While Bitcoin is the leading cryptocurrency based on the value of its coins in circulation, Ethereum is also popular among crypto investors. It is the second form of cryptocurrency and enjoys the support of business leaders such as Mark Cuban, the American billionaire entrepreneur and television personality.
If you invested US$1,000 in Ethereum in August 2015, your investment would grow to $2.23 million almost six years later.
Nonetheless, it has fallen significantly in 2022 alongside other cryptocurrencies, and is down more than 70% from its all-time high of last year. In June alone, Ether fell 45%.
If you decide to buy Ethereum, proceed with a lot of caution: as the federal government’s Moneysmart website makes clear, crypto is a volatile asset and is not regulated by the Australian Securities and Investments Commission (ASIC) .
If you still want to buy, here’s how to get started buying Ether, the official name of the token more commonly known as Ethereum because of its association with the Ethereum platform it powers.
Investing in Ethereum may be easier than you think. Here’s how to get started in five steps:
1. Determine your level of risk
There is no getting around the problem – buying Ethereum is a gamble. Although all investments carry some risk, cryptocurrencies are particularly vulnerable to price fluctuations. Just think of the impact a few hundred characters can have on crypto prices: when Tesla boss Elon Musk tweeted last year that his company would no longer accept Bitcoin as payment, for example, the value of the coin has dropped by 15%.
Although Ether has had impressive returns in the past, it has also experienced significant crashes, sometimes in surprisingly short timeframes. Notably, it fell from a high of over $5,000 per coin in May 2021 to under $2,500 a month later, a drop of more than 50%. That’s pretty extreme volatility.
This is why it is important to consider your risk tolerance as well as the diversity and stability of the rest of your investment portfolio before buying Ether. Experts recommend never investing more in crypto than you can afford to lose.
2. Choose a crypto exchange
Buying Ether is more complicated than simply buying stocks or mutual funds through your brokerage account. Cryptocurrencies are not traded on major exchanges like London or New York, and many brokerages do not offer crypto investing.
To buy crypto, you must first create an account on a crypto exchange. In practical terms, it’s like the brokerage platforms you may be more familiar with: crypto exchanges allow buyers and sellers to exchange fiat currencies – such as pounds and dollars, for example – for crypto- currencies such as Ethereum, Bitcoin or Dogecoin.
If you don’t have a crypto exchange in mind yet, check out our list of the best cryptocurrency exchanges to find the right one for you. Although some trading platforms can be complex, most offer a simple buying interface for beginners, although it may charge higher fees than the main trading platform.
A few key points: When choosing an exchange, make sure they offer a crypto wallet to store your investments. The vast majority do, but if yours doesn’t, you’ll have to buy one yourself.
You can also choose to buy your crypto from a platform, such as Paypal, although using one of these simplified platforms means that your crypto can only be exchanged on the platform on which you buy it. You will therefore have to withdraw money from this platform and then redeem it on a crypto exchange to keep it in a separate wallet.
3. Fund your account
Before you can buy Ethereum through a crypto exchange, you need to fund your account. In most cases, you will deposit money from a bank account, such as your checking account. You can also usually use a debit card or deposit money with a payment provider.
Some providers may allow you to use your card to purchase crypto, but beware of fees they may add to the cost of the transaction.
4. Buy Ethereum
Investors buying stocks, mutual/mutual funds or exchange-traded funds are restricted by market hours. The Australian Securities Exchange (ASX), for example, opens standard trading hours from 10 a.m. to 4 p.m. on weekdays. Cryptocurrencies such as Ethereum work very differently: as they are decentralized currencies, you can buy and sell them around the clock.
To buy Ethereum, enter its ticker symbol – ETH – in the “buy” field of your exchange and enter the amount you want to buy. If you don’t want to buy a whole Ethereum token or you don’t have enough money in your account for a full coin, you can buy a fraction of it. For example, if the price of Ethereum is $2,000 and you invest $100, you will buy 5% of an Ether coin.
5. Store your Ethereum
Once your Ethereum purchase has been processed, you need to store your cryptocurrency. While some platforms will store it for you, some people choose to store their investments themselves to reduce the likelihood of losing their crypto to a hack.
This is understandable, but it’s also important to note that most major exchanges insure their clients’ holdings and often store the majority of their assets offline to prevent mass thefts. Additionally, historically, exchanges that have been hacked have reimbursed losses.
But if you want peace of mind around your crypto, you can choose to move it to one of two types of third-party wallets:
- Hot Wallet: A hot wallet is connected to the Internet and accessible from a computer or smartphone. They are convenient and are usually provided by cryptocurrency exchanges at no additional cost, although you can also use your own if you prefer not to have your crypto on exchange. However, since they are always connected to the Internet, they are at a higher risk of security breaches.
- Cold Wallet: Cold wallets, on the other hand, are external devices completely disconnected from the internet. Depending on the type you choose, they usually cost between US$50 and US$150, although there are even more expensive versions available. Although cold wallets are less convenient than hot wallets – you have to manually connect them to the internet each time you want to access your crypto – they are more secure and may make sense if you have a significant amount of Ethereum or Bitcoin. other cryptocurrencies.
To sell your Ethereum, simply return to your crypto exchange and enter the amount you wish to sell.
If you are selling a significant amount of crypto, you may want to consult a tax professional. Despite its decentralized nature, profits from a sale of crypto are subject to capital gains tax under Australian law.
Should I buy Ethereum?
Ethereum is hugely popular, with over 116 billion coins currently in the hands of investors. But just because it’s one of the best-known cryptocurrencies doesn’t mean it’s right for you. Only you (in consultation with your financial adviser) can decide this.
Either way, before buying a volatile investment like Ether, you’ll want to make sure you’ve done your research and that your finances are in good shape. Ideally, you should have a large rainy day fund, be exposed to minimal debt and have your retirement arrangements in good shape. Even though you can tick all of these boxes, it is important to diversify your portfolio, so only a small portion of your investments should be in Ethereum or other cryptocurrencies.
Also be aware of bad actors in the crypto space. As the federal government’s Australian Competition and Consumer Commission (ACCC) points out, Australians lost over $205 million to scams between January 1 and May 1, 2022, including $113 million related to cryptography. Cryptocurrency is also the most common payment method for investment scams, warns the ACCC.
This article is not an endorsement of any particular cryptocurrency, broker, or exchange, nor does it constitute a recommendation of cryptocurrency as an investment class.