Cryptocurrency is virtual money that is easy to use for payments and other financial transactions. Cryptocurrency transactions are securely completed directly on the internet using blockchain technology without a regulated financial or government intermediary. It can also be bought, held, and sold for investment purposes.
Investing in Cryptocurrency
Bitcoin was the first cryptocurrency, introduced in 2009. Bitcoin investors who bought in June of 2011 at $11 per bitcoin (BTC), for example, experienced a whopping annualized return of almost 100% as of June 2020. On the other hand, investors who bought at the end of 2017 at $19,283 per BTC had lost 49% of their original investment as of June 2020.
Today, there are more than 1,500 cryptocurrencies that are “mineable,” or exchangeable with “fiat” or traditional money, available on the market. However, Bitcoin is still by far the most popular, with a roughly 60% share of the market as of September 2020. Investors can use any of almost 300 online platforms, or exchanges, to buy and sell cryptocurrency.
You can get started investing in cryptocurrency with as little as $10 using a digital wallet app like Coinbase, because cryptocurrencies can be purchased in very small fractional amounts.
How and Where to Buy Cryptocurrency
Buying cryptocurrency is easy. While Bitcoin is the most popular, there are many "alt coins," or alternatives to Bitcoin, available. The process is simple. Download an app like Coinbase, create a digital wallet, and deposit funds or use a credit card to purchase your alt coins. Unless you are planning on making large transactions, the process is brief and easy to complete. It takes 10 minutes or less.
Digital wallet apps like Coinbase, Robinhood, Square’s Cash App, and others make it easy to buy and sell your coins for U.S. dollars or other cryptocurrencies. There are even cryptocurrency ATMs where you can convert your coins directly to cash.
While buying and selling cryptocurrency is a simple and affordable way to invest, there are other vehicles available as well.
Cryptocurrency ICOs, ETFs, and Futures
The other cryptocurrency investment vehicles available today are Initial Coin Offerings (ICOs), Bitcoin futures, and crypto-managed products like the Grayscale Bitcoin Trust (GBTC). Cryptocurrency exchange-traded funds (ETFs) aren't currently trading in the U.S., but they exist overseas.
ICOs are a way to bring a new alt coin to market. Coins are first offered to investors by a manager before they are available to the public from online platforms. If the alt coin is successful, the initial investors will profit from the appreciation in its price.
It’s important to keep in mind that ICOs are speculative investments if you’re considering buying into one.
Bitcoin futures are only available from broker-dealers registered with the Securities and Exchange Commission (SEC) and regulated by the Financial Industry Regulatory Authority (FINRA).
Why Invest in Cryptocurrency ?
TD Ameritrade is a leading online brokerage for retail investors. It was one of the first to offer crypto-managed products and Bitcoin futures. Sunayna Tuteja, head of Digital Assets & Distributed Ledger Technology (DLT) at TD Ameritrade told The Balance why her company is investing in its cryptocurrency platform.
"Bitcoin is appealing to a diverse array of market participants for a variety of reasons,” Tuteja told The Balance via email. “For our clients, directing part of their investable assets to digital assets is part of their overall investment plan and another way to achieve portfolio diversification.”
TD Ameritrade also offers cryptocurrency education for its clients.
"With credible content, delivered in ‘kitchen-English,’ we make Bitcoin less intimidating,” Tuteja said. “Whether you consider yourself crypto-savvy, crypto-curious, or crypto-skeptic, it ought to start with education and a sound understanding of the fundamentals.”
Investing in cryptocurrency can help you diversify your portfolio, but it’s smart to start with education and a sound understanding of the fundamentals before diving into the world of crypto.
Bitcoin vs. Alt Coins and Other Investments
As Bitcoin expanded, alt coins emerged as competitive options. Litecoin was introduced in 2011, touting faster transaction times and enhanced technology. Etherium is the second-largest cryptocurrency behind Bitcoin. It has gained popularity because it has a suite of financial products for banking and e-commerce.
Still, cryptocurrency is a market of "lions and mice.” Bitcoin's nearest competitor has a market share of about 13% versus Bitcoin's nearly 60%.
As for traditional investments, most have value that is measured by an underlying asset, like a company or property, a loan obligation, or an index like the S&P 500. But cryptocurrency does not.
Cryptocurrency prices are typically more volatile than other, more traditional investments like stocks, bonds, and real estate.
Instead, as with any traditional currency, cryptocurrency’s value is based on how widely it is accepted. According to a survey by specialist business insurer and risk management firm HSB, 36% of U.S. small and medium businesses accept cryptocurrency. An additional 59% of those companies purchased digital currency for their own use, as well.
Cryptocurrency is attractive to some investors for portfolio diversification because the prices are not correlated to the prices of other assets they may hold, such as stocks, bonds, or real estate.
Is Investing in Cryptocurrency Safe?
"Cryptocurrency and ICOs have moved beyond the emerging threat stage,” Bob Webster, director of communications for the North American Association of Securities Administrators (NASAA), told The Balance in an email interview. “Securities regulators continue bringing enforcement actions involving cryptocurrency-related investment products."
Online cryptocurrency platforms are primarily regulated at the state and federal level as money transmitters. They are not regulated by the SEC as exchanges. They have no standardized trading rules or fee limits to protect investors. There are no bankruptcy protections from the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC), and there are no financial reporting requirements. Broker-dealers like TD Ameritrade that offer cryptocurrency investment vehicles are registered with the SEC and regulated by FINRA, however.
That said, according to a survey by Fidelity Digital Assets, the major investment firm’s platform for storing and trading digital assets, six out of 10 institutional investors believe digital assets have a place in their portfolio. So if you're thinking about investing in cryptocurrency, you're not alone.
- Getting started with cryptocurrency investments is easy—just download one of the online platform apps like Coinbase or Robinhood.
- Educate yourself on cryptocurrency and its risks before you invest.
- You can start investing in cryptocurrency with a very small amount of money, such as $10.
- Cryptocurrency and cryptocurrency "exchanges" are not regulated. There are no protections from the FDIC or SIPC.
- Cryptocurrency prices may be more volatile than other investments.
- Bitcoin is by far the largest and most widely accepted cryptocurrency.