While Bitcoin is the top cryptocurrency based on the value of its coins in circulation, Ethereum is also popular with crypto investors. It is the second leading form of cryptocurrency and is supported by business leaders like Mark Cuban, the American billionaire businessman and TV personality.
If you invested $1,000 in Ethereum in August 2015, your investment would be worth $2.23 million almost six years later.
However, it has plummeted considerably in 2022 along with other cryptocurrencies, down more than 70% from its all-time high last year. Only in June the ether fell 45 percent
If you decide to buy Ethereum, proceed very carefully: as the federal government’s Moneysmart website makes clear, crypto is a volatile active 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 most commonly called Ethereum due to 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 way around it: buying Ethereum is a gamble. While all investments have some associated risk, cryptocurrencies are especially vulnerable to price fluctuations. Just think of the impact a couple hundred characters can have on the price of cryptocurrencies: When Tesla boss Elon Musk tweeted last year that his company would no longer accept Bitcoin as payment, for example, the value of the currency fell 15%.
Although Ether has had impressive returns in the past, it has also had some significant crashes, sometimes in surprisingly short periods of time. Notably, it went from a high of over $5,000 per coin in May 2021 to under $2,500 a month later, a drop of over 50%. That’s some pretty extreme volatility.
That’s why it’s important to consider your risk tolerance along with the diversity and stability of the rest of your investment portfolio before buying Ether. Experts recommend that you never invest more in crypto than you can afford to lose.
2. Choose a crypto exchange
Buying Ether is more complicated than buying stocks or mutual funds through your brokerage account. Cryptocurrencies are not traded on major exchanges like those in London or New York, and many brokerages do not offer crypto investments.
To buy cryptocurrency, you must first create an account with a cryptocurrency exchange. In practical terms, it’s like the brokerage platforms you may be most familiar with: crypto exchanges allow buyers and sellers to trade fiat currencies, like pounds and dollars, for cryptocurrencies like Ethereum, Bitcoin either doecoin.
If you don’t have a cryptocurrency exchange in mind yet, take a look at our list of the best cryptocurrency exchanges to find the right one for you. Although the trading platforms of some exchanges can be complex, most offer a simple buying interface for beginners, although they may charge higher fees than the main trading platform.
A couple of key points: When choosing an exchange, make sure it offers a crypto wallet to store your investments. The vast majority do, but if yours doesn’t, you’ll have to get your own.
You can also choose to buy your crypto on a platform, such as Paypal, although using one of these simplified platforms will mean that your crypto can only be traded within the platform you bought it on. Therefore, you will need to withdraw money from that platform and then buy it back from 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 be depositing money from a bank account, such as your checking account. In general, you can also use a debit card or deposit money from a payment provider.
Some providers may allow you to use your card to purchase cryptocurrencies, but beware of fees that could add to the cost of the transaction.
4. Buy Ethereum
Investors buying stocks, pooled/pooled funds or exchange traded funds are limited by market hours. The Australian Stock Exchange (ASX), for example, opens standard trading hours from 10am to 4pm on weekdays. Cryptocurrencies like Ethereum work very differently: because they are decentralized currencies, you can buy and sell them throughout the day.
To buy Ethereum, enter its ticker symbol, ETH, in the “buy” field on your exchange and enter the amount you wish to buy. If you don’t want to buy a full Ethereum token or don’t have enough money in your account for a full coin, you can buy a fraction of one. 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
After 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 them losing their crypto due to a hack.
This is understandable, but it is also important to note that most major exchanges secure their clients’ holdings and often store most of their assets offline to prevent massive theft. Also, historically exchanges that have been hacked have refunded losses.
But if you want peace of mind regarding 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 can be accessed 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 to have your crypto off the exchange. However, because they are still connected to the Internet, they are at 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 typically cost between $50 and $150, although even more expensive versions are available. While cold wallets are less convenient than hot wallets (you have to manually connect them to the internet every time you want to access your crypto), they are more secure and can make sense if you own a significant amount of Ethereum or other cryptocurrencies.
To sell your Ethereum, simply go back to your cryptocurrency exchange and enter the amount you want to sell.
However, if you are selling a substantial amount of crypto, you may want to consult a tax professional. Despite its decentralized nature, profits from the sale of cryptocurrencies are subject to capital gains tax under Australian law.
Should I buy Ethereum?
Ethereum is extremely popular, with over 116 billion coins currently held by investors. But just because it’s one of the most popular cryptocurrencies doesn’t mean it’s right for you. Only you (in consultation with your financial advisor) can decide that.
In any case, before you buy 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 standing. Even if you can check all those boxes, it is important to diversify your portfolio, so only a small part of your investments should be in Ethereum or other cryptocurrencies.
Also beware of bad actors within the crypto space. As the Federal Government’s Australian Competition and Consumer Commission (ACCC) points out, lost australians more than $205 million in scams between January 1 and May 1, 2022, with $113 million of those losses related to cryptocurrencies. Cryptocurrency is also the most common payment method for investment scams, the ACCC warns.
This article does not endorse any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.