There are pitfalls that novice investors can fall into and lose money. In this beginners guide, we'll look at how to invest in cryptocurrency, how to choose a cryptocurrency to invest in, and how to avoid common pitfalls.

So, how do you invest in cryptocurrency?

Well, first of all, you'll need to get yourself some cryptocurrency. This can be done through a cryptocurrency exchange, or an over the counter (OTC) service. Buying cryptocurrency is a little different to buying stocks, in that the exchange will not hold onto your cryptocurrency for you. You'll need to create a digital wallet to hold your cryptocurrency. In this case, the wallet is very similar to a bank account or PayPal account.

That's the first step. Once you've got cryptocurrency, you can trade it, exchange it for other cryptocurrencies, or hold onto it until you decide to sell it. If you do decide to hold onto it, then you'll need to make sure that you're keeping your cryptocurrency safe.

So, let's take a look at how you can invest in cryptocurrency, and how to keep your investment safe.

How to Invest in Cryptocurrency

There are several different ways in which you can invest in cryptocurrency. One of the most common ways is through an exchange. These exchanges will allow you to buy and sell cryptocurrency for other cryptocurrencies or for fiat currencies such as USD or EUR.

An exchange will also allow you to trade cryptocurrency for other assets such as securities and futures.

Some exchanges are more popular than others. The most popular exchanges are based in the USA, Europe, Asia, and South America. While it is possible to trade cryptocurrency over the counter, you're best to stick to a regulated exchange. That way you'll be able to trade in a safe environment, and you won't be at risk of fraud.

How to Choose a Cryptocurrency to Invest In

There are more than 800 cryptocurrencies available to trade. Before you choose a cryptocurrency to invest in, you'll need to do some research. It's no good just picking a random cryptocurrency that you've heard of. You need to check that the cryptocurrency you're looking at is legitimate, and that there is a genuine reason for it to be in existence.

Check that the cryptocurrency has a real use case. You'll need to check that its technology is actually able to do what it claims it can do. Does the company behind the cryptocurrency have a good reputation? Are they well known in the cryptocurrency community? If the answer to these questions is no, then you might want to look at another cryptocurrency.

How to Avoid Common Cryptocurrency Potholes

There are a number of different cryptocurrency potholes that you should be aware of.

Scams

Because cryptocurrency is such a new and fast moving area, there are a lot of scams out there. Some of the most common crypto scams include:

• ICO Scams: An ICO is an initial coin offering. This is a way for companies to raise capital by selling off cryptocurrency. When you invest in an ICO, you're buying into the company's cryptocurrency. There have been a number of ICO scams, where companies have run off with investors' money.
• Pump and Dump Scams: Pump and dump scams involve a group of people who agree to pump up the price of a cryptocurrency, then selling off at a profit.
• Ponzi Schemes: A Ponzi scheme is a fraudulent investment operation where the operator generates profits by paying returns to its investors from new capital paid by new investors, rather than from profit earned by the individual or organization.

There is no guaranteed way to spot a scam. You should always do your research before you invest in a cryptocurrency. If you're investing in an ICO, then you should look at the white paper, the team behind the ICO, and the company's social media presence.

Fraud

There are also a lot of fraudulent cryptocurrency operations out there. Most of these are based on the same fraud that occurs in the stock market and in other areas of financial trading. Some of the common types of fraud include:

• Insider Trading: Insider trading can occur in the cryptocurrency world, just as it can in any other area of the financial market. This means that people who have insider knowledge about a cryptocurrency can trade on that knowledge, and make a profit before the information is released to the public.
• Pump and Dump Scams: As discussed above, this is where a group of people agree to pump up the price of a cryptocurrency, then selling off at a profit.
• Market Manipulation: This happens when a group of people manipulate the supply and demand of a cryptocurrency to increase the price.

There is no guaranteed way to avoid these potholes! You'll just have to be patient with yourself: do your research, get feedback from online communities and trusted sources, and most importantly—trust your gut. If something seems too good to be true, it probably is.