And so you ask, “how do you buy bitcoins?” There is no easy answer to that question. But we will try to simplify it in this article. Ready? Let’s go! Once you know the terms, are willing to take the risk, and have taken care of your other financial needs, the next step to investing in bitcoin or crypto is to buy some.
There are thousands of different cryptocurrencies, but experts say you should stay away from most of them, at least at first. The value of crypto changes every hour, and this can be especially true for coins that aren’t as well-known. Even well-known cryptocurrencies like bitcoin and Ethereum have their ups and downs, but their prices have a better track record of going up over time.
Bitcoin is the most valuable and most widely held cryptocurrency. With prices falling in both the cryptocurrency and stock markets, now could be a good time to buy if you’re willing to take risks and want to invest.
This is how you can buy it:
1. Pick a Crypto or Bitcoin Exchange
You can’t buy Bitcoin yet through your bank or investment firm, but some groups are working on making that possible in the future. For now, the only way to trade U.S. dollars for Bitcoin or other digital currencies is through a cryptocurrency trading platform.
There are a lot of places online where you can buy cryptocurrency, but Coinbase, Gemini, and Kraken are some of the most popular ones. On these exchanges, you can buy and sell cryptocurrencies online.
Several things can help you narrow down your search for the right platform:
Security
Unlike bank accounts, which are backed by the FDIC, investments in cryptocurrencies are not backed by a central institution. If someone gets into your account or hacks the platform where you keep your coins, you could lose your investment.
If you want to keep your crypto on an exchange account instead of moving it to your own crypto wallet, make sure you pick an exchange that uses offline storage (also called “cold storage”) and has strong protections against theft. Some exchanges also have insurance policies that are separate from the exchange to help protect investors from hackers.
Fees: Exchange fees can be either a flat fee paid upfront
Some exchanges charge fees based on a spread, or margin on top of the market price. Others base fees on a flat rate or percentage of your total purchase, which can vary based on your location, payment method, and other factors.
Exchanges with more active trading features often use a fee model determined by market price fluctuations, known as maker-taker fees. If you buy at the current market price, you’ll be charged a (usually higher) “taker” fee. Or, you can set a price at which you want to buy, and wait for the market to reach that point. That’s known as a limit order, and incurs a “maker” fee.
Make sure you know what fees you’ll be charged — which you can find on the exchange’s website — before signing up. The fee structure should be clearly stated when you make your purchase, but it can help to factor in that cost beforehand so you don’t spend more than you expected.
Available coins
Not all exchanges offer every single cryptocurrency out there.
Popular coins like Bitcoin (BTC) and Ethereum (ETH) are available on most crypto exchanges, while more niche altcoins may only be available on certain exchanges. Since experts recommend sticking with these big two cryptos and more mainstream exchanges like Coinbase, this shouldn’t be an issue for most new investors.
2. Fund Your Account
Depending on the exchange you choose, you may need to provide information like your Social Security number, ID, and your source of income when you create your account.
With most exchanges, you’ll be able to connect your bank account or a debit card to transfer U.S. dollars into your exchange account. There may be different fees depending on which method you use to fund your account — typically, bank transfers will cost less than card options.
Remember, funding your account isn’t the same as actually purchasing crypto. Just like with traditional investing, you never want to leave uninvested money sitting in your account. Once you fund your account, you’ll still need to exchange your dollars for Bitcoin.
3. Place an Order
Once you’ve connected a payment method, you’ll be able to actually place your order for Bitcoin. This process can differ depending on the exchange you use.
Generally, if you’re using a platform like Coinbase or PayPal, you can simply enter the amount in dollars you want to trade for Bitcoin, and buy at the current rate (after accounting for any fees).
If you use an exchange designed for more active trading — such as Coinbase Pro — you may have the option to place both market and limit orders. A market order means you purchase the cryptocurrency at that moment, for the current market price. A limit order means you’ll set a price you want to pay for the cryptocurrency. Once the currency reaches that point it will automatically be purchased.
With Bitcoin, you’ll likely be purchasing a fractional share of a coin — a single coin has traded for around $20,000 in recent weeks after a massive crypto market crash in June. Whatever amount you put in will be reflected in the exchange as a percentage of a total Bitcoin. (Example: If you invested $1,000 at Bitcoin’s early July value of about $34,000, it would show that you own 0.029 of Bitcoin).
4. Practice Safe Storage
Many exchanges allow you to leave your investment within your account, which is easiest for most beginners. But if you want to further secure your digital assets, you can transfer them into a cryptocurrency wallet.
A cryptocurrency wallet is a place to store digital currency. There are various types of cryptocurrency wallets available, and they all have different levels of security associated.
The exchange you use may offer a wallet option, so you can easily transfer your coins from your exchange account to a more secure wallet. You can also use third-party software, or opt for cold storage on an offline hardware device.
Some platforms you can use to buy crypto — including PayPal and Venmo — don’t allow you to move your coins onto your own storage device. Consider whether that’s an option you want before you buy, whether for offline security of your assets or because you may want to trade using another platform in the future.
Alternative Ways To Buy Bitcoin
You can also now buy crypto through some digital payment platforms you may already have accounts with, like Venmo, PayPal, and Cash App, as well as the investment app Robinhood. But they might not be right for every investor.
Paypal and Venmo don’t let you transfer your holdings into your own crypto wallet, meaning your private keys remain in the platform. Robinhood recently announced it’s creating a crypto wallet offering so customers can move their coins off-platform. But for crypto enthusiasts who believe in the common crypto mantra “not your keys, not your coins,” these platforms without the option to move your holding off-platform fall short. They can also charge high fees for buying and selling cryptocurrencies (and typically only offer a few coins, or only Bitcoin), so it’s worth comparing the prices you’ll pay to more traditional exchanges.
These apps can be a simple solution to buying Bitcoin, though. For beginners, using your Venmo or Cash App account to buy Bitcoin may be more accessible than an exchange like Coinbase, and allow you to buy in while you learn more about investing in cryptocurrency. Just keep in mind that if you ever reached a point where you had a larger crypto position, these apps might limit your ability to transfer it to another platform.
How to Pay with PayPal to Buy Bitcoin
You can also buy bitcoin through PayPal Holdings, Inc., which is a payment processor (PYPL). There are two ways to use PayPal to buy bitcoin. The first and easiest way to buy cryptocurrencies is to use a PayPal account that is linked to a way to pay, like a debit card or bank account. The second option is to use the money in your PayPal account to buy cryptocurrencies from a third-party provider. This option isn’t as easy as the first because there aren’t many third-party sites where you can use the PayPal button to buy bitcoin.
Bitcoin, Ethereum, Litecoin, and Bitcoin Cash are the four cryptocurrencies that can be bought directly through PayPal.
The only people who can’t use their existing PayPal accounts are those who live in Hawaii. Everyone else can use their existing accounts or set up new ones. You can also use the “Checkout With Crypto” feature to buy goods and services with your cryptocurrency.
PayPal needs your name, physical address, date of birth, and tax identification number in order to set up a crypto account.
There is no way to buy Bitcoin with a credit card through PayPal. During the process of buying cryptocurrency, PayPal will show you how much it costs. But because cryptocurrency markets are so unstable, the price can change quickly. It’s a good idea to make sure you have more money in your bank account than the amount you planned to spend.
When you buy bitcoin directly from PayPal, it makes money from the crypto spread, which is the difference between the market price of bitcoin and how much it is worth in US dollars. For each purchase, the company also charges a transaction fee. These fees are based on how much money was spent. For example, if you spend between $100 and $200, you pay a flat fee of $0.50. After that, the fee is a certain percentage of the total amount. For example, when you buy crypto for $100 to $200, you pay a fee of 2% of the total amount.
One problem with buying cryptocurrencies with PayPal is that you can’t move them outside of the payment processor’s platform. So, you can’t move the bitcoin you bought from PayPal’s wallet to an external cryptocurrency wallet or your own wallet.
Another problem with PayPal is that only a small number of exchanges and online stores let you use it to buy things. eToro is one of the few online trading platforms that lets you buy bitcoin with PayPal.
How to Use a Credit Card to Buy Bitcoin
Buying bitcoin with a credit card works the same way as buying it with a debit card or through an automated clearing house (ACH) transfer. You will need to give the exchange or online trading company your credit card information and approve the transaction. In general, though, it’s not a good idea to use credit cards to buy bitcoin. There are a few reasons why this is the case.
First of all, not all exchanges let you buy bitcoin with a credit card because of the fees and the risk of fraud. This choice could end up being good for customers. This is because processing a credit card can add extra fees to a transaction. So, on top of transaction fees, you may also have to pay processing fees that the exchange passes on to you.
The second reason is that it can be expensive to buy things with a credit card. Credit card companies see purchases of bitcoin as cash advances and charge high fees and interest rates on them. American Express and Chase, for example, both count purchases of cryptocurrencies as cash advances. So, if you use an American Express card to buy $100 worth of bitcoin, you will have to pay $10 (the current cash advance fee for such transactions) plus a 25% annual percentage fee. Also, the credit card company won’t let you buy more than $1,000 in bitcoins per month.
Getting a Bitcoin rewards credit card is a way to use a credit card in a roundabout way to buy bitcoin. These cards work like a typical rewards credit card, except that they give rewards in the form of bitcoin instead of cash. So, they buy Bitcoin with the cashback they get from shopping. The BlockFi Bitcoin Rewards Credit Card is an example of a Bitcoin rewards card.
Be aware, though, that the annual fees for these cards may be high, and that converting fiat currencies into crypto may come with extra costs.
Bitcoin ATMs and Other Ways to Buy Bitcoin
Bitcoin ATMs are the same as exchanging bitcoins in person. People can put cash into a machine and use that money to buy bitcoin, which is then sent to their online wallets. In the past few years, Bitcoin ATMs have become more and more popular. The retail giant Walmart Inc. (WMT) is even testing a pilot program that will let its customers buy bitcoin. Coin ATM Radar can help you find the ones that are closest to you.
But ATMs are a more expensive choice. There are two fees that come with buying bitcoins from an ATM: a fee to buy the bitcoins and a fee to convert fiat currency to bitcoins. When compared to other options, both of these fees are pretty high. For example, the average worldwide fee to buy Bitcoin from an ATM is 8.4% of the amount bought, and the average fee to sell Bitcoin from an ATM is 5.4% of the amount sold.
P2P Exchanges
Some peer-to-peer (P2P) exchange services give users a more direct link to each other than decentralized exchanges, which match buyers and sellers anonymously and handle all parts of the transaction. One example of this kind of exchange is LocalBitcoins. After making an account, users can post requests to buy or sell bitcoin, including details about how to pay and how much the bitcoin is worth. Then, users look through lists of buy and sell offers to find the people with whom they want to do business.
Some parts of the trade are made easier by LocalBitcoins. P2P exchanges don’t give users the same level of anonymity as decentralized exchanges, but they do let users look around for the best deal. Many of these exchanges also have rating systems so that users can check out potential trade partners before doing business with them.
Mainstream Brokerages
Due to the lack of clarity about how cryptocurrencies are regulated, there aren’t many mainstream brokerages that let you buy and sell bitcoin. One exchange that lets people trade crypto is Robinhood Markets, Inc. (HOOD), which is a popular app among small investors. It doesn’t charge a commission on trades or purchases of cryptocurrency. Instead, it gets paid for passing its trading volume on to other trading platforms or brokerages in exchange for payment for order flow.
Beginners may be interested in the fact that there is no commission fee, but there are a couple of things that come with this offer. First of all, Robinhood doesn’t have as many features or coins as popular exchanges like Coinbase. Robinhood had made it possible to trade Bitcoin, Bitcoin Cash, Ethereum, Bitcoin SV, Dogecoin, and Ethereum Classic on its platform.
On Coinbase, on the other hand, you can trade more than 100 different types of cryptocurrency.
The exchange also has different order types to help traders reduce risk and make up for losses.
There is also no hosted wallet on the Robinhood platform. So, if you want to buy cryptocurrencies through Robinhood, you will have to pay extra for an online wallet service.
How to Sell Your Bitcoin or Sell Your Cryptocurrencies
You can sell bitcoin at the same places you bought it, like a cryptocurrency exchange or a peer-to-peer platform. Most of the time, selling bitcoin on these platforms is pretty much the same as buying it.
For example, you may only have to click a button and choose an order type (i.e., whether you want to sell the cryptocurrency right away at the best price or to limit your losses) to complete the sale. The price for Bitcoin can change depending on how the market is set up and how much people want it. During its price rise in 2018, for example, South Korean exchanges traded bitcoin at a so-called “kimchi premium.”
Fees are taken out of the amount of cryptocurrency that is sold on an exchange. For example, Coinbase charges fees equal to 2.49 percent of the total amount of a transaction.
Most exchanges have limits on how much you can withdraw each day and each month. So, the trader may not be able to get the money from a big sale right away. The amount of cryptocurrency you can sell, on the other hand, is not limited.
How to Buy Other Cryptocurrencies
You should follow the same steps for buying other cryptocurrencies as for buying Bitcoin. However, keep in mind that investing experts recommend sticking with the two largest cryptocurrencies, Bitcoin and Ethereum, if your goal is to invest in crypto as a long-term store of value.
You’ll be able to find Ethereum for purchase on many of the same exchanges and platforms as you can Bitcoin. If you’re looking for a very specific altcoin (which experts generally do not recommend investing in), then you may need to factor that into the exchange you choose. While some large exchanges have upwards of 50 different coins, some platforms offer only a small number of altcoins (on Venmo, for example, you can only choose between four different cryptocurrencies).
Whether you choose to add Bitcoin or an altcoin to your portfolio, always make sure that you’re comfortable with the risk of investing in such a speculative asset in the first place. Never invest more than you’re OK with losing, and don’t invest at the cost of not meeting other financial goals.
Does Bitcoin Make Sense for You to Invest In?
As with any investment, it’s important to do your research first and understand what you’re getting into. Make sure any crypto investments you make do not get in the way of other goals like funding your retirement accounts and paying off high-interest debt. Experts recommend keeping your cryptocurrency investments to less than 5% of your portfolio.
Bitcoin is a good place for beginner crypto investors to start, according to the experts we’ve talked to. As the first cryptocurrency, Bitcoin has the longest record for investors to consider. Since its creation in 2009, Bitcoin has exponentially risen in value over the past decade. Many experts liken it to “digital gold” as a long-term store of value.
While Bitcoin’s recent massive price swings highlight its volatility, many experts say a small holding of cryptocurrency like Bitcoin can be a healthy (if speculative) diversifier in your overall investment strategy.
or a percentage of the amount you trade. Many fees are charged per transaction, and some are based on how prices change.
Experts agree that you should think about fees, but they also say that you get what you pay for, especially if you stick to larger, more established exchanges like Coinbase. If an exchange has more safety features, better security, or other things that are important to you, it may be worth paying a little more for it.
SOURCES: Time/NextAdvisor | Investopedia
