3 Safe Ways to Invest in Crypto

Bitcoin (CRYPTO: BTC) may be on the verge of becoming truly mainstream, but the crypto market continues to be plagued by new scams. And it doesn’t matter how great or how knowledgeable an investor you are. Even billionaires and long-time savvy investors can be fooled by crypto scammers.

The good news is that you can take a few basic steps to protect your crypto investments and stay away from most crypto scams. Let’s take a closer look.

Use ETFs whenever possible

Arguably, the safest way to invest in crypto is to invest only in exchange-traded funds (ETFs) for specific cryptocurrencies. You can buy and trade these ETFs in the same way as tech stocks, so there’s no learning curve involved. You don’t need to open a new account. You can also sleep well at night knowing that each ETF has the seal of approval from the Securities and Exchange Commission (SEC). This helps explain why the new spot Bitcoin ETFs are so popular.

As new ETFs become available for other cryptocurrencies beyond Bitcoin, you will be able to gradually diversify your crypto holdings. For example, the SEC recently approved new ETFs for Ethereum (CRYPTO: ETH), so those will be coming soon. Some have suggested that Solana (CRYPTO: SOL) could be the next cryptocurrency after Ethereum to get its own spot ETF.

Choose a reliable crypto trading platform

But for many investors, an ETF-only strategy is likely too limiting. You’ll need to find a safe place to buy and sell your crypto, and cryptocurrency exchanges like Coinbase Global (NASDAQ: COIN) are a popular choice.

Coinbase has some strong security measures since it is regulated by the SEC. For example, Coinbase will not list a crypto for trading unless it meets certain basic criteria. Because Coinbase is a public company, it needs to run a clean ship and provide audited financial statements. Coinbase also has best-in-class security protecting crypto vaults, so you don’t have to worry about cyber robbery.

But Coinbase isn’t the only option when it comes to crypto trading platforms. There are literally dozens of possible options. Motley Fool Ascent analyzed many of them and determined which ones are best for buying Bitcoin and which are best for buying altcoins (i.e. all cryptos other than Bitcoin).

It’s important to do your own due diligence here. Remember; Everyone thought FTX was a reliable cryptocurrency exchange until it crashed in November 2022. Looking back, we now know that former FTX CEO Sam Bankman-Fried was racking up celebrity endorsements while also using client funds for private trading operations. .

The story continues

Set clear investment rules

Finally, it is important to establish a few preliminary rules about which cryptos you will invest in and which cryptos you will not invest in. No surprises here, but the cryptocurrencies most likely to be targeted by a scammer are those with small market caps and limited trading liquidity.

Image source: Getty Images.

As a general rule, you should avoid cryptocurrencies that are not offered for trading on the top crypto exchanges. And you should avoid cryptos below a certain market cap threshold. A logical target right now would be $1 billion market cap. This will give you access to the top 100 cryptocurrencies ranked by market cap. But if you’re particularly risk-averse, you might consider increasing that figure to $5 billion, which would limit you to only the top 25 cryptocurrencies.

Perhaps the best advice here is to avoid cryptocurrencies that appeal to get-rich-quick investors. Unfortunately, this means meme coins should be off your investment radar. While popular meme coins may rise 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 caps, which are often subject to extreme market manipulations such as pump-and-dump schemes.

Become a better educated investor

At the end of the day, the better educated you are about crypto, the better off you will be at avoiding classic crypto scams. For example, if you plan to keep crypto tokens in a blockchain wallet, you should learn the basics of blockchain wallets. This way, you won’t be tricked into giving your cryptographic keys to an unscrupulous scammer who will use this information to raid your account.

Fortunately, crypto is increasingly becoming mainstream and the crypto market is starting to look less like the Wild West with each passing year. As the regulatory environment tightens and major Wall Street investors get involved in crypto, the risk of fraud will likely decrease over time. But until that happens, it’s definitely worth taking the time to explore the safest ways to invest in crypto right now.

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Dominic Basulto has positions in Bitcoin, Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum, and Solana. The Motley Fool has a disclosure policy.

Cryptocurrency Scams Still a Threat: 3 Safe Ways to Invest in Crypto appeared first by The Motley Fool