Thinking About Buying Crypto? What First-Time Investors Should Know Before Getting Started

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Thinking About Buying Crypto? What First-Time Investors Should Know Before Getting Started By: Gabriel O.

Rodriguez Cruz Gabriel O.

Rodriguez Cruz Associate Editor | Joined February 2018 Gabriel Rodríguez is an editor at Money who has been writing and editing crypto content for over three years. His goal is to make crypto less cryptic, helping newcomers avoid common pitfalls and scams present in the industry. Has also written: A Simple Guide to Buying and Holding Crypto The Most Common Questions People Ask Before Buying Crypto 6 Best Crypto Exchanges of April 2026 How to Start Owning Crypto With a Long-Term Mindset Bitcoin, Ethereum or Solana?

How Beginners Decide See full bio Editor: Mallika Mitra Mallika Mitra Contributor | Joined May 2020 Mallika Mitra is a contributor to Money, where she covers investing, crypto, debt and many other personal finance beats. Her byline has appeared in the Wall Street Journal, Barrons, and USA Today. Has also written: 3 Smart Moves for Investors After the Fed's Interest Rate Cut How to Buy Stocks Nasdaq Is Reducing the Influence of Giant Tech Firms in a Popular Stock Market Index Good News for Investors: Bull Markets Usually Last Way Longer Than Bears Forget FAANG, Meet the 'Magnificent Seven' Stocks Surging in 2023 See full bio Published: Apr 15, 2026 7 min read Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.

Getty Images Ads by Money. We may be compensated if you click this ad.AdBuy, sell, and hold cryptocurrencies like Bitcoin, Ethereum, and Solana on SoFi®’s easy-to-use platform. CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. Cryptocurrency can be an enticing asset for investors looking to diversify beyond traditional stocks and bonds thanks to its potential for long-term growth and use as a hedge against inflation. But while bitcoin, ether and other coins are now often talked about in the same breath as assets like exchange-traded funds (ETFs), it's important to understand what sets them apart. Crypto comes with a unique set of challenges, including volatility, a lack of regulation and a complex taxation system. There are no earnings reports for investors to assess and no central authority backing these digital assets. Prices are driven largely by supply, demand and market sentiment. The world of crypto is also rife with scams — billions of dollars are lost annually to fraudulent crypto schemes. For first-time buyers, it’s important to understand how crypto behaves, how digital assets are held and why the usual rules of investing don’t always apply to this type of asset. Ads by Money. We may be compensated if you click this ad.AdSponsored by: Crypto trading made simpleSoFi® lets you buy, sell, and hold crypto on a platform backed by the safeguards of a national bank. Start exploring Bitcoin, Ethereum, and more today. LEARN MORE CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. HawaiiAlaskaFloridaSouth CarolinaGeorgiaAlabamaNorth CarolinaTennesseeRIRhode IslandCTConnecticutMAMassachusettsMaineNHNew HampshireVTVermontNew YorkNJNew JerseyDEDelawareMDMarylandWest VirginiaOhioMichiganArizonaNevadaUtahColoradoNew MexicoSouth DakotaIowaIndianaIllinoisMinnesotaWisconsinMissouriLouisianaVirginiaDCWashington DCIdahoCaliforniaNorth DakotaWashingtonOregonMontanaWyomingNebraskaKansasOklahomaPennsylvaniaKentuckyMississippiArkansasTexas Understanding the basics of crypto Cryptocurrency is a digital asset that runs on blockchain technology — a decentralized ledger that records transactions across a network of computers. Bitcoin and ether are the most well-known, but thousands of other cryptocurrencies exist, ranging from stablecoins pegged to the U.S. dollar to highly volatile memecoins like dogecoin. Unlike stocks, crypto doesn’t represent ownership in a company. And unlike the U.S. dollar, it isn’t backed by a government. Its value is largely driven by how much investors are willing to buy it for, which can swing based on headlines, changes in regulation and macroeconomic factors, like sanctions and military conflicts. That distinction matters because, while some investors view crypto as a long-term bet on a new and innovative financial system, others see it as simply a speculative asset. To avoid panic selling or buying because of the fear of missing out (FOMO), it's especially important for beginners to understand that price swings can be driven as much by hype as by a crypto’s underlying technology. How buying and storing crypto works First-time buyers typically purchase crypto through online exchanges like Coinbase or Kraken, or through traditional brokerages, which are starting to offer a broader selection of crypto. The process is similar to opening a brokerage account: You verify your identity, link a bank account and place an order. Where crypto differs is in what happens next. Instead of being held in a traditional account, crypto is stored in a digital wallet tied to a pair of keys. Those keys include a public address that is used to receive funds, and a private key, which is used to access them. Whoever controls a wallet’s private key controls its assets. When you buy crypto on an exchange or brokerage, it goes into a custodial wallet that is managed by the platform. That might be the simplest way to store your crypto, but it means you’re trusting a third party with its custody. If something were to happen to this platform — say, bankruptcy or a major data breach — access to your funds could be temporarily restricted or lost entirely. Moving assets to a personal crypto wallet offers more control over your assets, but also requires the investors to take on more responsibility for securing the funds. With a non-custodial wallet, you’ll be able to trade and move your crypto around freely if you connect the wallet to an exchange. The downside is that, if you lose your private key, there’s usually no way to recover your assets. The risks for first-time crypto buyers Cryptocurrency’s biggest draw is its potential for high returns. But that’s also one of its biggest risks. Crypto prices are notoriously volatile. Double-digit swings in a single day aren’t unusual and major downturns, like when bitcoin fell more than 50% shortly after reaching an all-time high in October 2025, have wiped out significant portions of the market. For new investors, that volatility can lead to emotionally-driven decisions, like buying when prices are soaring or selling during downturns. Then there are structural risks to consider. Crypto holdings aren’t insured by the Federal Deposit Insurance Corporation like cash in your bank accounts is. That means if an exchange fails or is hacked, recovering funds can be difficult or impossible. Scams and phishing attacks are also common in the crypto sphere. Simple mistakes like sending funds to the wrong wallet address are often irreversible. Regulation is another source of concern, with governments around the world still shaping how crypto is treated. New rules like those in the CLARITY Act of 2025, which aims to create a federal regulatory framework for digital assets, can affect everything from trading platforms to the value of specific assets. These risks make it so crypto is generally considered a speculative investment. And it’s why financial advisors suggest limiting your exposure to no more than 5% of your overall investment portfolio. What the IRS expects when it comes to taxes The IRS treats digital assets as property, and several types of transactions trigger taxable events. Selling crypto for cash, trading one coin for another or even using crypto to pay for goods can result in a capital gain or loss. How much you owe depends on how long you’ve held the asset. Gains on assets held for more than a year are typically taxed at lower long-term capital gains rates, while shorter holdings are taxed as ordinary income. Each trade requires calculating the cost basis and reporting gains or losses, which can become complicated quickly for active traders and is why many exchanges provide tax forms. But those exchanges may not capture activity across multiple platforms or wallets. Some investors turn to crypto tax software to help consolidate records and generate reports. Ads by Money. We may be compensated if you click this ad.AdExplore crypto with SoFi®Get access to more than 30 cryptocurrencies! Build your portfolio with the convenience of one powerful app. LEARN MORE CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. Sponsored by: More from Money Best Crypto Wallets Best Crypto Exchanges The Basics of Owning Crypto: What First-Time Buyers Need to Know