The investing essentials / 06
Crypto, made understandable.
Understand digital assets, see how price changes affect your money, and learn what to check before buying.
01 / Understand crypto
Digital assets with different purposes.
Cryptocurrencies are digital assets recorded on a blockchain or similar shared ledger. Their designs, uses, and risks vary. Owning a token does not automatically give you a share of a company or a right to income.
A blockchain is a record maintained across a network of computers. Its rules determine how transactions are checked and added. The technology can support payments and applications, but useful technology does not guarantee a valuable investment.
Same tokens. Different dollar value.
Fictional token · no leverage
You buy 10 tokens at $10 each, spending $100 before fees. Change the price to see what happens:
The value is unchanged, before fees and taxes.
What your tokens are worth vs. what you paid
Illustrative prices, not a forecast or a limit on losses. Excludes fees and taxes. An asset can lose all its value.
How do Bitcoin, Ether, and stablecoins differ?
Bitcoin (BTC) is the native asset of the Bitcoin network.
Ether (ETH) is the native asset used to pay transaction fees on Ethereum, a network that supports programmable applications.
Stablecoins aim to track a reference value, often one U.S. dollar. They can lose that peg. These examples are not recommendations.
What is a smart contract?
It is code on a blockchain that runs when specified conditions are met. It can support applications such as token exchanges or lending. “Smart” does not mean error-free, and code does not automatically provide legal or consumer protections.
What does “Layer 2” mean?
A Layer-2 network processes activity alongside a base blockchain to help it handle more transactions. Designs differ. Moving assets between networks can add bridge, software, and withdrawal risks; lower fees do not remove those risks.
02 / Know the risks
The price is only part of the risk.
You can lose money through falling prices, fraud, a failed provider, or loss of access to your assets. Crypto assets are not FDIC-insured deposits.
Prices and liquidity can change quickly.
A quoted price does not guarantee you can sell your full position at that price. Fees, spreads, and limited liquidity affect what you receive. Borrowing or using derivatives can magnify losses.
Custody changes your responsibilities.
With a provider, you depend on its safeguards and terms. With self-custody, you manage the keys that authorize transactions. Neither approach removes the possibility of loss.
Promises are not protection.
Guaranteed returns, urgent offers, and unexpected requests to transfer crypto are warning signs. A familiar logo, celebrity endorsement, or polished app is not proof of legitimacy.
What does a wallet actually hold?
A wallet manages the keys used to access assets recorded on a blockchain. If you lose the necessary keys and recovery information, access may be permanently lost. Keep recovery phrases private and securely backed up; do not give them to anyone claiming to be support.
Are staking and DeFi like earning bank interest?
No. Staking, lending, and liquidity provision involve different mechanisms and risks. Rewards may be paid in a falling token; assets may be locked, a borrower may fail, or software may be exploited. Some staking arrangements also face penalties. An advertised yield is not a guaranteed return.
Does “stablecoin” mean safe?
No. Review the issuer, reserves, redemption rights, and platform terms. A token targeting $1 is not the same as an insured dollar deposit, and you may not be entitled to redeem directly with its issuer.
Can charts or market cycles predict returns?
Charts describe price and trading activity. They cannot guarantee a future outcome. Past cycles and scheduled purchases do not prevent losses.
Further reading: SEC’s guide to crypto custody ↗ · What FDIC insurance does not cover ↗
03 / Before you buy
Know what you own—and who controls it.
“What gives this asset value, how could I lose money, and how would I get my money back?”
You can learn about crypto without buying it. If you are considering a purchase, work through these checks first.
Identify the exact investment.
A token, a crypto-related company’s stock, and an exchange-traded product are different investments. Read what you own, how it is priced, and which fees apply.
Check access and custody.
Verify the provider’s legal entity and authorization for your location. Read its withdrawal, custody, and insolvency terms. For self-custody, understand backups and recovery before transferring assets.
Plan for losses and keep records.
Consider whether a total loss would affect essential expenses or emergency savings. Track purchases, sales, swaps, fees, and transfers across accounts from the beginning.
What should New York readers check?
Use the New York Department of Financial Services’ authorized-business list, then confirm the provider’s current state-specific terms. Check each service separately: trading access does not automatically include staking or lending. Business authorization is not an investment guarantee.
Check NYDFS licensing and consumer information ↗
How is a crypto ETP different from holding coins?
An exchange-traded product gives you shares through a brokerage account, rather than coins in your own wallet. Fees, tracking differences, and trading hours matter. Spot bitcoin and ether ETPs have a different regulatory structure from funds registered under the Investment Company Act of 1940. Read the prospectus; a listing does not make crypto safe.
SEC’s bitcoin and ether ETP guide ↗
What are the U.S. tax basics?
Selling, spending, or swapping crypto can create a taxable gain or loss. Rewards may create income. Keep dates, quantities, dollar values, cost basis, proceeds, and fees; reconcile tax forms with your records. Ask a qualified tax professional about your circumstances, including state taxes.
IRS digital-asset guidance ↗