Disclaimer: This article is general education, not financial, investment, tax or legal advice. arjankc.com.np does not recommend any cryptocurrency, platform or exchange and earns no affiliate or referral fees. Crypto is legal in the United States but restricted or illegal in some countries, including Nepal. Consider speaking to a licensed financial adviser and a tax professional before investing.

Last reviewed: 13 October 2026

Cryptocurrency gets a lot of attention, and many beginners first hear about it from a friend, a social media post or an advertisement. Before putting money in, it is worth understanding what you would actually own, what protections you would not have, and how scammers use crypto. This guide takes a risk-first approach using guidance from US regulators.

What cryptocurrency is

Cryptocurrencies such as Bitcoin and Ether are digital assets recorded on a blockchain — a shared, cryptographically secured ledger. The IRS defines a digital asset as any digital representation of value recorded on a cryptographically secured distributed ledger or similar technology (IRS).

Unlike money in a bank account, there is usually no bank or central authority that can reverse a mistaken payment or flag a suspicious transfer. The FTC points out that crypto payments typically are not reversible — once you pay, you usually can only get your money back if the recipient sends it back (FTC).

A coin balanced against a warning sign on a seesaw over a volatile price line

The risks to understand first

The SEC’s investor education office warns that investments in crypto asset securities can be exceptionally volatile and speculative, that the platforms where people buy, sell, borrow or lend them may lack important investor protections, and that the risk of loss remains significant. Its advice: the only money you should put at risk with any speculative investment is money you can afford to lose entirely (SEC Investor Alert).

No FDIC or SIPC safety net

  • Not FDIC insured. The FDIC lists crypto assets among the financial products it does not insure (FDIC).
  • Generally not SIPC protected. SIPC protects certain securities at failed member brokerages, but its protected securities do not include most types of crypto assets (SEC SIPC bulletin). SIPC never covers losses from falling prices in any case.

Platform and market risks

The SEC lists risks that include volatility and illiquidity, the chance the company holding your crypto fails or goes bankrupt, the market for a particular asset disappearing altogether, and regulatory changes that may restrict use (SEC bulletin on crypto interest-bearing accounts). The same bulletin warns that “earn interest on your crypto” accounts do not offer the protections of bank or credit union deposits.

Hacking and lost keys

Crypto is controlled by private keys. If a platform is hacked or you lose access to your own wallet keys, your assets may be gone permanently. Protect accounts with strong unique passwords and two-factor authentication, and never share a recovery phrase with anyone.

Before you invest: a checklist

  1. Emergency savings first. Keep several months of expenses in an insured bank or credit union account.
  2. Pay down high-interest debt. A guaranteed saving on credit-card interest usually beats a speculative bet.
  3. Decide a limit. Only use money you could lose entirely without changing your life — the SEC’s own test.
  4. Understand what you are buying. If you cannot explain how an asset works and why it should have value, do not buy it.
  5. Check the platform. Find out who runs it, where it is based, what regulatory licences it holds, how it stores customer assets and what happens to your holdings if it fails.
  6. Plan for taxes and records from your first transaction (see below).
  7. Check your local law. Crypto is not legal everywhere.

How to spot crypto scams

Scams are the biggest danger for beginners. The FTC reported that from January 2021 through March 2022, more than 46,000 people reported losing over $1 billion in crypto to scams, with a median individual loss of $2,600. Nearly half said the scam started with an ad, post or message on social media, and most of the losses involved bogus investment opportunities (FTC).

The FTC’s red flags (FTC consumer advice):

  • Guaranteed profits or big returns. Only scammers guarantee them. No crypto investment is guaranteed to make money.
  • Demands for payment in crypto. No legitimate business or government agency will demand you buy or send crypto to fix a problem or protect your money.
  • Romance and friendship tips. If a new online friend or love interest wants to show you how to invest in crypto, it is a scam.
  • Fake platforms. Some sites show fake growing balances and then demand “fees” before you can withdraw.

If you are targeted, report it to the FTC at ReportFraud.ftc.gov, the CFTC, the SEC and the FBI’s Internet Crime Complaint Center, as the FTC recommends, and tell the exchange you used.

Taxes on cryptocurrency in the US

  • Crypto is property for tax purposes. Selling, exchanging one crypto for another, or using crypto to pay for goods can create a capital gain or loss (IRS digital assets).
  • Holding period matters. Assets held more than one year are generally long-term; one year or less, short-term (IRS Topic 409).
  • The digital asset question. Federal income tax returns ask whether you received, sold, exchanged or otherwise disposed of a digital asset during the year (IRS).
  • Form 1099-DA. US brokers must report digital asset sales on Form 1099-DA for transactions on or after January 1, 2025. You must still report all digital asset income, gains and losses whether or not you receive one — including from foreign exchanges that may not issue the form (IRS Form 1099-DA).
  • Other income. Income from staking, mining and similar activities is reported separately (IRS).

Keep records of every purchase price, date, fee and sale from the start.

Laws differ widely between countries. In Nepal, for example, Nepal Rastra Bank issued a notice on 9 September 2021 declaring cryptocurrency transactions, use and mining illegal and warning that those involved would face action under the Foreign Exchange Regulation Act (NRB notice; The Himalayan Times). If you live outside the US, check your own country’s rules before buying anything.

The bottom line

Crypto can rise sharply and fall just as fast, and it lacks many of the protections people take for granted with bank and brokerage accounts. If you choose to invest, keep it to money you can afford to lose, learn how to secure your accounts, assume any “guaranteed” opportunity is a scam, and keep careful tax records.

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