These days, it feels like nearly everyone is investing in Bitcoin. And, that sentiment isn’t so far from the truth. According to a recent report, around 46 million Americans own at least a share of Bitcoin, which equals about 17% of the adult American population.
While Bitcoin has skyrocketed in popularity over the last few years, many people are still under the false assumption that investing in Bitcoin is only for savvy stockbrokers and the ultra-wealthy.
However, this couldn’t be further from the truth. Essentially anyone can purchase Bitcoins, you just need the right know-how to get the job done. Read on to learn how to buy Bitcoin.
Choose a Crypto Exchange
Buying Bitcoin all begins with choosing the right cryptocurrency exchange platform. Crypto exchanges work very similarly to stock exchanges. Essentially, they’re online platforms that allow you to buy and sell cryptocurrency.
You can use an exchange to buy crypto using regular currency, or you can use it to trade one crypto for another. For example, you can trade Bitcoins for Ether coins. If you’re not sure which type of coin to purchase, you can check out Byte Federal to learn about the benefits of buying Bitcoins.
When choosing a crypto exchange, you need to evaluate your own interests to find an exchange that aligns with your goals. Here are some things to keep in mind when choosing a crypto exchange:
Accessibility of Bitcoin
Around the world, there’s still a lot of regulatory uncertainty around cryptocurrency. China, for example, has completely banned citizens from accessing crypto exchanges at all.
In the US, 31 states have pending regulations involving cryptocurrencies and exchanges.
Therefore, before you choose an exchange, it’s important to look into its geographical limitations and accessibility factors. Not only do you want to make sure the exchange is legal to use, but you also want to make sure they accept the type of currency you hold.
Fees to Purchase Bitcoins
You also need to consider the fees associated with using the crypto exchange. For the most part, the easier the exchange makes it for you to buy crypto, the higher the exchange fee you can expect to pay.
In some cases, the fees are fixed. For the most part, though, the fee is a percentage of what you trade. For example, Cash App has fluctuating fees that are based on price volatility. The fees may also vary depending on the currency you trade in.
Before you hand over your cash, it’s important to understand the fee structure of the exchange to ensure you’ll get the most bang for your Bitcoin.
Security when Buying Bitcoin
In 2020 alone, there were 122 crypto hacks, resulting in $3.8 billion in stolen money. While getting your Bitcoin hacked is rare, it can happen.
For this reason, it’s very important to find a crypto exchange with tight security. Bitcoin and other cryptocurrencies aren’t backed by any central institution such as a bank or the government. This means that your Bitcoins aren’t protected in the same way as your money in the bank.
To protect your crypto, look for an exchange with strong insurance policies. Coinbase, an extremely popular crypto exchange, comes with a $255 million insurance policy.
This means that if Coinbase’s reserves were hacked and any amount up to $255 million was taken, account holders would be protected.
Other exchanges rely on tight security practices instead of insurance policies to protect their users. For example, some exchanges keep their assets offline in hard storage so the coins won’t be vulnerable to attack.
We recommend looking for an exchange that keeps the majority of its assets offline in cold or hard storage. You also want to look for an exchange with other general online security measures, such as two-factor authentication.
Liquidity of Bitcoin
If you plan to buy, sell, or trade your Bitcoin, then the exchange you select needs to have enough trade volume to ensure your Bitcoin holdings are relatively liquid. In other words, you should be able to easily sell them and cash out when you want.
Typically, the more popular the exchange, the larger the trade volume it comes with.
If you’re new to the world of cryptocurrency, it’s important to choose an exchange with educational tools to help you learn the ropes. At the very least, the user interface should be beginner-friendly so you can navigate it with ease.
One exchange I recommend looking into is Coinbase, which comes with the Coinbase Earn Program where you can receive rewards for learning about new coins.
In exchange for watching educational videos and completing quizzes, you can receive a small portion of Bitcoin or another cryptocurrency. You can then choose to hang onto this Bitcoin or trade it into a different currency.
Payment Options to Purchase Bitcoins
After selecting a cryptocurrency exchange, it’s time to decide on a payment option. Depending on the exchange you choose, you can either fund your account with a bank transfer through your checking or savings account, use a wire transfer, use Paypal, or even pay with a debit or credit card.
Keep in mind that many crypto exchanges charge higher fees for certain payment methods. For example, Coinbase—the largest crypto exchange by number of users—won’t charge you any fee if you do any electronic transfer with your bank account.
However, they’ll charge you $10 if you do a wire transfer and a 2.5 percent fee if you use PayPal.
Most of the time, it makes the most sense to use an electronic bank transfer to purchase your Bitcoin and other cryptocurrencies.
Place Your Bitcoin Order
Once you’ve selected an exchange and a payment method, it’s time to purchase Bitcoins. Depending on the exchange platform you use, you may be able to place your order with the few clicks of a button.
Keep in mind that when the transaction is complete, you’ll own a portion of Bitcoin. Nowadays, buying a single Bitcoin is a large upfront investment. As of the publishing of this article, a single Bitcoin costs around $50,000.
The great thing about Bitcoin exchanges is that you can invest as much or as little as you want into a portion of Bitcoin. Obviously, investing more money will give you the chance to earn a higher profit. But, it also puts you at a greater risk.
Because Bitcoin is considered a risky asset, it’s generally recommended to invest no more than 10% of your portfolio into it. Vrishin Subramaniam, the founder of CapitalWe, says that individuals interested in cryptocurrency should invest about 2 to 5 percent of their net worth in the asset.
However, the long-term upside of Bitcoin is enormous, so I could make a case for buying more—as long as it won’t affect your day-to-day life if you end up losing it all, that is.
Ultimately, you should invest whatever amount you’re comfortable losing.
Choose a Safe Storage Option
Once you purchase Bitcoins, you need to make sure you select a safe storage option. Most crypto exchanges come with integrated wallets that allow you to store your Bitcoin right on their exchange. Other exchanges come with preferred partners that offer discounts if you select their storage option.
However, many people do not feel comfortable leaving their Bitcoin on the internet due to the potential of hacking. However, keep in mind that most crypto exchanges offer private insurance plans that will cover you in the event of a hack. Also, as we mentioned before, major exchanges typically store the majority of Bitcoin in cold, offline storage.
If you wish to move your Bitcoin off the exchange to cold storage, keep in mind that you’ll typically need to pay a small withdrawal fee. You also have the option to purchase a third-party wallet. But, remember that if you lose the private key (aka, password) to your third-party wallet, your Bitcoin may be lost forever.
Losing the private key has locked some investors out of millions of dollars of Bitcoin forever, so make sure you have a smart place to store your private key.
Alternate Ways to Purchase Bitcoins
In addition to the standard method above, there are also some alternate ways to purchase Bitcoins that are worth looking into. Here are some of your options:
Use a Bitcoin ATM
Bitcoin ATMS are popping up all over the country, and most of them look just like traditional ATMs for withdrawing cash. To use a Bitcoin ATM, all you need to do is insert your cash into the machine. Then, you’ll have the option to purchase Bitcoin with your cash and transfer it to your digital wallet.
Use a Peer-to-Peer Exchange
A peer-to-peer (P2P) exchange allows you to purchase Bitcoin in a more direct manner. Traditional exchanges such as Coinbase match up users anonymously who want to buy and sell Bitcoin.
With a P2P exchange, you create an account then post a request to either buy or sell Bitcoin. In your post, you’ll need to include information about the requested payment method and coin price.
Users can then browse listings to look for someone to buy Bitcoin from. While P2P exchanges don’t come with same anonymity that traditional exchanges do, they allow users to shop around for the best price on Bitcoin.
While some people hold onto their Bitcoin for years without selling, many other choose to sell their Bitcoin within weeks or even days. If you decided the time has come to sell your Bitcoin, it’s very important to know what you’re doing beforehand. Otherwise, you could end up losing a lot of money.
First of all, you need to make sure you choose the right moment to sell your Bitcoin. Of course, you want to sell it when it’s at a higher price than the one you bought it for.
On most exchange platforms, you can set up profit goals for your Bitcoin. Once your investment has reached that goal, you’ll receive an alert from the platform saying that it’s time to sell.
When you decide that it’s time to sell, all you need to do is go onto your exchange. You can either choose to sell your entire Bitcoin holdings or just a portion of them. Once the sale goes through, you can transfer the money to your bank account. Or, you can use the money to invest in another type of coin.
Keep in mind that most exchanges come with a holding period that stalls the money from entering your bank account immediately. Don’t be alarmed about the holding period, as it simply means the transaction is taking a bit of time to clear.
Also, keep in mind that when you sell Bitcoin, you make a profit. This means that the profit you earn is subject to a capital gains tax, which can range from 0 to 20%.
Therefore, it’s very important to report your Bitcoin profits to the IRS to prevent a penalty.
Is it Time to Buy Bitcoin?
As you can see, buying Bitcoin and other cryptocurrencies is a pretty straightforward process. Now, all you need to do is find the right exchange to meet your needs and purchase your first Bitcoins.
Also, keep in mind that many popular exchanges come with robust customer service teams. So, if you have any questions about the process of buying or selling Bitcoin on a specific platform, you can speak with a customer service representative.
Before you buy, make sure you look into how the market is doing. While Bitcoin is increasing in popularity by the day, it’s typically smart to buy on a price dip, not when it’s soaring. Alternatively, if you want to keep things simple, you can use dollar cost averaging to buy a fixed amount of Bitcoin on a regular schedule, such as the first of each month.