Are you thinking about buying cryptocurrencies? If so, you’re part of a rapidly growing segment of the population that sees digital assets as attractive investments.
Buying cryptocurrencies today is already possible through many different avenues – whether it’s Bitcoin, Ethereum or any other of the thousands of coins on the crypto market.
Be it through crypto exchanges, crypto funds or even direct investments in crypto companies, buying crypto today is often already as easy as investing in the stock market.
In this detailed guide, we’ll show you everything you need to know about trading cryptocurrencies, how to expand your portfolio, and everything you need to consider along the way.
Step 1: Understanding cryptocurrencies
Cryptocurrencies, and the underlying blockchain technology, have become an influential concept in the financial and technology worlds over the past decade.
Cryptocurrencies are digital assets that use cryptography to secure and verify transactions and control the creation of new entities, allowing them to function independently of central banks and governments.
They can be used for a variety of purposes, including as a medium of exchange, store of value, and speculative investment. The last point, in particular, is a big contributor to the popularity of cryptocurrencies.
No matter what reason you decide to buy cryptocurrencies, in this article you will find all the necessary steps to complete your first purchase.
Step 2: Which cryptocurrency should you buy?
Since the launch of Bitcoin over a decade ago, several thousand other cryptocurrencies have entered the market (and many have also disappeared.) Finding the right cryptocurrency to buy quickly becomes a challenge.
We don't offer investment advice, but we can give you a brief overview of some popular projects and concepts. For more information on the best cryptocurrencies and how to properly evaluate crypto investments, check out our article: Best Cryptocurrencies 2024
Bitcoin
Bitcoin is the oldest and arguably the most popular cryptocurrency. The first Bitcoin block was "mined" on January 3, 2009 and the coin has seen an absurd growth in value since then.
The value of a Bitcoin is just around 25.000€ at the beginning of 2023, while it was still almost 64.000€ at the end of 2021.
Even though the fluctuations in value can be enormous in some cases, cryptocurrencies like Bitcoin still come closest to traditional FIAT money in their application.
Ethereum
The Ethereum network is a more advanced application of blockchain technology that enables so-called smart contracts and decentralized applications (dApps). These are programmable processes that can be executed entirely without a central authority between two parties, laying the foundation for the Web3 ecosystem.
The cryptocurrency of the Ethereum network is called Ether and has, after Bitcoin, the second largest market capitalization of all cryptocurrencies.
Altcoins
"Altcoins" is a collective term for all cryptocurrencies besides Bitcoin. These altcoins differ among themselves, sometimes greatly, in their applications. Many altcoin projects have great ambitions, but only a few stand the test of time. Especially for beginners:in trading cryptocurrencies, caution is advised here.
NFTs
The acronym NFT stands for Non-Fungible Token. Unlike other cryptocurrencies, each NFT is unique and uniquely attributable, allowing it to be used as proof of ownership and authenticity. So far, NFTs have been used to tokenize digital artwork, ownership certificates, or even sneakers, for example.
DeFi
DeFi (Decentralized Finance) enables traditional financial applications without a central party on the blockchain. For example, it enables lending without a bank or functioning as a proof-of-stake blockchain using crypto staking.
Step 3: Choose a crypto exchange or broker.
If you want to buy or sell cryptocurrencies, the easiest way to do so is through a crypto exchange or a traditional broker.
What is a crypto exchange?
A crypto exchange is a digital marketplace where buyers and sellers of cryptocurrencies can trade coins directly with each other. The exchange charges a small fee for each trade. The purchase price or selling price of the currencies on an exchange is determined fairly by supply and demand.
Crypto exchanges offer a wider range of so-called trading pairs, i.e. currencies that can be traded with each other. Trading pairs can consist of traditional fiat currencies and crypto, for example Euro and Bitcoin, but also of two different cryptos, such as Ethereum and Solana.
Thus, they offer you a lot of flexibility when buying cryptocurrencies.
Some of the most popular crypto exchanges are Coinbase, Binance or Kraken.
What is a crypto broker?
A (crypto) broker acts as a third party, often a single person or company, that mediates between buyer and seller. Unlike a crypto exchange, the broker itself determines the price for the currency in question.
Crypto brokers often have less choice of trading pairs and charge higher fees. In return, they offer an easy and user-friendly way to buy cryptocurrencies. This makes them especially popular with people who are buying crypto for the first time.
Step 4: Create a trading account
Creating a trading account with a crypto exchange or crypto broker is usually very similar and only takes a few minutes today.
Open an account
In order to create an account, the first step is to fill out the given form with your details: starting from your full name, email, and a set password. Make sure that you choose a strong password with appropriate characters.
You’ll need to confirm your email address to continue.
Confirm identity
After you have confirmed your email, the KYC process starts. KYC stands for "Know Your Customer" and refers to a process in which customers must confirm their identity before using a financial service.
KYC is a legal requirement for financial service providers to prevent fraud, money laundering and terrorist financing.
Purchasing cryptocurrencies usually requires confirmation of your full name, date of birth, address, and an official identification document.
Step 5: Deposit a currency
To buy cryptocurrencies, you will need either fiat money or another cryptocurrency. So, before you can start trading on an exchange, you need to deposit a currency into your trading account.
For depositing fiat such as Euros or Dollars, the Exchange will provide a bank account and payment instructions by which the deposit can be uniquely assigned to your trading account.
To deposit cryptocurrencies, you first need to generate an address for the corresponding wallet. Find out what this means, how it works, and what you should definitely pay attention to: Best Crypto Wallets
Some exchanges and brokers also offer buying cryptocurrencies via credit card, PayPal or other payment methods, which simplifies and speeds up the whole process.
Step 6: Place your order
An order determines how you buy or sell a cryptocurrency. Crypto exchanges offer different order types, here are the most important ones at a glance.
Market Order
This is an order to buy or sell a cryptocurrency at the current market price. A market order is executed immediately and is usually used to quickly enter or exit a position.
Limit Order
A Limit Order is an order to buy or sell a cryptocurrency at a specific price or better.
For example, if the current price of the cryptocurrency is €1,000, you could place a limit order for €800. The limit order will then be executed only when the price reaches or falls below the specified price.
So, a limit order is useful if you want to buy or sell at a lower price.
Stop Order
The Stop Order is an order to buy or sell a cryptocurrency at a specified price or lower.
For example, if the current price of the cryptocurrency is €1,000, one could place a stop order for €1,200. The stop order will then be executed only when the price reaches or exceeds the specified price.
So, a stop order is useful if you want to buy or sell at a higher price.
Other Order Types
There are some other order types, which we will not discuss in detail in the context of this beginner's guide. These include Stop Limit Order, Stop Loss Order, or the Trailing Stop / Trailing Limit Orders, all of which allow you to buy or sell cryptocurrencies if very specific conditions are met.
Step 7: Wait and see
When and if your order will be executed depends on several factors.
A market order will be executed immediately, as long as the cryptocurrency has enough liquidity. This means that there must be enough people who want to buy or sell this cryptocurrency.
A cryptocurrency like Bitcoin, which is traded several hundred thousand times a day, is very liquid. Market orders here are executed immediately and short-term price fluctuations are very manageable.
A lesser known or less popular altcoin with low liquidity might be traded only a few times a day. Here it may take some time for the market order to be executed and the price may have changed dramatically by then.
For the other Oder types, of course, the respective conditions have to be met first before the order is executed.
Step 8: Protect your cryptocurrency
Congratulations, you have now bought a cryptocurrency! Maybe for the first time, maybe for the hundredth time. In any case, you should now start thinking about how to keep your cryptocurrencies safe.
Due to the decentralized nature of cryptocurrencies, you are your own bank – meaning that you yourself are responsible for managing and protecting your crypto investments.
This is done through what is known as a crypto wallet. There are a few different types of wallets, with their own advantages and disadvantages. Choosing the right wallet for your purposes is a bit more extensive, which is why we've written a separate guide on it: Best Crypto Wallets in 2024.
Step 9: Withdraw cryptocurrencies
If you choose not to store your cryptocurrencies on the exchange, you'll need to withdraw them to a different wallet. All you need is the wallet address of the crypto wallet you want to withdraw your cryptocurrencies to.
To do this, search for the "Withdraw" or "Send" menu item on the exchange and confirm the new wallet address. Make sure that the wallet address is correct and that the wallet also supports the cryptocurrency – an incorrect or unsupported wallet address will result in the loss of your cryptocurrencies. Unlike bank transfers, crypto transactions cannot be reversed!
Step 10: Sell cryptocurrencies
Look to steps 5 through 7 to sell your cryptocurrencies.
The cryptocurrency must first be on an exchange.
Then choose the appropriate order type and the conditions under which you want to sell the cryptocurrency.
Then it's back to waiting.
Note that taxes may apply when selling or exchanging cryptocurrencies! You can learn more about this topic further down in this article or in our crypto tax guides.
Things to consider before buying cryptocurrencies
Even though buying cryptocurrencies is already very easy today, there are still some things to keep in mind.
Security
A financial system free of banks and other central institutions means that you are responsible for the security of your crypto investment yourself. This starts with choosing a trusted crypto exchange to buy cryptocurrencies from and choosing a good crypto wallet to store your coins.
Fees
There are fees associated with buying, selling, and sending cryptocurrencies. These fees are covered by you and go to the exchange and/or the validators of the blockchain network.
Market Volatility
The crypto world is known for its high market volatility, where the price of a cryptocurrency can fluctuate tremendously within days or even a few hours. Be aware that while the price can shoot up quickly at any time, it could fall just as quickly in the other direction.
Taxes
Trading cryptocurrencies is a taxable transaction in many countries. Although buying cryptocurrencies is usually tax-free, selling and possibly also exchanging cryptocurrencies is a tax-relevant transaction.
Currently, crypto exchanges do not deduct taxes for you. Accordingly, you have to declare your transactions yourself in the annual income tax return.
More detailed information and guidance on crypto taxes can be found in our crypto tax guides:
Scams & Losses
Scams, hacking and other illegal activities always lead to cryptocurrency losses. Especially those who buy cryptocurrencies for the first time need to familiarize themselves with a few basic safety precautions. For example, the crypto exchange should have 2-factor authentication and, in the best case, deposit protection. Additionally, cryptocurrencies should be stored in a wallet where you own the private keys yourself.
Alternative ways to invest in cryptocurrencies
There are several investment options to invest in crypto without buying the cryptocurrencies directly.
Crypto Trusts
A crypto trust is a type of investment vehicle that holds cryptocurrencies on behalf of investors. It works similarly to a traditional mutual fund, with a trustee holding and managing the assets.
Investors can purchase shares of the trust, which represent a portion of the assets held by the trust. Crypto trusts typically charge a management fee and can be traded on public exchanges.
Crypto Mutual Funds
A crypto mutual fund is a professionally managed fund that pools money from investors to invest in cryptocurrencies.
Mutual funds can invest in a variety of cryptocurrencies and other digital assets, using different investment strategies to generate returns. Crypto mutual funds often require minimum investment amounts in addition to management fees.
Crypto ETFs
A crypto ETF (exchange-traded fund) is a type of investment vehicle that tracks the price of one or more cryptocurrencies. Like traditional ETFs, crypto ETFs are traded on public exchanges and can be bought and sold like stocks.
They offer investors the opportunity to invest in a diversified portfolio of cryptocurrencies without having to own the underlying assets.
Crypto ETFs also charge a management fee and may have minimum investment requirements.
Blockchain companies
Many blockchain companies are publicly traded on exchanges, and investors can buy and sell shares of these companies just like any other stock.
Crypto portfolio tracker: keep an eye on your investment
It’s easy to lose track of your portfolio's performance if you buy different cryptocurrencies or manage cryptocurrencies in different wallets.
Track all your crypto assets on exchanges and wallets in one central location with our free crypto portfolio tracker.
It’s easy to integrate your wallets through crypto exchange APIs or using your public keys, so you can track all your transactions and price developments in real time.
See for yourself and get started for free now!
Bonus: Do I have to pay crypto taxes?
In many cases, the answer is yes!
Trading cryptocurrencies must be taxed in many countries. At the same time, the tax regulations for cryptocurrencies tend to differ extremely from country to country.
Since crypto exchanges do not deduct taxes for their customers, each person has to declare their profits, losses and income from cryptocurrencies in the annual tax return.
Our crypto tax calculator automatically analyzes your crypto transactions and provides you with legally compliant tax reports with pre-filled forms for your tax return.
Learn more about the Blockpit tax calculator for cryptocurrencies
You can also find more information on cryptocurrency taxation in our crypto tax guides: