Purchasing bitcoin is frequently the first step for newcomers to the cryptocurrency realm. For someone who is used to standard financial products, it can be a strange environment.
Bitcoin, the world's first and most popular cryptocurrency, has surged in value from $3,237 in December 2018 to temporarily surpass $65,000 in November 2021. (see price below). Bitcoin, like all cryptocurrencies, is risky and volatile, compared to numerous tried-and-true investments like equities, bonds, and mutual funds.
One rule of thumb is to allocate no more than 10% of your portfolio to individual equities or riskier assets such as bitcoin. Find out more about how to invest money if you're new to it.
How to buy Bitcoin in 4 steps
- Choose where you want to buy bitcoin. Bitcoin may be purchased through cryptocurrency exchanges like Coinbase and traditional brokers like Robinhood.
- Consider where you'll keep your cryptocurrency. Do you plan to store your bitcoin in a hot or cold wallet?
- Purchase what you want. Determine how much money you wish to put into bitcoin.
- Take care of your money. Make a long-term strategy for this asset.
Choose where you want to buy bitcoin
Exchanges and traditional brokers are among the options for purchasing bitcoin and other cryptocurrencies.
Cryptocurrency exchanges
Several cryptocurrency exchanges offer bitcoin for sale. Many of them feature dozens of cryptocurrency options, while others only have bitcoin and a few others. They come with a variety of fees and consumer protections, so do your research before deciding.
Traditional stockbrokers
Traditional brokers that allow customers to purchase and sell bitcoin are few and far between right now - Robinhood was the first prominent investment broker to do so (Robinhood Crypto is available in most, but not all, U.S. states). Robinhood does not impose fees for bitcoin trades, just like it does for stock trades.
Bitcoin ATMs are located throughout the world. These work similarly to traditional ATMs, except that you can use them to purchase and sell bitcoin. There are more than 27,000 bitcoin ATMs in the United States, according to Coin ATM Radar.
- Owners of bitcoins who trade with each other on a peer-to-peer basis. Peer-to-peer programmes like Bisq, Bitquick, and LocalBitcoins.com allow you to buy bitcoin directly from other bitcoin owners, just like you might on Craigslist. If you're buying bitcoin from a person, proceed with caution.
- ETFs (exchange-traded funds) are a type of mutual fund that In October of 2021, ProShares, a financial corporation, released the first bitcoin ETF. However, the fund (ticker: BITO) does not invest directly in bitcoin; instead, it invests in bitcoin futures contracts.
- Funds that are grayscale. Grayscale Investments is a firm that manages digital currency assets. Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Classic Trust (ETCG) are two of its investment trusts that are openly listed, which means you may buy them from a variety of discount brokers. There are fees, and GBTC frequently trades at a premium — that is, GBTC shares are frequently more expensive than bitcoin, despite the fact that bitcoin is its sole asset. Some investors, it is said, are willing to pay a premium to buy bitcoin through a regular exchange, avoiding the hassles of wallets and storage.
Consider where you'll keep your cryptocurrency
Bitcoin can be stored in one of two types of digital wallets: hot or cold. Transactions are often faster using a hot wallet, but a cold wallet often includes extra security measures that assist keep your money safe but also slow down transactions.
hot wallet
With a hot wallet, bitcoin is stored in the cloud by a reputable exchange or provider and accessed via an app or a web browser. Any trading exchange you join will provide you with a free bitcoin hot wallet, which will automatically keep your purchases. Many users, however, prefer to transfer and keep their bitcoin through a third-party hot wallet, which is usually free to download and use.
Why would you use a wallet from someone who isn't an exchange? Bitcoin hot wallets are an enticing target for hackers, despite supporters claiming that the blockchain technology behind bitcoin is even more secure than typical electronic money transfers. "Many exchanges and online wallets have experienced security breaches in the past, and such services still do not provide enough protection and security to be utilised to hold money like a bank," says Bitcoin.org.
- Coinbase: Coinbase, a famous bitcoin currency exchange, provides free online hot wallets and covers losses caused by security breaches or hackers, employee theft, or fraudulent transactions.
- Electrum is a piece of software that allows you to keep your bitcoin on your laptop or desktop computer.
- Blockchain: Blockchain, like Coinbase, is an online hot wallet; but, unlike Coinbase, Blockchain is not a currency exchange, making it a less appealing target for hackers.
- Mycelium is a bitcoin wallet that is solely available on mobile devices, with Android and iPhone versions available.
Although some hot wallet providers provide insurance for large-scale hack assaults, that insurance may not cover isolated instances of unauthorised account access.
a cold wallet
A cold wallet is a compact, encrypted device that you can use to download and carry your bitcoin. Cold wallets can be as expensive as $100, but they are far more secure than hot wallets.
Providers of cold wallets include:
- Trezor: This startup sells compact, key-sized cold wallets that cost between $60 and $220.
- Ledger Nano: Ledger Nano is a cold wallet that looks like a thumb drive and costs between $60 and $120.
Use a strong password and two-factor authentication when creating accounts for your digital wallets and currency exchange.
Purchase what you want
After you've linked your bitcoin wallet to your preferred bitcoin exchange, the final step is the simplest: selecting how much bitcoin you wish to buy. While a single bitcoin can cost tens of thousands of dollars, you can buy and sell fractional shares of the cryptocurrency (trading symbol BTC or XBT), so your initial investment could be as little as $25.
Take care of your money
If day trading appeals to you, one alternative is to purchase bitcoin today and then sell it if and when its value rises. However, if you believe bitcoin has a bright future as a digital currency, you may want to buy and hold for the long term. Whatever your strategy, keep in mind that possessing bitcoin will result in a complicated tax situation.