How To Partially Invest In Bitcoin: A Beginner's Guide

Bitcoin is a cryptocurrency that has experienced wild swings in value since its introduction in 2009. It is a decentralised form of digital cash, existing only in digital form, and does not rely on third-party intermediaries to verify transactions or record ownership transfers.

You can buy fractions of a Bitcoin, meaning you don't need to buy a whole Bitcoin, making it a flexible option for both small and large investors. You can buy Bitcoin from cryptocurrency exchanges, traditional stockbrokers, money transfer apps, Bitcoin ATMs, and Bitcoin exchange-traded funds (ETFs).

Before buying Bitcoin, it is important to consider the associated risks, such as its extreme volatility, security concerns, and the lack of investor protections.

Bitcoin wallets

Hot wallets are apps on devices such as computers, phones, or tablets. They are free to use and offer add-on services such as trading or staking in exchange for fees. Transactions are faster with hot wallets, but they are more vulnerable to hacking. Examples of hot wallets include Crypto.com, Coinbase, and Trust Wallet.

Cold wallets are small, encrypted portable devices that are not connected to the internet and thus are more secure. They are harder to set up and are not designed for scanning QR codes. Cold wallets are ideal for storing large amounts of Bitcoin. Examples of cold wallets include Ledger and Trezor.

When creating accounts for your digital wallets, it is important to use a strong password and two-factor authentication.

Cryptocurrency exchanges

There are two types of cryptocurrency exchanges: centralized and decentralized. Centralized exchanges closely align with financial regulations from governmental authorities, such as the U.S. Securities and Exchange Commission. Many will insure U.S. dollar deposits and require proof of identity to use the platform. Examples of centralized exchanges include Coinbase, Kraken, Gemini, and Binance.

Decentralized exchanges, on the other hand, are unregulated online exchanges hosted on distributed nodes that are user-owned, and there is no centralized governing authority. While this may sound risky, decentralized exchanges offer transparent transactions and fees, as well as direct peer-to-peer exchange of cryptocurrency.

When choosing a cryptocurrency exchange, it is important to consider security, fees, and the cryptocurrencies offered. It is also crucial to understand how your cryptocurrency will be stored and whether you can take custody of it by transferring it to your own digital wallet. Additionally, exchanges charge different fees for deposits and transactions, so it is essential to research these fees before selecting an exchange.

Some popular centralized cryptocurrency exchanges include:

• Coinbase: the largest exchange by trading volume in the United States, serving customers in over 190 countries.
• Binance: founded in 2017, it quickly became the top exchange by trade volume, registering more than USD 36 billion in trades by early 2021.
• Gemini: founded in 2014 by the Winklevoss twins, it has generated more than USD 175 million in trading volume.
• Kraken: offers the most order types, including market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders.

Traditional brokers

There are a few ways to invest in Bitcoin through traditional brokers. One way is to use a trading app such as Webull or Robinhood, which allow you to purchase Bitcoin with no direct commission, but you will make up for it with a spread markup. These apps also allow you to purchase Bitcoin ETFs.

Another option is to use a traditional broker that has ventured into the cryptocurrency arena, such as Interactive Brokers or TradeStation. These brokers allow you to buy Bitcoin futures or trade the coin directly. For example, Interactive Brokers charges a competitive commission of 0.12-0.18% of the trade value, depending on your monthly volume.

It is important to note that traditional brokers typically only offer a handful of cryptocurrencies to trade, so if you are looking to trade a wide range of cryptocurrencies, you may need to look into a cryptocurrency exchange.

Money transfer apps

Cash App

Cash App is a mobile banking app that allows individuals in the US and the UK to send, spend, bank and invest. It is a good option for those who want to send or receive Bitcoin, as it allows users to withdraw their Bitcoin to third-party wallets. It also has relatively low fees and good security features. However, Cash App has received poor customer reviews, and federal prosecutors are currently investigating its parent company, Block.

Venmo

Venmo is a good option for those who want to send money to friends and family in the US. It is free and instant to send money from a bank account, debit card or Venmo wallet, and verified users can send up to $60,000 per week. However, it does not support international transfers and has a high credit card transfer fee of 3%.

Zelle

Zelle is a good option for those who want to send money instantly and for free. It is available in over 2,000 banks and credit unions in the US, and transfers are usually instant. However, it does not support multiple currencies or international transfers, and there is no option to transfer money from a credit card.

PayPal

PayPal is a good option for those who want to make free domestic transfers. It is available in over 200 countries and supports multiple currencies. It also has a high transfer limit of $60,000 for verified accounts. However, it is not ideal for international transfers, as it charges a 3-4% currency conversion spread and relatively high instant withdrawal fees.

Wise

Wise is a good option for those who want to send money internationally. It supports 160 countries and has relatively low transfer fees and generous transfer limits. It also has excellent customer reviews and app ratings. However, it charges a small fee to withdraw your balance to your bank account.

Meta Pay

Meta Pay is a good option for those who want to send money through Facebook Messenger or WhatsApp. It is available in 143 countries and charges no fees for sending money. However, it has relatively low transaction limits, and US residents cannot use it for international money transfers.

Bitcoin ATMs

To buy bitcoin from a Bitcoin ATM, you will need to:

• Enter the amount to purchase. Depending on local regulations and the amount you are purchasing, you may be required to verify your identity.
• Provide your Bitcoin wallet address by using the ATM's camera to scan the QR code of your Bitcoin wallet address.
• Pay using cash, credit card, payment app, etc.
• Receive the bitcoin in your Bitcoin wallet. The ATM will provide a transaction ID to monitor the status of the purchase.

To sell bitcoin from a Bitcoin ATM:

• Enter the amount to sell. Depending on local regulations and the amount, you may need to verify your identity.
• Send bitcoin to the provided address by scanning the QR code of the provided address and sending the bitcoin using your Bitcoin wallet app.
• Take your cash. Once the ATM receives the bitcoin, it will dispense your cash, which can be monitored using your Bitcoin wallet app.

There are tens of thousands of Bitcoin ATMs worldwide, with the majority located in the United States. Bitcoin ATM providers are companies that manufacture, deploy, and sometimes operate Bitcoin ATMs. These companies are responsible for ensuring that the machines are secure, user-friendly, and compliant with local regulations.

It is important to note that Bitcoin and other cryptocurrency investments are not insured by the Securities Investor Protection Corporation for exchange failures or theft. Additionally, some countries, such as Germany, have strict regulations regarding Bitcoin ATMs, and operating an unlicensed ATM can result in legal consequences.

Frequently asked questions