You may have heard of Ethereum because of the role it plays in the creation of NFTs (non-fungible tokens). Or perhaps you’ve noticed it’s the second-most popular cryptocurrency, and want to get in on the action.
Either way, Ethereum is one of two cryptocurrencies that investing experts recommend beginners stick to (the other being Bitcoin), because it’s more-established than other lesser-known cryptos. So if you’ve decided that cryptocurrency has a place in your portfolio, are OK with the risks, and are ready to buy some, here’s where to start.
Before you start buying coins, it’s important to understand exactly what you’re investing in. Ethereum has price history to support its potential as a store of value, but there’s also interesting innovation happening with Ethereum that highlights the coin’s utility.
The Ethereum blockchain can be used by developers to create applications, known as decentralized applications (aka DApps). In order to access that network, developers need to buy Ethereum’s associated token, ether (ETH). Similarly, if users wish to interact with a decentralized application, they must pay in ether.
Like Bitcoin, investors can buy and hold ether as a long-term investment, with the hope that its value will continue to increase over the long-term. But as with any cryptocurrency investment, the price of ether is likely to see plenty of ups and downs, especially in the short-term. This volatility is why investing experts recommend keeping any cryptocurrency investments to less than 5% of your total portfolio and to only invest what you’re OK with losing.
Ethereum launched in 2018, and its all-time high is over $4,000 in May of this year. In the past year its price has fluctuated between around $300 and $4,000 per coin.
Like most cryptocurrencies, Ethereum’s price fluctuates a lot. Price fluctuation should be anticipated with any crypto investment. If near-term price fluctuations bother you, you might be better off reconsidering investing in cryptocurrency at all.
It’s also important to remember that Ethereum — like any cryptocurrency — only has value because people think it does. Its price is not tied to any commodity or currency, so it’s prone to intense swings based on external factors like media attention or proposed crypto regulation.
You can’t purchase cryptocurrency through a bank or an online brokerage like Fidelity or Vanguard, so you’ll have to use a cryptocurrency trading platform. There are a ton of cryptocurrency exchanges out there, ranging from easy-to-use systems to complex dashboards for advanced traders.
Since Ethereum is so popular, most cryptocurrency exchanges will let you buy ether, but we recommend sticking to a few of the more-popular exchanges like Coinbase, Gemini, or eToro. Ethereum is also one of the few types of crypto you can buy on platforms like Venmo or PayPal. Different platforms come with different fees, security measures, and may include other features, so it’s a good idea to do some research before you sign up.
You’ll likely need to provide some personal information and verify your identity to sign up for an account with a crypto exchange. Then you’ll be able to connect your bank account or debit card to fund your account. There will likely be fee differences based on the method you choose.
Funding your account doesn’t mean you’ve actually purchased Ethereum yet, and like with any investment account you don’t want to leave your uninvested money sitting in your account. To actually invest, you’ll need to purchase Ethereum at this point.
After your account is funded, you’ll be able to trade your U.S. dollars for Ethereum. Simply put in the amount of USD you’d like to trade for Ethereum. You will likely be buying shares of a single Ethereum coin, depending on Ethereum’s price and how much you want to purchase. Whatever amount you purchase will be shown as a percentage of a total ether coin.
If you only have a small amount of crypto, it’s easiest to leave your investment in your exchange account. But a digital wallet can offer more security if you want to move your holding to more secure storage. There are many different types of digital wallets, and they offer different levels of security.
Cryptocurrency is a highly volatile, speculative investment. It’s not for everyone, and you should make sure you have enough risk tolerance before you invest. If you decide cryptocurrency is right for you, then experts recommend sticking with two most well-known cryptos, which are Bitcoin and Ethereum.
Make sure you keep any investment to less than 5% of your total portfolio, only invest what you would ultimately be OK with losing, and never at the expense of any other financial goals like paying off debt or saving for retirement.
Even though experts recommend sticking with well-known coins like Ethereum, that doesn’t negate the risk associated with the investment. Cryptocurrency is a new asset class, and there’s no long-term data available to prove how it performs in the long-run. If this risk is too much for you, stick with a safer, long-term investment like a classic index fund through a conventional retirement account like an IRA or 401(k).