What cryptocurrency to invest in depends on your risk tolerance, investment timeline, and how much you can afford to lose
There is no single right answer to which cryptocurrency to buy. Bitcoin and Ethereum are the two largest by market value and have the longest track records, but thousands of other cryptocurrencies exist, each with different technology, use cases, and risk levels. Before choosing any cryptocurrency, you need to understand that crypto markets are highly volatile — prices can swing 20 to 50 percent in days — and that you can lose your entire investment. Many people who buy crypto lose money. This is not a path to quick wealth.
The decision of what to buy (if you buy at all) should start with how much money you can afford to lose without affecting your ability to pay rent, cover emergencies, or meet other financial obligations. If you cannot afford to lose it, crypto is not the right place for it. After you have set that boundary, you can think about which cryptocurrencies match your understanding of the technology and your comfort with risk.
Key Takeaways
- Bitcoin and Ethereum are the two largest cryptocurrencies by market value and have existed longer than most alternatives, but neither is a may provide investment.
- Cryptocurrency prices move rapidly and unpredictably; you should only invest money you can afford to lose completely without affecting your essential expenses.
- Different cryptocurrencies serve different purposes — some are designed as currency, others as platforms for applications, others as speculative bets on new technology.
- Exchanges where you buy crypto vary in security, fees, and which coins they offer; research the exchange before you create an account.
- Storing cryptocurrency safely requires learning about wallet types and keeping your private keys secure, which adds complexity most new investors underestimate.
Bitcoin versus Ethereum: the two largest cryptocurrencies
Bitcoin was created in 2009 and remains the largest cryptocurrency by market value. It was designed as a peer-to-peer electronic cash system — a way to send money without a bank or government intermediary. Bitcoin has a fixed supply cap of 21 million coins, which is written into its code. This scarcity is part of why some people view it as a store of value, similar to gold. Bitcoin transactions are recorded on a public ledger called the blockchain, which anyone can verify.
Ethereum launched in 2015 and is the second-largest cryptocurrency. Unlike Bitcoin, Ethereum was designed as a platform where developers can build applications — financial services, games, digital art markets, and others. Ethereum has no fixed supply cap. The Ethereum network processes transactions and runs these applications, and people pay fees in Ethereum's native currency (also called Ether) to use them. Ethereum's technology has changed significantly since launch, including a major shift in how it processes transactions in 2022.
Both Bitcoin and Ethereum have been around long enough that their basic technology is understood and tested. That does not mean they are safe investments — their prices still move dramatically, and regulatory changes could affect their value. But they carry less technological risk than newer cryptocurrencies, where the underlying technology may not work as intended or may be abandoned.
Other cryptocurrencies and what they claim to do
Thousands of other cryptocurrencies exist. Some are designed to be faster or cheaper to use than Bitcoin or Ethereum. Others focus on privacy, allowing transactions that are harder to trace. Some are built on top of Ethereum or other platforms and serve specific purposes — for example, stablecoins are designed to maintain a fixed price (usually $1) by being backed by real currency or other assets held in reserve. Others have no clear use case and exist mainly because someone created them and people speculated on the price.
New cryptocurrencies launch constantly. Many fail — the developers abandon them, the technology does not work, or people simply lose interest and the price falls to zero. Investing in a newer or smaller cryptocurrency means taking on additional risk that the project itself may not survive. Some people make money on these bets, but many lose everything. The smaller and newer the cryptocurrency, the higher the risk and the less information is usually available about how it actually works.
How to research a cryptocurrency before buying
Before you buy any cryptocurrency, spend time understanding what problem it claims to solve and whether that problem is real. Read the project's official website and whitepaper (a technical document explaining how it works). Look for who created it and whether they have a track record in technology or finance. Check whether the project is actively maintained — does the code get updated regularly, or has development stalled?
Look at the price history. How volatile has it been? Has the price been driven by hype or by actual use of the network? Check independent sources like CoinMarketCap or CoinGecko, which track price history and basic information about thousands of cryptocurrencies. Avoid making decisions based on social media posts, celebrity endorsements, or claims that a coin will make you rich. These are common ways people lose money in crypto.
Understand the fees involved. When you buy crypto on an exchange, you pay a trading fee (usually 0.5 to 2 percent of the transaction). When you move crypto between wallets or exchanges, you pay a network fee. These fees add up, especially if you trade frequently. Some cryptocurrencies have higher network fees than others depending on how congested their network is.
Choosing an exchange to buy from
You cannot buy cryptocurrency directly from a bank. You need to use a cryptocurrency exchange — a platform that lets you trade regular currency (dollars, euros, etc.) for crypto. Major exchanges include Coinbase, Kraken, Gemini, and Bitstamp. Smaller or newer exchanges also exist, and some are based outside the United States.
Before you create an account on any exchange, research its security record and fees. Some exchanges have been hacked in the past, resulting in customers losing money. Check whether the exchange is regulated or licensed in your country. In the United States, exchanges should be registered with FinCEN (the Financial Crimes Enforcement Network) and comply with state money transmitter laws, though regulation is still developing. Read recent reviews and check whether the exchange has faced lawsuits or regulatory action.
Compare fees across exchanges. Trading fees vary, and some exchanges charge different fees depending on your account size or trading volume. Withdrawal fees (the cost to move crypto off the exchange to your own wallet) also vary. A small difference in fees does not matter much if you buy once and hold, but it adds up if you trade frequently.
Storing cryptocurrency safely after you buy it
Once you buy cryptocurrency, you need to decide where to keep it. Leaving it on the exchange where you bought it is convenient but carries risk — if the exchange is hacked or fails, your crypto could be lost. Moving it to your own wallet gives you control but requires you to manage a private key (a long string of characters that acts like a password). If you lose the private key, you lose access to the crypto permanently. If someone else gets the private key, they can take your crypto.
There are two main types of wallets: hot wallets (connected to the internet, like a mobile app or web-based wallet) and cold wallets (offline, like a hardware device or paper wallet). Hot wallets are easier to use but more vulnerable to hacking. Cold wallets are more secure but less convenient if you want to trade or sell quickly. Many people use both — keeping most of their crypto in cold storage and a smaller amount in a hot wallet for regular use.
Learning to use a wallet safely takes time. You need to understand how to back up your private key, how to recognize phishing attempts, and how to verify that you are using the real wallet software and not a fake version. If you are not comfortable with this level of technical detail, you may want to keep your crypto on an exchange you trust, accepting the risk that comes with it.
Tax implications of buying and holding cryptocurrency
In the United States and most other countries, buying and selling cryptocurrency triggers tax obligations. When you sell crypto for a profit, you owe capital gains tax on the difference between what you paid and what you sold it for. If you hold the crypto for more than one year before selling, you may may have access to for long-term capital gains rates, which are usually lower than short-term rates. If you hold for less than one year, you pay short-term rates, which are taxed as ordinary income.
Even if you do not sell, some tax situations apply. If you receive crypto as payment for work, that is taxable income at the time you receive it. If you earn interest or rewards by staking crypto (locking it up to help run the network), that is also taxable income. You are responsible for tracking these transactions and reporting them to tax authorities. Many people underestimate their tax liability and face surprises when they file.
Frequently Asked Questions
Is Bitcoin or Ethereum a better investment?
Neither is objectively better — it depends on your view of what each technology will be used for and your risk tolerance. Bitcoin has a longer history and simpler purpose. Ethereum is more complex but has more active development and a larger ecosystem of applications. Both can lose significant value. Do not buy either based on the assumption that it will definitely go up.
Should I invest in cryptocurrency if I have credit card debt or no emergency fund?
No. Cryptocurrency is extremely volatile and speculative. If you have high-interest debt or no emergency savings, paying down debt and building savings should come first. Only invest in crypto after you have covered essential expenses, paid down high-interest debt, and set aside three to six months of living expenses in an accessible account.
What happens if a cryptocurrency exchange goes out of business?
If an exchange fails and you have crypto stored there, you may lose it. Unlike bank deposits, cryptocurrency held on an exchange is not insured by the government. Some exchanges have insurance or keep customer funds in separate accounts, but this varies. This is why many experienced investors move crypto to their own wallets rather than leaving it on exchanges.
Can I get rich quick by investing in a new cryptocurrency?
Some people have made money on new cryptocurrencies, but many more have lost everything. New coins are highly speculative, and most fail. Treat any claim that a new coin will make you rich as a warning sign, not a reason to buy. If something sounds too good to be true in crypto, it almost always is.
Do I need to understand blockchain technology to invest in cryptocurrency?
You do not need to be a programmer, but you should understand the basics of how the specific cryptocurrency works and what problem it solves. If you cannot explain in simple terms why you are buying something, that is a sign you should not buy it yet. Take time to learn before you invest money.