While Bitcoin is the top cryptocurrency based on the value of its coins in circulation, Ethereum is also popular among crypto investors. It’s the second leading form of cryptocurrency and has support from business leaders such as Mark Cuban, the US billionaire entrepreneur and television personality.
If you invested $US1000 in Ethereum in August 2015, your investment would be worth $US2.23 million almost six years later.
Nevertheless, it has slumped considerably in 2022 alongside other crypto currencies, and is down more than 70% from its all-time high last year. In June alone, Ether fell 45 per cent.
If you do decide to buy Ethereum, proceed with great care: As the Federal Government’s Moneysmart website makes clear, crypto is a volatile asset and is not regulated by the Australian Securities and Investments Commission (ASIC).
If you still wish to buy, here’s how to get started buying Ether, the official name of the token more commonly called Ethereum because of its association with the Ethereum platform that it powers.
Buying Ethereum
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’s no getting around it – buying Ethereum is a gamble. While all investments have some risk associated with them, cryptocurrencies are especially vulnerable to price fluctuations. Just think about the impact a couple of hundred characters can have on crypto pricing: when Tesla boss, Elon Musk, tweeted last year that his company would no longer accept Bitcoin as payment, for instance, the coin’s value tumbled 15%.
Although Ether has had impressive returns in the past, it’s also had some significant crashes, sometimes in astonishingly short amounts of time. Notably, it went from a high of more than $5000 per coin in May 2021 to less than $2500 a month later, a drop of more than 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 just buying shares or collective investment funds through your brokerage account. Cryptocurrencies aren’t traded on major exchanges like those of London or New York, and many brokerages don’t offer crypto investing.
To buy crypto, you have to first create an account on a crypto exchange. Practically speaking, it’s just like the brokerage platforms you may be more familiar with: Crypto exchanges allow buyers and sellers to exchange fiat currencies – such as pounds and dollars, for example – for cryptocurrencies such as Ethereum, Bitcoin or Dogecoin.
If you don’t already have a crypto exchange in mind, take a look at our list of best cryptocurrency exchanges to find the one that’s right for you. Though some exchanges’ trading platforms can be complex, most offer a simple purchase interface for beginners, though it 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 need to get one of your own.
You may also choose to buy your crypto on a platform, such as Paypal, though using one of these simplified platforms will mean your crypto can only be traded within the platform you buy it on. So you’d need to cash out of that platform and then re-buy it on a crypto exchange to hold it in a separate wallet.
3. Fund Your Account
Before you can buy Ethereum through a crypto exchange, you have to fund your account. In most cases, you’ll deposit money from a bank account, such as your current account. You can also generally use a debit card or deposit money from a payments provider.
Some providers may allow you to use your card to buy crypto, but beware of any fees they might add to the cost of the transaction.
4. Buy Ethereum
Investors buying shares, collective/pooled funds or exchange-traded funds are limited by market hours. The Australian Securities Exchange (ASX), for example, opens standard trading hours from 10am to 4pm on weekdays. Cryptocurrencies such as Ethereum work very differently: because they’re decentralised currencies, you can buy and sell them around the clock.
To purchase Ethereum, enter its ticker symbol – ETH – in your exchange’s “buy” field and input the amount you want to buy. If you don’t want to buy a whole Ethereum token or don’t have enough money in your account for a full coin, you can purchase a fraction of one. For example, if the price of Ethereum is $2000 and you invest $100, you will purchase 5% of an Ether coin.
5. Store Your Ethereum
After your purchase of Ethereum has been processed, you have to store your cryptocurrency. While some platforms will store it for you, some people opt to store their investments themselves to reduce the likelihood they will lose their crypto to a hack.
This is understandable, but it’s also important to note that most major exchanges do insure their clients’ holdings and often store the majority of their assets offline to prevent massive theft. What’s more, historically exchanges that have been hacked have reimbursed losses.
But if you want peace of mind surrounding 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’re convenient and are usually provided by cryptocurrency exchange platforms at no additional cost, though you can also use your own if you’d prefer having your crypto off of the exchange. However, because they’re still connected to the internet, they’re at a higher risk of security breaches.
- Cold Wallet: Cold wallets, meanwhile, are external devices completely disconnected from the internet. Depending on the type you choose, they usually cost between $US50 and $US150, though there are even more expensive versions available. While cold wallets are less convenient than hot wallets – you have to manually connect them to the internet each time you want to access your crypto – they’re safer and may make sense if you own a significant amount of Ethereum or other cryptocurrencies.
Selling Ethereum
To sell your Ethereum, simply head back to your crypto exchange and enter the amount you want to sell.
If you’re selling a substantial amount of crypto, though, you may want to consult a tax professional. Despite its decentralised nature, profits from a sale of crypto are liable to capital gains tax under Australian law.
Should I Buy Ethereum?
Ethereum is extremely popular, with over 116 billion coins currently in investors’ hands. But just because it’s one of the more well-known cryptocurrencies doesn’t mean it’s right for you. Only you (in consultation with your financial adviser) can decide that.
In any case, before buying a volatile investment like Ether, you’ll want to make sure you’ve done your research and your finances are in good shape. Ideally, you should have a large ‘rainy day’ fund, be exposed to minimal debt and have your superannuation arrangements in good shape. Even if you can tick all those boxes, it’s important to diversify your portfolio, so only a small portion of your investments should be in Ethereum or other cryptocurrencies.
Be aware, too, of bad actors within the crypto space. As the Federal Government’s Australian Competition and Consumer Commission (ACCC) points out, Australians lost over $205 million to scams between 1 January and 1 May of 2022, with $113 million of those losses related to crypto. Cryptocurrency is also the most common payment method for investment scams, the ACCC warns.
This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.