What should a beginner know before investing in crypto?

A beginner should know three things first: crypto prices swing widely, losses can be total, and the safety nets of banking and stock investing mostly do not apply. This is general information, not a recommendation, and it cannot take account of anyone's personal finances. What follows are the questions regulators raise most often.

How risky is crypto?

Very, by the standards of mainstream investments. Bitcoin lost more than three quarters of its value from peak to trough in the downturns that bottomed out in 2018 and 2022. Smaller coins have fallen further, and some have gone to zero. The guide to why crypto is so volatile explains the causes.

The Securities and Exchange Commission's investor education office said in a March 2023 bulletin that these investments can be exceptionally risky and are often volatile. Regulators' standing caution about speculative assets is to risk only money a person could afford to lose in full.

What questions come up first?

• What is it? Thousands of coins exist. Some have working networks behind them and some have nothing. The guide to researching a crypto project sets out what can be checked.
• Who holds it? Coins can sit with an exchange or in a wallet the owner controls. Each has risks: a company can fail, and a lost password to a private wallet cannot be reset. See custodial vs non-custodial wallets.
• What does it cost? Fees are charged on buying, selling and moving coins, and they are not always shown in one place.
• What protection exists? The Federal Deposit Insurance Corporation has said US deposit insurance does not cover crypto assets or the failure of a crypto company.
• How is it taxed? In the United States, the Internal Revenue Service treats crypto as property, so sales and swaps have to be reported. Tax rules differ by country and state and change, and the official tax authority or a qualified professional is the place to check.
• Is it a scam? Promised returns, pressure to act quickly and strangers offering trading tips are standard features of crypto scams.

What catches beginners out?

One is buying because a price has already risen sharply, often on the strength of social media posts. Another is mistaking a low price per coin for a bargain, when what matters is the market cap, the value of all the coins together. A third is borrowing to trade, known as leverage, which can wipe out an account on an ordinary day's price move. Transfers are also final, so coins sent to the wrong address are generally lost.

What do the critics say?

Skeptics point out that most cryptocurrencies produce no earnings, rent or interest, so their price depends on what the next buyer will pay. Supporters answer that scarcity and a working network give some coins lasting worth. Neither side can reliably predict where prices go next.