Bitcoin
3 Safe Ways to Invest in Crypto
Bitcoin (CRYPTO:BTC) may be about to become truly popular, but the crypto market continues to see no shortage of new scams. And it doesn’t matter how big or sophisticated an investor you are. Even billionaires and experienced long-time investors can be fooled by crypto scammers.
The good news is that you can take several basic steps to protect your crypto investments and avoid most crypto scams. Let’s take a closer look.
Use ETFs whenever possible
Arguably, the safest way to invest in crypto is to only invest in exchange traded funds (ETFs) for specific cryptocurrencies. You can buy and trade these ETFs the same way you would technology stocks, so there is no learning curve involved. You don’t need to open any new account. Plus, you can sleep easy at night knowing that every ETF has a seal of approval from the the Securities and Exchange Commission (SEC). This helps explain why the new spot Bitcoin ETFs have become so popular.
As new ETFs launch for cryptocurrencies other than Bitcoin, you can slowly diversify your cryptocurrency holdings. For example, the SEC recently approved new ETFs for Ethereum (CRYPTO: ETH), so they will be arriving soon. And some have suggested that Solana (CRYPTO:SOL) could be the next cryptocurrency in line after Ethereum to get its own spot ETF.
Choose a Reliable Crypto Trading Platform
For many investors, however, an ETF-only strategy is probably too limiting. You will need to find a safe place to buy and sell your cryptocurrencies and cryptocurrency exchanges such as Coinbase Global (NASDAQ: COIN) are a popular choice.
Since Coinbase is regulated by the SEC, it has some strong safeguards built in. For example, Coinbase will not list a cryptocurrency for trading unless it meets certain key criteria. And since Coinbase is a publicly traded company, it needs to run a squeaky clean ship and provide audited financial statements. Coinbase also has best-in-class security protecting your crypto vaults, so you don’t have to worry about a cyber-heist.
But Coinbase is hardly the only option when it comes to crypto trading platforms. There are literally dozens of possible options. Motley Fool Ascent analyzed many of them and determined which ones are best for buying Bitcoin, as well as which ones are best for buying altcoins (i.e., all cryptocurrencies except Bitcoin).
It’s important to do your own due diligence here. Remember: Everyone thought FTX was a reliable cryptocurrency exchange until it collapsed in November 2022. In hindsight, we now know that former FTX CEO Sam Bankman-Fried was using client funds for operations proprietary trading platforms, while also lining up celebrity endorsements. .
The story continues
Establish clear investment rules
Finally, it is important to set some rules upfront about which cryptocurrencies you will invest in, as well as which cryptocurrencies you will not invest in. There are no surprises here, but the cryptocurrencies most likely to be targeted by a scammer are those with small market capitalizations and limited trading liquidity.
Image source: Getty Images.
As a general rule, you should avoid cryptocurrencies that are not offered for trading on major cryptocurrency exchanges. And you should avoid cryptocurrencies that are below a certain market capitalization threshold. Right now, a sensible target would be a market cap of $1 billion. This would give you access to the top 100 cryptocurrencies ranked by market cap. But if you are particularly risk-averse, you might consider increasing this number to $5 billion, which will limit you to just the top 25 cryptocurrencies.
Perhaps the best advice here is to avoid any crypto that attracts get-rich-quick investors. Unfortunately, this means that meme coins should be off your investment radar. While the value of popular meme coins may increase for a brief period of time, their long-term appeal is very limited. The situation is even worse for meme coins with small market capitalizations, which are often subject to extreme market manipulation such as pump and dump schemes.
Be a more educated investor
Ultimately, the more informed you are about crypto, the better you will be when it comes to avoiding classic crypto scams. For example, if you plan to hold cryptographic tokens in a blockchain wallet, you should familiarize yourself with the basics of blockchain wallets. This way, you won’t be tricked into handing over your cryptographic keys to an unscrupulous scammer who will use this information to break into your account.
Fortunately, crypto is becoming more and more popular and the crypto market is starting to look less and less like the Wild West with each passing year. As the regulatory environment becomes stricter and larger Wall Street investors become involved in cryptocurrencies, the risk of fraud will likely decrease over time. But until that happens, it’s certainly worth exploring the safest ways to invest in crypto right now.
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Dominic Basulto has positions in Bitcoin, Ethereum and Solana. The Motley Fool has positions and recommends Bitcoin, Coinbase Global, Ethereum, and Solana. The Motley Fool has a disclosure policy.
Cryptocurrency Scams Still a Threat: 3 Safe Ways to Invest in Crypto was originally published by The Motley Fool