Thinking About Buying Crypto? What First-Time Investors Should Know Before Getting Started
Cryptocurrency can be an enticing asset for investors looking to diversify beyond traditional stocks and bonds thanks to its potential for long-term growth and use as a hedge against inflation. But while bitcoin, ether and other coins are now often talked about in the same breath as assets like exchange-traded funds (ETFs), it's important to understand what sets them apart.
Crypto comes with a unique set of challenges, including volatility, a lack of regulation and a complex taxation system. There are no earnings reports for investors to assess and no central authority backing these digital assets. Prices are driven largely by supply, demand and market sentiment. The world of crypto is also rife with scams — billions of dollars are lost annually to fraudulent crypto schemes.
For first-time buyers, it’s important to understand how crypto behaves, how digital assets are held and why the usual rules of investing don’t always apply to this type of asset.
CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency.
Understanding the basics of crypto
Cryptocurrency is a digital asset that runs on blockchain technology — a decentralized ledger that records transactions across a network of computers. Bitcoin and ether are the most well-known, but thousands of other cryptocurrencies exist, ranging from stablecoins pegged to the U.S. dollar to highly volatile memecoins like dogecoin.
Unlike stocks, crypto doesn’t represent ownership in a company. And unlike the U.S. dollar, it isn’t backed by a government. Its value is largely driven by how much investors are willing to buy it for, which can swing based on headlines, changes in regulation and macroeconomic factors, like sanctions and military conflicts.
That distinction matters because, while some investors view crypto as a long-term bet on a new and innovative financial system, others see it as simply a speculative asset. To avoid panic selling or buying because of the fear of missing out (FOMO), it's especially important for beginners to understand that price swings can be driven as much by hype as by a crypto’s underlying technology.
How buying and storing crypto works
First-time buyers typically purchase crypto through online exchanges like Coinbase or Kraken, or through traditional brokerages, which are starting to offer a broader selection of crypto. The process is similar to opening a brokerage account: You verify your identity, link a bank account and place an order. Where crypto differs is in what happens next.
Instead of being held in a traditional account, crypto is stored in a digital wallet tied to a pair of keys. Those keys include a public address that is used to receive funds, and a private key, which is used to access them. Whoever controls a wallet’s private key controls its assets.
When you buy crypto on an exchange or brokerage, it goes into a custodial wallet that is managed by the platform. That might be the simplest way to store your crypto, but it means you’re trusting a third party with its custody. If something were to happen to this platform — say, bankruptcy or a major data breach — access to your funds could be temporarily restricted or lost entirely.
Moving assets to a personal crypto wallet offers more control over your assets, but also requires the investors to take on more responsibility for securing the funds. With a non-custodial wallet, you’ll be able to trade and move your crypto around freely if you connect the wallet to an exchange. The downside is that, if you lose your private key, there’s usually no way to recover your assets.
The risks for first-time crypto buyers
Cryptocurrency’s biggest draw is its potential for high returns. But that’s also one of its biggest risks.
Crypto prices are notoriously volatile. Double-digit swings in a single day aren’t unusual and major downturns, like when bitcoin fell more than 50% shortly after reaching an all-time high in October 2025, have wiped out significant portions of the market. For new investors, that volatility can lead to emotionally-driven decisions, like buying when prices are soaring or selling during downturns.
Then there are structural risks to consider. Crypto holdings aren’t insured by the Federal Deposit Insurance Corporation like cash in your bank accounts is. That means if an exchange fails or is hacked, recovering funds can be difficult or impossible. Scams and phishing attacks are also common in the crypto sphere. Simple mistakes like sending funds to the wrong wallet address are often irreversible.
Regulation is another source of concern, with governments around the world still shaping how crypto is treated. New rules like those in the CLARITY Act of 2025, which aims to create a federal regulatory framework for digital assets, can affect everything from trading platforms to the value of specific assets.
These risks make it so crypto is generally considered a speculative investment. And it’s why financial advisors suggest limiting your exposure to no more than 5% of your overall investment portfolio.
What the IRS expects when it comes to taxes
The IRS treats digital assets as property, and several types of transactions trigger taxable events. Selling crypto for cash, trading one coin for another or even using crypto to pay for goods can result in a capital gain or loss.
How much you owe depends on how long you’ve held the asset. Gains on assets held for more than a year are typically taxed at lower long-term capital gains rates, while shorter holdings are taxed as ordinary income.
Each trade requires calculating the cost basis and reporting gains or losses, which can become complicated quickly for active traders and is why many exchanges provide tax forms. But those exchanges may not capture activity across multiple platforms or wallets. Some investors turn to crypto tax software to help consolidate records and generate reports.
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CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency.
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