How to Invest in Blockchain

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on September 07, 2023

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What Are Blockchain Investments?

Blockchain investments refer to the act of allocating capital into projects, ventures, or assets that are built on or related to blockchain technology.

Blockchain, initially introduced as the underlying technology for cryptocurrencies like Bitcoin, has evolved into a versatile and transformative technology with applications beyond digital currencies.

As a decentralized and transparent ledger system, blockchain provides enhanced security, immutability, and efficiency in various industries.

In the context of investments, blockchain offers unique opportunities for individuals, institutions, and businesses to participate in the growth and development of this innovative technology.

Types of Blockchain Investments

Cryptocurrencies

The most direct way to invest in blockchain is through cryptocurrencies. Cryptocurrencies like Bitcoin and Ethereum are digital assets that utilize blockchain technology for decentralized control, as opposed to centralized banking systems.

They present an opportunity for high returns due to their volatile nature but also come with a fair amount of risk.

Blockchain Companies

Investors can also invest in companies that are pioneering the development and use of blockchain technology.

These can range from established tech companies like IBM, which has a division dedicated to blockchain technologies, to startups developing new blockchain-based solutions.

Blockchain Funds and ETFs

A less direct but more diversified option is investing in blockchain exchange-traded funds (ETFs) or blockchain funds.

These financial products pool together different blockchain-related assets, including both cryptocurrencies and stocks of blockchain companies.

They offer investors exposure to the blockchain sector without requiring them to manage individual assets.

Types of Blockchain Investments

Steps to Investing in Blockchain

Do Your Research

It's vital to research and understand the basics of blockchain and the specific assets or companies you plan to invest in. Understanding the fundamentals will give you a better grasp of the market dynamics and potential risks and rewards.

Decide on Your Investment Approach

Decide whether you are going to be a long-term investor or a short-term trader. Long-term investors, often referred to as "HODLers" in the crypto world, tend to buy and hold assets, while short-term traders attempt to profit from price fluctuations.

Choose a Platform to Invest

You'll need to choose a platform or exchange to facilitate your investments. Factors to consider include security, fees, available assets or stocks, user experience, and customer support.

Make the Investment

Once you've decided on your investment, you can proceed to purchase. For crypto, this usually involves buying and transferring the assets to a secure digital wallet. For stocks or ETFs, the assets will be held in a brokerage account.

Monitor and Manage Your Investments

Blockchain investments can be highly volatile. Regular monitoring allows you to react to market changes and manage your portfolio accordingly.

Steps to Investing in Blockchain

Benefits of Investing in Blockchain

Potential for High Returns

Blockchain investing has the potential for high returns, particularly in the crypto market where price swings can be significant.

It allows for diversification of your investment portfolio as blockchain assets and stocks often have different risk and return profiles from traditional assets.

Transformative Technology

Blockchain is anticipated to disrupt various sectors, much like how the internet did. By investing now, you're positioning yourself to profit from this disruption.

Decentralization and Transparency

This is a unique feature that differentiates them from traditional investments and adds another dimension of value for some investors.

Challenges of Investing in Blockchain

Significant Losses

Regulatory and legal risks are also present as blockchain technology and cryptocurrencies are still relatively new, and regulatory frameworks around the world are evolving.

Lack of Investor Protection in the Crypto Market

There is a significant lack of investor protection in the crypto market compared to traditional markets, making it a riskier investment. Additionally, the technical complexity of blockchain and cryptocurrencies may pose a challenge for those without a technical background.

Benefits of Investing in Blockchain

Key Considerations Before Investing in Blockchain

Before investing, it's essential to consider your risk tolerance and investment goals. Blockchain investments can be risky and should align with your overall investment strategy.

Understanding the Market Dynamics

Including factors that drive price movements is also key. Keep in mind that the crypto market operates 24/7, unlike traditional stock markets, leading to around-the-clock price changes.

Staying Informed About the Evolving Regulatory Environment

The legal and regulatory stance on blockchain and cryptocurrencies varies across countries and can significantly impact your investments.

Prioritizing Security

This means securing your digital wallets for cryptocurrencies and ensuring you're using secure and reputable platforms or exchanges for your investments.

Key Considerations Before Investing in Blockchain

Strategies for Successful Blockchain Investing

Long-Term Holding

Often known as "HODLing" (Hold On for Dear Life) in the crypto world, this involves buying and holding your investments, regardless of market volatility, with the expectation that the value will increase in the long term.

Day Trading

This strategy, albeit a more hands-on and risky one, involves buying and selling assets within the same day to profit from price fluctuations.

Diversification

Diversifying within your blockchain investments can also help manage risk. This could involve investing in a mix of cryptocurrencies, blockchain stocks, and blockchain funds or ETFs.

Strategies for Successful Blockchain Investing

Evaluating Blockchain Investment Platforms

When choosing a platform for your investments, you should compare fees and commissions, which can eat into your returns if they're too high. The security of the platform is paramount, given the risk of hacks in the digital space.

The accessibility and user experience of the platform is also important, especially if you're new to blockchain investments.

Customer support and educational resources can also make a significant difference in your investing journey.

Good customer service can provide peace of mind, while educational resources can help you understand the market and make informed investment decisions.

Conclusion

Investing in blockchain is a strategic process that requires careful consideration. Comprehending the technology and the different investment forms it offers – from cryptocurrencies to blockchain stocks and ETFs – forms the foundational step.

Determining an investment strategy that suits your financial goals and risk appetite is essential, followed by the selection of a trustworthy platform for your investments. Once your investment is made, it is crucial to stay vigilant by continuously monitoring market movements.

Given the high volatility and inherent risks of blockchain investments, informed decision-making and alignment with your broader financial objectives become all the more significant.

The road to blockchain investment may seem complex, but with thorough research and understanding, it could lead to substantial potential gains.

How to Invest in Blockchain FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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