Curious about crypto investing but unsure where to start? You’re not alone. Interest in crypto
is soaring due to its high potential return. For example, the value of one Bitcoin (BTC) the
first and most popular cryptocurrency broke $100,000 for the first time in December 2024,
while it was just above $50,000 earlier that year. However, cryptocurrencies are notoriously
volatile and can drop in value just as fast. That’s why starting small is important, even if it’s
just $500.
What is crypto investing?
Investing in cryptocurrency means buying cryptocurrency (or putting money into a related
fund) with the intention of the investment increasing in value over time. Essentially, you are
buying some cryptocurrency at the current rate and hoping that your purchase value will
increase. Ideally, the cryptocurrency increases in value, and so does the value of your
portfolio, so you can make money from the investment.
How to invest in crypto
There are many ways to invest in cryptocurrency — coins, stocks, ETFs, and more — each
with its own level of risk. Taking the time to learn about each type of investment can ensure
you are well-informed and decide which investment is right for you.
Understanding Passive Income in the Crypto World
Passive income refers to earnings derived from an enterprise in which a person is not
actively involved. In the context of cryptocurrencies, passive income can be generated in
several ways, including staking, lending, mining, supporting the network and more. The key
is to understand the process and choose the method that best suits your investment goals
and risk tolerance.
The potential returns from generating passive income with cryptocurrencies can vary widely.
Staking and lending can provide regular interest payments, while mining offers rewards in
newly minted coins. The returns are influenced by factors such as the cryptocurrency’s price
movement, network demand, and your level of participation.
Key Considerations After Your First Investment
Once you’ve invested in crypto, it’s important to monitor and protect your investment.
Managing and Monitoring Your Investment
Keep an eye on your crypto positions by using a portfolio tracking app like CoinStats or
Delta by eToro. You can even set up price alerts for when your crypto exceeds or dips below
certain values. That said, don’t obsess over prices. Remember that crypto is volatile, and
too frequent monitoring can lead you to make emotional decisions that you might regret later.
Understanding the Risks and Protecting Your Investment
Investing in crypto comes with many risks, both financial and security-related. To minimize
them, choose reputable cryptocurrencies and crypto exchanges and implement robust
security measures. For example, create strong passwords, enable two-factor authentication,
and beware of crypto scams like phishing and pump-and-dump schemes.
What Are the Tax Implications of Investing in Cryptocurrency?
The IRS treats cryptocurrency as property, not currency.4 As a result, you may owe capital
gains taxes when you sell, trade, or use it. Consult a tax professional to learn more.
How Can I Stay Up to Date on the Latest Trends in the Cryptocurrency Market?
Follow trusted sources or online forums dedicated to cryptocurrency. Be wary of hype so
you don’t fall for scams.
What Are Some Common Mistakes To Avoid When Investing in Cryptocurrency?
According to Greiser, “most new crypto investors buy at market peaks after seeing social
media success stories. By then, early gains are gone, and you’re buying at premium prices.
Stick to established cryptocurrencies that solve real problems and have actual users.”
How Do I Know if a Cryptocurrency Exchange Is Trustworthy?
Look for crypto exchanges with good reputations, strong security features, and clear fee
structures. Avoid those that have a short track record or a small user base.
What Are the Benefits of Using a Hardware Wallet Over a Software Wallet?
A hardware wallet stores the private keys to your cryptocurrencies offline. That way, they’re
protected against cyber theft or loss. With software wallets, there’s always a risk that they’ll
be hacked.
The Bottom Line
Investing in crypto for the first time with just $500 is a great way to learn how the asset class
works. By starting small, you can minimize risk while setting a strong foundation for future
investments. No matter where the market goes, the knowledge and experience you’ll gain
will be your biggest return.
