6 of the Most Common Questions People Have Before Buying Crypto

Crypto can be confusing — and there's no substitute for doing your homework.

"Before putting money in crypto, or any other investment, it pays to understand both the benefits and risks," says Joe Duarte, the author of "Cryptocurrency 101" who also writes at Smart Money Passport.

You can start by asking questions. Below, find six of the most common questions people have before buying crypto for the first time.

1. Is it too late to get into crypto?

The short answer is 'no,' says Dr. Sean Stein Smith, an associate professor at CUNY — Lehman College who serves on the Advisory Board of the Wall Street Blockchain Alliance. The question isn't really about timing. It's about purpose. Why do you want to get into crypto investing?

Are you investing because you believe in the long-term utility of digital assets as part of a diversified portfolio? Or are you chasing a price you saw on Twitter? "The former is a legitimate financial strategy," Smith says. "The latter is speculation."

"We're still in the relatively early innings of institutional adoption and regulatory clarity," Smith says. "That doesn't mean risk has disappeared, but it does mean there's still a meaningful runway ahead for informed, patient investors."

2. Where do I start?

You can begin by understanding how bitcoin and ethereum operate and trade, Smith says. These two are the most liquid and most institutionally supported assets in the space.

They're not without risk, but they have track records, infrastructure behind them, and they're the benchmark everything else gets measured against, he continues.

Once you understand how those work, including the underlying technology, the market dynamics, and the tax treatment, then you can start evaluating other assets with an informed eye. "Don't let FOMO push you into a token you don't understand, just because someone online said it's the next big thing," he says.

3. How much should I invest in crypto?

Before you get started on your crypto-buying journey, the financial basics matter, says Christina Lynn, a CFP® and director and wealth strategist at Mariner Wealth Advisors. First, having a fully funded emergency fund and paying off high-interest debt should take priority over crypto investing.

Once those boxes are checked, then it's time to talk about allocation, Lynn continues. For many, that means investing only what you can afford to leave untouched for three to five years, given the volatility.

"If you're reallocating from an existing portfolio, many established voices in finance tend to land in the 1%-5% range as a reasonable starting point," Lynn says.

Only what you can afford to lose, adds Smith. "Crypto should be one allocation within a broader, diversified portfolio, not your entire financial strategy."

4. Which coins should I buy?

Lynn recommends starting with the top cryptocurrencies by market cap, such as bitcoin or Ethereum.

You'll want to skip memecoins such as Dogecoin, Pudgy Penguins, and Goatseus Maximus for now, as those are highly speculative and, aside from being traded, they don't have a clearly defined use.

If you're wondering about investing in stablecoins, they can also have a role in your investing goals. But typically, explains Lynn, they aren't used for growth. Instead, investors use them for transactions or for specific strategies like capital preservation and staking.

"Alternatively, you could take a more structured approach—there are firms that offer crypto index funds, which provide exposure to a weighted basket of the largest cryptocurrencies, where the vetting and rebalancing are done for you," she says.

5. Do I need to set up an account through a crypto exchange?

You can open an account to trade crypto directly at some brokerages, but typically investors will open an account at a crypto exchange or platform. Crypto exchanges offer you the ability to make a wide variety of cryptocurrency transactions, while platforms such as SoFi Crypto usually have an easy-to-use interface, educational resources, low fees, and a small minimum investment.

Since some crypto platforms aren't registered with the SEC, it's not quite that simple to check out the ones you want to use. In the US, start by making sure the platform is registered with the Financial Crimes Enforcement Network (FinCEN), Duarte says.

Beyond that, look for platforms that carry clear insurance policies on digital assets, feature security measures like two-factor authentication, and use cold storage for the majority of their holdings. You'll want to trade on a crypto exchange or platform that's invested heavily in compliance and security infrastructure.

"If a platform is promising unusually high returns or is difficult to find regulatory information on, treat that as a serious red flag," Smith says. "If something sounds too good to be true, it almost always is."

6. Do I really have to report crypto on my taxes?

Yes, you'll need to report your investing activity with crypto. The IRS classifies cryptocurrency as property. This means that buying cryptocurrency, selling it for cash, exchanging crypto, or spending it on goods and services count as taxable events.

A lot of new investors find this out the hard way after their first big year in the market, Smith says. The good news is that there are now solid tools out there to help you stay organized.

"The most important thing is to start tracking from day one," Smith says. "Don't wait until tax season to try to reconstruct a year's worth of transactions. That's a painful exercise that's entirely avoidable."