A Beginner's Guide To Investing In Bitcoin (In Australia)

Bitcoin is a decentralised digital currency that was introduced in 2008 by an anonymous individual or group known as Satoshi Nakamoto. It is the original cryptocurrency and the first real-world application of blockchain technology. Bitcoin's value has grown over 12,000% in the last eight years, and it now has a market cap of over $1 trillion.

If you're looking to invest in Bitcoin in Australia, there are several reputable crypto exchanges that can help you get started. These include Swyftx, Binance, and Independent Reserve. You can also use a cryptocurrency broker, such as Caleb & Brown, which offers an easy-to-use interface that interacts with exchanges on your behalf.

Before investing in Bitcoin, it's important to remember that it is a highly volatile asset and there are risks involved. It's recommended that you do your research and only invest what you're comfortable with losing.

Choose a crypto exchange

To buy bitcoin (BTC), or any cryptocurrency, you’ll need a crypto exchange where buyers and sellers meet to exchange dollars for coins. There are hundreds of exchanges out there, including multiple Australian-based exchanges, but as a beginner, you’ll want to opt for one that balances ease of use with low fees and high security.

Make sure to check if your exchange has a bitcoin wallet built into its platform; if not, you’ll need to find one of your own. If you want to hold your crypto in a different wallet, you’ll need to sell your holdings and then re-buy them on a different exchange.

• Company authenticity and platform security
• Fees, spreads and any hidden charges
• Number of coins offered
• The ability to buy coins direct with AUD
• Customer support
• User-friendliness and trading tools
• Payment methods
• Trading fees
• Liquidity
• Account verification process
• Security
• Customer support
• Reputation

Some of the most well-known cryptocurrency exchanges are Coinbase, Kraken, and Binance. While these companies’ standard trading interfaces may overwhelm beginners, particularly those without a background in trading stocks, they also offer user-friendly easy purchase options.

A host of Australian-based exchanges, such as CoinSpot, Independent Reserve, and Swyftx, allow users to purchase a range of cryptocurrencies with AUD, including through bank transfers or via BPAY in some instances. Make sure you research which exchange is best for you before signing up, particularly in regards to trading and transaction fees.

Decide on a payment method

After choosing a crypto exchange, you will need to fund your account before you can begin investing in bitcoin. Depending on the exchange, you can fund your account via bank transfer, card, or via a debit or credit card. Exchanges operating in Australia typically offer instant AUD deposits using PayID.

Because fees reduce how much money you can invest (and therefore also how much money you have to grow and compound), it makes sense to use electronic transfers from a bank account rather than other methods. In addition, if you use a credit card to buy cryptocurrency, it generally will count as a cash advance and be subject to a higher interest rate than you pay on regular charges. Remember that taking on debt to buy volatile investments is extremely risky.

• Bank transfer: Electronic Funds Transfer is supported by all Australian banks. These deposits usually take 1 to 2 business days to appear in your account.
• PayID: Want to buy Bitcoin instantly? PayID is a great way to do so and is supported by most Australian banks.
• PayPal: Instantly buy Bitcoin by depositing with your PayPal account.
• Credit or debit card: Instantly buy Bitcoin with your credit card or debit card! Visa and Mastercard are accepted.

You can decide which exchange is right for you by reading our guide to the top exchanges for Australians.

Select a safe storage option

Once you've bought your Bitcoin, you'll need to store it. There are several options for storing your Bitcoin safely, each with its own pros and cons.

Online Bitcoin Wallets

Online wallets are stored and accessed on the cloud via remote servers. They are extremely convenient, allowing you to access your wallet and execute transactions from anywhere in the world. They also handle the process of generating new bitcoin addresses for each transaction. However, online wallets store your security keys on those servers, so if the servers are compromised by hackers, you lose access to your wallet and money.

Mobile Bitcoin Wallets

Mobile wallets are run through apps on your smartphone or tablet and can only be accessed through your private device. Your private security keys and bitcoin addresses are stored only on your device and cannot be hacked via an attack on the host company's servers. This provides the mobility and responsiveness of online wallets with an extra layer of offline security. However, if you lose your phone and haven't encrypted it, you could lose access to your wallet.

Desktop Bitcoin Wallets

Desktop wallets are installed on your computer and can only be accessed from that device. All personal security keys are stored and accessed on that computer, minimising the exposure of your security keys to hacking. While you lose out on the convenience of being able to execute transactions from anywhere, you keep the security of your bitcoins in your own control. However, your desktop wallet can still be compromised if your computer gets infected with malware or keylogging software.

Hardware Bitcoin Wallets

Hardware wallets are physical devices, like USB sticks, that store your bitcoin wallet. They are one of the most secure methods of bitcoin storage as they are completely offline and immune to computer viruses and malware. They also have special, protected areas of the microcontrollers that store your private keys, preventing them from being transferred out in plaintext. To date, there have been no verifiable incidents of bitcoins being stolen from hardware wallets.

Understand the risks

Before investing in Bitcoin, it is important to be aware of the risks involved. Here are some key considerations:

• Market Volatility: The cryptocurrency market is highly volatile, and Bitcoin prices can fluctuate drastically. In 2022, the price of Bitcoin dropped from nearly $48,000 to around $19,300. This volatility can be driven by various factors, such as news and events (like Elon Musk's tweets or regulatory threats) and the actions of large crypto investors.
• Security and Cyber Threats: The decentralised nature of Bitcoin makes it susceptible to security breaches and cyber-attacks. While the Bitcoin network itself has never been hacked, individual crypto wallets and exchanges have been targeted, resulting in significant financial losses. It is crucial to choose secure storage options, such as cold wallets, to minimise the risk of theft or loss.
• Regulatory Uncertainty: The regulatory environment for cryptocurrency is still evolving, and changes in government policies can impact the value of Bitcoin. For example, in 2021, China effectively banned its citizens from mining or holding any cryptocurrency.
• Complexity and Unfamiliarity: Cryptocurrency is a complex and relatively new asset class. It is important to understand how Bitcoin and the underlying blockchain technology work before investing. The lack of regulation in this space also means that there is limited consumer protection, and it can be challenging to recover funds lost due to scams or platform failures.
• Counterparty Risk: When investing in Bitcoin through exchanges or brokers, you rely on a third party to hold and manage your assets. This introduces counterparty risk, as some exchanges have gone bankrupt or been involved in fraud, resulting in losses for investors.
• High-Risk Investment: Bitcoin is considered a high-risk and speculative investment. Its value is unpredictable, and there is no guarantee of returns. It is recommended to invest only what you can afford to lose and to limit your exposure to a small percentage of your investment portfolio.
• Anonymity and Privacy: While Bitcoin transactions are pseudonymous, your crypto wallet address is publicly available. Hackers can potentially use this information, along with web trackers and cookies, to access your private data.

Remember, investing in Bitcoin carries significant risks, and it is essential to do your research and understand these risks before making any investment decisions.

Research the market

Before investing in Bitcoin, it is important to research the market and understand the risks involved. Bitcoin is a highly volatile asset, prone to huge price fluctuations, and is therefore not a risk-free investment.

Bitcoin's value has seen incredible growth since May 2016, when 1 BTC was worth around $US500. As of May 2024, 1 BTC is worth over $US60,000, marking a 12,000% increase in eight years. However, it is important to remember that Bitcoin has also experienced devastating declines, such as the bear market of 2022, where its value declined by almost 80%.

Bitcoin's price is influenced by various factors, including institutional interest, applications for spot BTC exchange-traded funds (ETFs), and macroeconomic trends. For example, in January 2024, the approval of 11 spot Bitcoin ETFs for trade in the US pushed the price of Bitcoin to a new all-time high of over $US73,000.

Another factor that affects Bitcoin's price is the halving event, which happens roughly every four years and reduces the rate at which new coins are created. The most recent halving occurred in April 2024, decreasing the issuance rate to 3.125 BTC per block.

It is also worth considering the wider crypto market and the performance of other cryptocurrencies. Ethereum (ETH), for instance, is expected to see growth similar to Bitcoin due to the approval of spot ETH ETFs in the US.

Additionally, it is important to research the regulatory landscape surrounding cryptocurrency in Australia. While it is legal to buy Bitcoin in Australia, the Australian Taxation Office (ATO) imposes strict taxation rules on crypto, and there is a lack of clear guidelines regarding ownership rights.

Furthermore, it is worth noting that the big four banks in Australia generally have an anti-crypto stance, and banks may close accounts of individuals who frequently transact with crypto. Therefore, it is advisable to research the policies of individual banks before investing.

Overall, investing in Bitcoin carries significant risks, and it is important to carefully consider your financial situation, risk tolerance, and investment goals before diving into the world of Bitcoin.

Frequently asked questions