order. A spot order buys the coin itself, not a contract tied to its price.
- 1Choose a compliant exchangeMost US platforms register with FinCEN as money services businesses and hold state licenses. Turn on two-factor authentication.
- 2Verify your identityExchanges collect your legal name, address, tax ID, and usually a photo of your ID.
- 3Link your bank accountEnter your routing and account numbers. Small test deposits may confirm the account.
- 4Place a spot buy orderA market order fills at the best available price, which may differ from the price you see. A limit order sets the most you will pay.
- 5Set up a self-custody walletA hardware wallet keeps your private keys offline. Check that it supports the coin you bought.
- 6Store the seed phrase offlineWrite it on paper or metal and keep it where only you can reach it. Do not photograph it or save it online. A seed phrase is not a password, and anyone who gets it can move your funds.
After you invest: records and security
The IRS treats cryptocurrency as property, so a sale, a trade for another coin, or a payment can create a taxable gain or loss. Your cost basis is what you paid, including fees. Keep records and report capital gains on your tax return.
Frequently asked questions
Usually no. Holding a coin by itself is not a taxable event. A gain or loss appears when you sell, trade or spend it.
A blockchain transfer usually cannot be reversed. If the address belongs to someone else, that person would have to send the coins back. You may have no way to recover them.
Yes. The exchange holds the private keys, so your balance is a claim on the company. Exchange balances are not FDIC-insured.
Look at what the network does and how it settles transfers without a central administrator. Most networks agree on their record through either proof of work or proof of stake.
