News
3 safe ways to invest in cryptocurrencies
Bitcoin (CRYPTO:BTC) may be on the verge of becoming truly mainstream, but the cryptocurrency market continues to see no shortage of new scams. And it doesn’t matter how big or sophisticated an investor you may be. Even billionaires and longtime savvy investors can be fooled by cryptocurrency scammers.
The good news is that you can take several key steps to safeguard your cryptocurrency investments and avoid most crypto scams. Let’s take a closer look.
Use ETFs whenever possible
Arguably, the safest way to invest in cryptocurrencies is to only invest in exchange-traded funds (ETF) for specific cryptocurrencies. You can buy and trade these ETFs the same way you would a tech stock, so there’s no learning curve involved. There is no need to open new accounts. Plus, you can rest easy knowing that every ETF has a seal of approval the Securities and Exchange Commission (SEC). This helps explain why new Bitcoin spot ETFs have been so popular.
As new ETFs launch for other cryptocurrencies besides Bitcoin, you will be able to slowly diversify your cryptocurrency holdings. For example, the SEC recently approved new ETFs for Ethereum (CRYPTO: ETH), so they will be coming soon. And some have suggested it Solana (CRYPTO:SOL) could be the next cryptocurrency in line after Ethereum to get its own spot ETF.
Choose a reliable cryptocurrency trading platform
For many investors, however, an ETF-only strategy is likely too limiting. You will need to find a safe place to buy and sell your cryptocurrencies and cryptocurrency exchanges like Global Coinbase (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 has to run a squeaky clean ship and provide audited financial statements. Coinbase also offers best-in-class security to protect its cryptocurrency deposits, so you don’t have to worry about a cyber heist.
But Coinbase is hardly the only option when it comes to cryptocurrency trading platforms. There are literally dozens of possible options. The 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 other than Bitcoin).
It’s important to do your 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 customer funds for proprietary trading while at the same time lining up for celebrity endorsements.
The story continues
Establish clear investment rules
Finally, it is important to establish some initial rules about which cryptocurrencies you will invest in and which cryptocurrencies you will not invest in. No surprise here, but the cryptocurrencies that are most likely to be the target of 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 value of $1 billion. This would give you access to the top 100 cryptocurrencies ranked by market capitalization. But if you’re particularly risk-averse, you might consider increasing that figure to $5 billion, which will limit you to just the top 25 cryptocurrencies.
Perhaps the best advice here is to avoid any cryptocurrency that attracts get-rich-quick investors. Unfortunately, this means that meme coins should be off your investment radar. While popular meme coins may increase in value for a short 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 manipulations such as pump-and-dump schemes.
Be a more educated investor
Ultimately, the more educated you are about cryptocurrencies, the better off you will be when it comes to avoiding classic crypto scams. For example, if you plan to store crypto tokens in a blockchain wallet, you need to familiarize yourself with the basics of blockchain wallets. This way, you won’t be tricked into giving your crypto keys to an unscrupulous scammer who will use this information to raid your account.
Fortunately, cryptocurrencies are becoming more and more mainstream, and with each passing year, the cryptocurrency market is starting to look less and less like the Wild West. As the regulatory environment tightens and large Wall Street investors get involved in the cryptocurrency world, the risk of scams will likely decrease over time. But until that happens, it’s definitely worth taking the time to explore the safest ways to invest in cryptocurrencies right now.
Should You Invest $1,000 in Coinbase Global Right Now?
Before you buy shares in Coinbase Global, consider this:
The analyst team at Motley Fool Stock Advisor has just identified what they believe is the 10 best stocks for investors to buy now… and Coinbase Global was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia you created this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $671,728!*
Stock Advisor provides investors with an easy-to-follow model of success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks every month. The stock advisory service has more than quadrupled the return of the S&P 500 Index since 2002*.
*Equity advisor will return starting May 28, 2024
Domenico 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 Are Still a Threat: 3 Safe Ways to Invest in Cryptocurrencies was originally published by The Motley Fool