The Ultimate Guide: Investing In Bitcoin In The Us

Bitcoin is one of the most widely used types of cryptocurrency. It was created to solve a couple of big cryptocurrency flaws, including the fraudulent duplication of coins. It uses a digital technology called blockchain, an advanced coding mechanism that disperses a single code over thousands of different computers.

There are several ways to invest in Bitcoin, both directly and indirectly. Here are some of the most common ways:

- Purchasing standalone Bitcoin

- Greyscale's Bitcoin Investment Trust (GBTC)

- Amplify Transformational Data Sharing ETF (BLOK)

- Bitwise 10 Private Index Fund (BITW)

Before investing in Bitcoin, it is important to understand the risks involved. Bitcoin is a very high-risk and volatile investment. Its value may rise or fall dramatically in a very short period. It is also important to consider your risk tolerance, investment strategy, and financial goals.

Choosing a crypto-trading service or venue

The first step in investing in Bitcoin is to choose a crypto-trading service or venue. There are several factors to consider when making this decision, including the range of features offered, the number of supported cryptocurrencies, security measures, customer service, and the reputation of the platform. Here are some key points to keep in mind:

• Exchanges: Cryptocurrency exchanges are a convenient option as they offer a wide range of features and support for various cryptocurrencies. Popular exchanges in the US include Coinbase, Kraken, Gemini, and Binance. These platforms enable investors to buy, sell, and hold cryptocurrencies and provide users with online wallets for safekeeping.
• Supported assets: Consider the range of cryptocurrencies offered by the platform. Some exchanges support only a few cryptocurrencies, while others allow trading in hundreds of digital assets. Choose a platform that aligns with your investment goals and interests.
• Payment methods: Different exchanges offer varying payment methods for funding your account or purchasing cryptocurrencies. Most support wire transfers, while some also accept credit cards, debit cards, and other digital payment options.
• Fees: Research the fees charged by the platform, including trading fees, deposit fees, withdrawal fees, and transaction fees. High fees can eat into your investment returns, so it's important to understand the fee structure before signing up.
• Security: Crypto exchanges are often targeted by hackers due to the nature of their business. Choose a platform with robust security measures, such as two-factor authentication, encryption, and compliance with security standards.
• Customer service: If you're new to cryptocurrency investing, consider choosing a platform with excellent customer support. This can be crucial in resolving any issues or queries you may have during the trading process.
• Reputation: Research the reputation of the platform before signing up. Read customer reviews, check the exchange's history, and look for any recent news or regulatory issues associated with the platform.
• User verification: Most exchanges will require you to provide personal information and verify your identity before allowing you to trade. This process may vary in complexity and the level of verification required, so be prepared to provide the necessary documentation.
• Password and authentication: When creating an account on a crypto exchange, use a long, unique password that includes a combination of lowercase and uppercase letters, special characters, and numbers. Additionally, enable two-factor authentication for added security.

Overall, it's important to thoroughly research and compare different crypto-trading services or venues before making a decision. Consider your specific needs, investment goals, and risk tolerance when evaluating the various platforms available.

Connecting your exchange to a payment option

At most exchanges, you can connect your bank account directly or link it to a debit or credit card. Although you can use a credit card to purchase cryptocurrency, the volatility of cryptocurrency prices combined with a credit card's interest charges could inflate the overall cost of purchasing a token. Bitcoin is legal in the US, but some banks may question or even stop deposits to crypto-related sites or exchanges.

Fees vary for deposits via a bank account, debit, or credit card, and exchanges also charge fees per transaction.

Placing an order

Once you have chosen a crypto-trading service or venue, connected your exchange to a payment option, and set up a Bitcoin wallet, you can place your first order to buy Bitcoin.

Depending on the platform you're using, you may be able to purchase Bitcoin by tapping a button, or you may have to enter Bitcoin's ticker symbol: BTC. Next, input the amount you want to invest. If Bitcoin's current price is around $40,000, you'd need to invest that much to buy 1 BTC. If you invested less, say $1,000 when 1 BTC equals $40,000, you'd get a percentage of a Bitcoin equal to about 0.025 BTC.

Some coins cost thousands of dollars, but exchanges often allow you to buy fractions of a single coin—your initial investment could be as low as $25.

Investing in Bitcoin is very risky, and it's important that you carefully determine your risk tolerance and review your investment strategy before you purchase any Bitcoin.

You can also set up recurring investments, allowing clients to dollar-cost average into their investments of choice. For example, Coinbase lets users set recurring purchases for every day, week, or month.

Safe storage

There are several ways to store your Bitcoin safely, including:

• Hardware wallets: These are small, encrypted portable devices that allow you to download and carry your Bitcoin. They are considered much more secure than hot wallets, which are wallets that are connected to the internet and therefore more vulnerable to hacking. Examples of hardware wallets include Trezor and Ledger, which support BTC.
• Cold wallets: Cold wallets, or cold storage, are offline storage methods that aren't connected to the internet and are therefore considered safer than hot wallets. Cold wallets can be hardware wallets or paper wallets. Paper wallets are less common nowadays, but they can be generated at certain websites that produce both public and private keys printed on paper. Many people laminate these paper wallets and store them in safe deposit boxes at banks or in safes in their homes.
• Hot wallets: Hot wallets are connected to the internet and are therefore more vulnerable to hacking. They are typically apps on devices such as computers or phones, or they can be web-based. While less secure, hot wallets are more convenient for frequent transactions. Examples of hot wallet providers include Coinbase, Crypto.com, and Binance.
• Software wallets: Software wallets are downloaded programs that store your crypto assets. There are both desktop and mobile versions available. Trust Wallet is an example of a mobile software wallet.
• Custodial wallets: Custodial wallets are managed by a third party, such as an exchange like Coinbase, where the custodian stores your private keys for you. While convenient, these wallets come with the risk of hacks and theft.
• Non-custodial wallets: Non-custodial wallets, or self-custody wallets, give users full ownership of their private keys. These can be hot or cold wallets.

When choosing a storage method, it's important to consider factors such as the amount you've invested in crypto, how often you plan to spend or send your crypto, and your level of technical expertise. Additionally, always use strong passwords and enable two-factor authentication for added security.

Understanding the pros and cons of investing in Bitcoin

Bitcoin is the oldest and most traded cryptocurrency. It is highly liquid, transparent, and relatively safe. However, investing in Bitcoin is also volatile, energy inefficient, and lacks proper regulatory oversight. Here are some of the pros and cons of investing in Bitcoin.

Pros

• Poignant: Bitcoin is the first-ever cryptocurrency, leading to the creation of thousands of alternative coins, or 'altcoins'. This makes it a prestigious and desired asset.
• Decentralised: There are no centralised authorities or central banks that may impose high fees or restrictions. Bitcoin is also global, so there are no exchange rates to deal with.
• Highly liquid: Bitcoin is among the most liquid investment assets, especially in the crypto market. Many trading platforms like eToro accept Bitcoin, facilitating global investment.
• Transparent: Bitcoin is a decentralised platform and a public ledger that allows everyone to see transactions as they are stored permanently on the blockchain. This makes it efficient at fighting financial crime.
• Portfolio diversification: Bitcoin is a good way to diversify your portfolio.
• Hedge against inflation: Due to its supply cap of 21 million coins and decentralised nature, some believe Bitcoin is immune to economic turmoil, geopolitical problems, and inflation.
• Business features: Bitcoin has various features, such as multi-signature authorisation, that can improve transparency and security in business settings.
• Return on Investment: Figures show that Bitcoin has a significant ROI compared to other assets.
• Safety: Despite horror stories of scams and hacks, Bitcoin is the safest cryptocurrency to invest in due to its high number of global users, which helps to decentralise the network.
• Backed by major investors: Huge names have become major investors in Bitcoin, including Michael Saylor, CEO of MicroStrategy, and the founders of the Gemini exchange, the Winklevoss brothers.
• Functionality: Bitcoin can handle more than just transactions, with smart contracts and DeFi capabilities.

Cons

• Volatile: Bitcoin prices are unpredictable and subject to rapid change, making it a risky investment.
• Slow transactions: Bitcoin transactions can be slow, taking up to 10 minutes, and slow transaction fees can also mean higher transaction costs.
• Limited use: Bitcoin has limited use and depends on internet availability. Compared to other cryptocurrencies like Ethereum, it is mostly limited to financial transactions.
• Not 100% safe: Bitcoin can be stolen if held on an exchange. Its blockchain is almost unhackable, but many find it difficult to manage private keys and may lose their wallets beyond recovery.
• Lack of regulation: There is little regulatory oversight, and crypto regulations and taxation vary across the globe and are often unclear, controversial, or non-existent. A lack of regulations can lead to fraud and scams.
• Misunderstood: Bitcoin is still veiled in misconception, associated with Silk Road, illegal services, and scams, which makes cryptocurrency adoption difficult.
• Energy consumption: Bitcoin's mining process requires a lot of energy, leading to concerns about its environmental impact.
• Dominated by big investors: Bitcoin is now dominated by excessively big investors, or 'whales', whose ability to buy up huge amounts of Bitcoin can make it harder for small-time traders to buy at the right price.
• Community disagreements: Community disagreements have led to splits in Bitcoin before, which can be discouraging for investors.
• Quantum computers: Quantum computers could, in theory, overpower the Bitcoin network, rendering it useless.
• Not as intended: Bitcoin was designed to be a digital way to transfer value, not a replacement for gold. Today, many people hold Bitcoin because they believe it will increase in value, rather than using it for its original purpose.
• Creator's disappearance: The creator of Bitcoin, Satoshi Nakamoto, disappeared with 1 million BTC, raising questions about their intentions.

Frequently asked questions