How to buy Bitcoin
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BLUEPRINT
Updated 8:39 a.m. UTC Nov. 13, 2023
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Key points
- Bitcoin is the world’s first decentralized currency.
- There’s a limited supply of Bitcoin.
- The crypto coin is known for its price volatility.
Whether it’s a good or bad thing, there’s nothing quite like Bitcoin (BTC).
The original cryptocurrency, launched in 2009, is perhaps one of the most polarizing financial assets. Its ups and downs are as unnerving as they are enthralling.
Despite its volatile reputation, the number of Bitcoin owners in the U.S. continues to rise. A December 2021 Grayscale Investment report found that more than a quarter of American households that were surveyed that year owned Bitcoin. That’s up by 3 percentage points compared with the previous year.
When it comes to investing in cryptocurrency, the survey found that most retail investors are hopping onto the Bitcoin bandwagon as part of their “buy and hold” strategy.
Bitcoin IRA
What is Bitcoin?
Bitcoin is a virtual currency. It’s designed to exist outside the control of any central entity, such as banks or governments.
Fiat currencies like the U.S. dollar and the British pound are created by government orders as legal tender. In contrast, Bitcoin offers a peer-to-peer form of money without an intermediary. That’s why it’s known as decentralized currency.
For many, a big selling point for cryptocurrencies, compared with fiat counterparts, is they’re not governed or issued by central banks or authorities.
As with most cryptocurrencies, Bitcoin is created through cryptographic computer technology called a blockchain. The blockchain (and Bitcoin) was created by a person, or group of people, under the pseudonym Satoshi Nakamoto.
The blockchain upon which Bitcoin runs can be considered a distributed ledger. All transactions are recorded on this blockchain (ledger), continuously updated by volunteers, known as miners, and available for all to see on the internet.
Another key difference between Bitcoin and conventional money is that there is a hard supply cap of 21 million coins.
“Its supply increases according to a predictable schedule until all 21 million bitcoins are in circulation,” explains William Szamosszegi, CEO of Bitcoin mining platform Sazmining. “At that point, the supply of Bitcoin will remain fixed for all time.”
This contrasts with fiat currency, created by central banks or governments, where supply is governed by monetary policies.
How to buy Bitcoin through a crypto exchange
Several companies offer Bitcoin trading. But they all vary in concern whether they offer actual ownership or just exposure. If you’re looking to buy Bitcoin, a good place to start is with a trading app like eToro or through a crypto exchange like Coinbase or Gemini.
Bear in mind when you’re purchasing Bitcoin that trading fees and other factors, such as storage, apply.
Step 1: Choose a crypto trading platform
The easiest way for an individual to buy Bitcoin is through a crypto exchange, such as Kraken, or Binance.US, to name a few.
Online stockbrokers, such as SoFi and Robinhood, also offer their customers the ability to buy Bitcoin and other cryptocurrencies.
Tip: You’ll also want to keep in mind that you’ll need to store your crypto wallet. While crypto trading platforms offer exchange account wallets for storage, keep in mind that storing your crypto in a cold wallet tends to be more secure.
Step 2: Set up an account
Most accounts require users to authenticate their identity and register a payment method.
While some decentralized exchanges (DEXes) allow users to remain anonymous, most popular exchanges like Binance.US, Coinbase, and Kraken, among others, require identifying documentation.
The setup process is nearly the same as what is required for brokerage accounts as many centralized exchanges follow Know Your Customer (KYC) standards. Some of the documents that you may be asked to provide include:
- Government-issued ID.
- Social Security number or taxpayer identification number.
- ID photo or video confirmation.
- Proof-of-address documents.
When selecting a crypto trading platform, you should also be aware that different exchanges allow different payment methods and fees will vary.
Step 3: Place an order
Crypto exchanges offer many of the same types of order types as online brokers. Most popular crypto exchanges facilitate the following orders:
- Market order. The price is whenever a trade order is placed.
- Limit order. This is when you set a specified price limit for selling or buying crypto.
- Stop-limit order. A pending order that only executes once the market hits your desired price.
Step. 4: Store your crypto
You can store your Bitcoin in myriad ways. Two popular methods are via a hot wallet or a cold wallet.
- Hot wallet. You can store Bitcoin on an online wallet or exchange account. These “hot” wallets are known for their convenience and ease of accessibility. But they also carry drawbacks.
Hot wallets can be targets for online hackers and customers might get locked out of their accounts’ assets if the crypto company halts account withdrawals amid bankruptcy proceedings. This is the case with FTX and BlockFi customer funds since crypto investors are not afforded the same protections as those available through traditional financial institutions.
- Cold wallet. These wallets are small, encrypted portable devices that sometimes look like a USB drive. “Cold” wallets are often considered more secure because their offline nature prevents hacks through traditional means.
Alternative ways to buy Bitcoin
- Trading apps. Robinhood and eToro offer users the ability to purchase Bitcoin, as do some financial and banking apps, such as PayPal and Revolut. Those interested in this avenue should be prudent in checking the details. Some companies offer contracts for differences (CFDs). With CFDs, your profit or loss is determined by the contract. You won’t actually own the physical coin. So with a CFD, there’s no need to obtain an account with a Bitcoin exchange or hold the coins in a crypto wallet.
- Bitcoin ATMs. These ATMs offer users an unconventional method of buying virtual currency. Purchasers should note that it is commonly required to have a Bitcoin or crypto wallet. Commissions can also be extremely high on ATMs. Crypto ATM fees average around 15% per transaction, according to Coin ATM Radar’s research.
- Online brokers. Not all traditional brokers offer Bitcoin. But some have started to move into the space as demand for the crypto has grown. Some also offer derivative products. Commissions and other fees will vary from company to company.
- Bitcoin mining. Rather than purchasing Bitcoin directly, you can purchase Bitcoin-linked instruments such as Bitcoin mining stocks, which will offer exposure to Bitcoin alongside other variables.
- Bitcoin funds. Funds like the Grayscale Bitcoin Trust (GBTC) are another option. GBTC holds cryptocurrency, and at the time of this writing, each share represented roughly 0.00049 BTC.
Things to think about before buying Bitcoin
The most important thing to consider when purchasing Bitcoin is the risk profile of the asset. It’s a highly volatile asset that swings wildly.
Despite enormous early gains, Bitcoin is far from a low-risk asset. It’s not uncommon for Bitcoin to see pullbacks of more than 50%.
Last year’s BTC price performance offers a stark example. The original crypto’s trading price fell from its November 2021 high of nearly $69,000 to less than $17,000 in December 2022. Those pullbacks tend to be met swiftly with fast gains. Year to date, BTC’s trading price is up 49%, as of Feb. 20.
While fear of missing out is an emotion that plagues crypto, it’s essential to be vigilant about an asset that can be so volatile.
The asset should only be considered as part of a diversified portfolio and by your risk tolerance. This is the case with any asset, but even more so for Bitcoin, such is its propensity to oscillate in price so aggressively.
“Before buying Bitcoin you should ask yourself the following questions before even considering buying,” says Kevin He, chief operating officer of CloudTech Group, a privately held blockchain company.
- How much am I willing to invest?
- Where do I buy it from?
- Where would I store it?
- What are my long-term goals?
Knowing your responses will help guide you and assess your risk tolerance.
“Before buying Bitcoin, you should also consider your investment objectives, level of experience and risk appetite. You should be aware of all the risks associated with investing in cryptocurrencies and seek advice from a financial advisor,” says Fraser Matthews, president of Canadian crypto trading platform Netcoins.
How to sell Bitcoin
Selling Bitcoin can commonly be done through the same avenues with which it was bought. You can purchase crypto on exchanges, trading apps, brokers, and some ATMs.
You will again need to consider fees, which will be payable once more when trading out of the asset. Taxes may also be a factor, depending on whether the sale is profitable and in what jurisdiction the investor is domiciled. For instance, if you sell your Bitcoin for a profit, you might be subject to capital gains tax.
Another factor that needs to be considered is what assets you are selling.
For some exchanges and trading platforms, it may only be possible to sell Bitcoin directly into a crypto stablecoin, such as USD Coin (USDC) or Tether (USDT), instead of fiat currency. In this case, you will need to take the additional step of selling that asset into fiat, which may require an additional layer of fees.
Cash App is a financial app that offers Bitcoin. It is relatively straightforward to purchase the asset through the app, assuming you have an account.
Navigate to the home screen, tap “Buy BTC” and enter the amount you would like to buy. You will then be asked to type in your PIN to complete the transaction. The fee will be listed on the screen before you confirm the trade. This will help you compare the purchasing method to other mediums available to you.
Buying through PayPal follows a similarly straightforward process as Cash App.
However, there are disadvantages, too. In certain countries, PayPal does not allow users to transfer Bitcoin off the platform. The feature to allow all eligible PayPal customers in the U.S. to move their coins to external exchanges and wallets only became available in August 2022. PayPal has also been known to charge higher fees than alternate options.
Credit cards can be used to purchase Bitcoin through various avenues, the most common of which are exchanges. Once signed up for an exchange, you are often able to deposit funds using a credit card.
There are usually additional fees when using a credit card to purchase Bitcoin or other cryptocurrencies from a crypto exchange. Also, some credit issuers don’t allow the purchase of cryptocurrency. A more cost-effective way of purchasing Bitcoin is by linking your crypto exchange account to your bank account or setting up a wire transfer.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
