13 Tips for Investing in Crypto Before the Year Ends

Cryptocurrency has become an increasingly popular investment, and many Americans have put their money into buying virtual coins for the first time this year.

If you're hoping to jump on the bandwagon and get some crypto exposure of your own before the new year rolls around, make sure you keep these 13 tips in mind.

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Cryptocurrencies have the potential to provide generous returns, but they are also a newer asset class with a less developed track record than most others. And they are subject to fewer regulations than stocks and bonds.

Because these assets are volatile, untested, and largely unregulated -- and the price of some coins becomes divorced from their underlying value due to media hype -- it's important to realize they are a high-risk investment.

As a result, you shouldn't invest any money in them that you cannot afford to lose.

Before investing in cryptocurrencies in 2021, make sure you've taken advantage of your best chance to earn a generous return first. Specifically, you'll want to confirm you've contributed enough to your 401(k) to earn your full employer match for the year before putting any money into virtual coins.

Most 401(k) accounts don't allow you to buy virtual currencies. But, if your employer matches your contributions, that's free money that could provide a 50% or 100% return on investment (depending on matching rules).

You should prioritize claiming that cash -- even if you have to put off your crypto purchase until 2022 to do it.

When deciding how to invest in cryptocurrencies, don't assume you must buy coins directly.

You can gain exposure to cryptocurrencies by investing in companies that benefit from the blockchain technology that powers the crypto market. Or you can invest in exchange-traded funds that hold cryptocurrency futures or you can buy stock in companies that have a lot of crypto on their balance sheets.

Think about the risk level, and the knowledge required, for each of these different options before you decide what type of crypto investment to make.

ALSO READ: Missed Out on Bitcoin? My Best Cryptocurrency to Buy Now and Hold

Not all brokerage firms allow you to buy coins directly, if that's the decision you've made for how to make your crypto investments. Some also offer only limited access to the most well-known cryptocurrencies but not to altcoins.

If you already have a brokerage firm, check with them first to see if you can make a crypto investment with the company you have an existing relationship with.

If you can't, you'll need to look elsewhere. Be sure to pay attention to any minimum balance requirements or account fees as you explore your options.

If you want the broadest range of cryptocurrency options, you may need to use a specialized crypto trading platform.

There are plenty out there, but some have more complex rules for how you'll hold your crypto or what you need to do to make deposits.

It's worth reading reviews and testing out the features of each one before you jump into buying investments using a specific platform.

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After you've decided where to buy your crypto, you'll also have to decide which specific virtual currencies to buy. To do that, you need to know what differentiates one coin from another.

There are a number of different questions to ask when looking into different coins, including:

• What is the technology behind the coin?
• How is the coin mined or distributed?
• What is the current circulation?
• What is the maximum amount of currency that will be created?
• Do any merchants accept the coins in real-world settings?

Make sure you're informed enough to know how to pick which coins to invest in.

Before investing in anything, it's best to have a strategy.

Make sure you know what criteria you're using to evaluate cryptocurrency investments, how much money you'll invest in each coin, how often you'll invest in different coins, what risk level each presents, and what your goals are for your investment.

ALSO READ: Is Cryptocurrency a Good Investment?

Diversification can reduce your risk, especially when making volatile investments.

Be sure you have a good mix of noncrypto assets, too -- and consider spreading your money around several different coins rather than putting all your eggs in one basket.

You'll need to deposit money with your chosen brokerage firm or cryptocurrency trading platform once you're ready to invest. In some cases, this is as easy as linking your bank account. But, in others, you may need to jump through more hoops to prove your identity and move money over.

It can also take time for your deposit to clear so you can invest it. So, if you're hoping to buy some crypto before 2021 is over, you may not want to wait to start this process.

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Cryptocurrencies aren't as well regulated as many other types of assets, and there have been cases where people lost a lot of money because of pump-and-dump schemes, hackers, or other related issues.

Be sure you've done sufficient research into both the trading platform you're using and the coins you're buying so you're confident you aren't falling victim to dishonest actors.

ALSO READ: How to Spot a Pump-and-Dump Cryptocurrency Scam

If you plan to invest regularly in cryptocurrencies, consider setting up automated, scheduled investments. This will allow you to take advantage of dollar-cost averaging, or buying a set amount of crypto at periodic intervals so you're likely to sometimes buy low and other times buy high.

Because cryptocurrency prices can swing rapidly and sometimes without warning, investing on a routine schedule can maximize the chances you'll get at least some of your coins at very low prices.

If you're hoping to make a quick profit by buying cryptocurrency before the end of 2021, you should think twice.

Investing in hopes of short-term gains significantly increases your risk since it can be difficult to predict how prices will change.

Buying a cryptocurrency you believe is likely to grow in value over the long term, and committing to keeping your money invested in it over time, will reduce the chances that you end up losing most or all of your money.

While you may be eager to get a crypto investment into your portfolio before the end of the year, you need to make sure you take your time.

It's worth putting in the effort to research any investment you're considering, but that's especially true with a more volatile asset such as cryptocurrency. So, don't feel rushed by an artificial deadline.

If it will take you into the beginning of 2022 to find the right way to invest in crypto, you're better off taking your time to do it right rather than scrambling to make your investment by Dec. 31.

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If you do your research into different methods of investing in crypto, make sure you avoid scams, and only put money at risk that you can afford to lose, you should hopefully be able to make a crypto investment in 2021 that pays off for you in the long run.

Just remember: This investment is a riskier one, so it's worth putting in the time to make sure you're making the right choices before you put your money on the line.

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