Exploring Bitcoin Investment: Understanding The Cost To Invest

Bitcoin is a decentralised digital currency that operates without the oversight of banks and governments. It was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. It is now the world's largest cryptocurrency, and its value is driven by a variety of factors, like scarcity and the potential for high returns.

There are several ways to invest in Bitcoin, including purchasing it directly via exchanges and Bitcoin ATMs, trading it on exchanges, and dollar-cost averaging. However, investing in Bitcoin is risky due to its high volatility and the lack of regulatory frameworks around cryptocurrency.

The amount of money required to invest in Bitcoin depends on the investment strategy and platform used. For example, some crypto exchanges have minimum purchases of $10 or less, while others allow purchases of portions of a Bitcoin. Additionally, investors should be aware of the various fees associated with different investment methods and platforms.

Bitcoin wallets and cryptocurrency exchanges

A Bitcoin wallet is a software program where you store your Bitcoin. It contains private keys that allow you to sign transactions and prove that you own a certain amount of Bitcoin. These private keys are like secret codes that allow you to spend your Bitcoin, so it's important to keep them secure. If someone steals your private keys, they could spend your Bitcoin. Additionally, if you lose your wallet and your private keys, you'll lose access to your Bitcoin, so it's important to have backup copies.

There are different types of Bitcoin wallets, including software wallets, hardware wallets, and paper wallets. Software wallets are applications installed on computers or mobile devices, such as phones or tablets, that allow you to access your cryptocurrency, make transactions, and check your balance. Hardware wallets are physical devices, similar to USB drives, that store your private keys offline, providing an extra layer of security. Paper wallets are simply pieces of paper that have a public Bitcoin address and private key printed on them, which can be stored in a safe or secure location.

A Bitcoin exchange is a digital marketplace or website where you can convert fiat currency, such as US dollars, into Bitcoin, and vice versa. They act as intermediaries between buyers and sellers of Bitcoin, matching them to facilitate trades. Examples of popular exchanges include Coinbase, Kraken, Gemini, and Binance. When using an exchange, you'll need to connect a payment method, such as a bank account, debit card, or credit card, and you may be required to provide personal identification information.

It's worth noting that exchanges may offer integrated Bitcoin wallets, but you may not have full control over these wallets. The exchange holds the private keys, so your Bitcoin is under their control rather than yours. This means that if the exchange is hacked or encounters financial issues, you could lose your Bitcoin. Therefore, it's important to carefully consider the risks and benefits of using an exchange wallet or a third-party wallet.

Costs of Investing in Bitcoin

When it comes to investing in Bitcoin, there are several costs to consider. Firstly, you need to take into account the price of Bitcoin itself, which has seen significant fluctuations over the years, reaching an all-time high of $68,789 in November 2021 and a recent low of $16,291 in December 2022.

Secondly, depending on the exchange or platform you use, there may be transaction fees, deposit fees, and withdrawal fees. These fees can vary depending on the payment method chosen and the risk of chargebacks associated with certain methods. For example, credit card transactions typically incur higher fees than bank transfers. Additionally, if you use a credit card to purchase Bitcoin, it may be treated as a cash advance by the card issuer, resulting in higher interest rates and additional fees.

Lastly, if you choose to store your Bitcoin in a hot wallet, which is connected to the internet, there may be additional costs associated with enhancing the security of your wallet to protect against potential hacking attempts. Cold wallets, which are offline storage solutions, may also come with initial setup costs, but they are generally considered more secure.

Traditional brokers

Robinhood was the first mainstream investment broker to offer Bitcoin. Like its stock-trading platform, Robinhood charges no fees for Bitcoin trades. Other online brokers that offer access to Bitcoin or other cryptocurrencies include Webull, TradeStation, Fidelity, and Interactive Brokers.

If you already use a traditional broker, it may be worth checking if they offer access to Bitcoin. However, it's important to note that crypto trading is not subject to the same investor protections as traditional investments. For example, U.S. Securities Investor Protection Corp. insurance doesn't apply to cryptocurrency, so you could lose your investment if the exchange fails.

Money transfer apps

• Wise: This app is best for international and large transfers. It allows users to send money to 160 countries with relatively low transfer fees. Wise also has the highest transfer limits among apps, allowing users to send up to $1 million per transfer by wire or $50,000 by ACH.
• Venmo: This app is best for domestic transfers with friends and family. It is only available in the US but offers instant transfers and no fees when sending from a bank account, debit card, or Venmo wallet.
• Zelle: This app is best for low fees and domestic bank-to-bank transfers. It is available in over 2,000 banks and credit unions in the US and allows users to send money instantly for no cost.
• Cash App: This app is best for low fees and offers free domestic transfers via Cash accounts and debit cards. It also has saving, investing, and cryptocurrency features.
• PayPal: This app is best for large transfers and offers high transfer limits of up to $60,000 for verified accounts. It also allows for free domestic peer-to-peer transactions using the PayPal balance or bank account.
• Meta Pay: This app is best for Facebook Messenger transfers and offers free, instant transfers to friends and family through Facebook Messenger and, in some cases, WhatsApp.
• Apple Cash: This app is best for customer satisfaction and is built into iPhones as part of Apple Wallet. It offers instant, free transfers to other Apple Cash users and can be used at 85% of US retailers.

Some money transfer apps also allow users to buy, sell, and hold Bitcoin and other cryptocurrencies. For example, Venmo, Cash App, and PayPal allow users to purchase Bitcoin for a small fee. However, these apps are not ideal for international transfers as they charge higher fees for currency conversion.

If you are looking to invest in Bitcoin specifically, you may want to consider using a cryptocurrency exchange such as Coinbase, Kraken, or Crypto.com. These exchanges offer lower fees and a wider range of cryptocurrencies to choose from.

Bitcoin ATMs

There are several providers of Bitcoin ATMs, including Coinhub, Lowest Fee Bitcoin ATMs, Byte Federal, Coinme, CoinFlip, Cash2Bitcoin, Bitstop, Just Digital Coin, and HODL Digital Services. These companies are responsible for the hardware and software that power the machines, ensuring that they are secure, user-friendly, and compliant with local regulations.

Using a Bitcoin ATM typically involves the following steps:

• Enter the amount to purchase. Depending on local regulations and the amount, you may be required to verify your identity.
• Provide your Bitcoin wallet address by scanning the QR code of your wallet address with the ATM's camera.
• Pay with cash, credit card, or payment app.
• Receive the bitcoin in your Bitcoin wallet. This generally takes a few minutes, and the ATM will provide a transaction ID to monitor the status of the purchase.

Selling Bitcoin via an ATM typically involves:

• Entering the amount to sell.
• Sending Bitcoin to the provided address by scanning the QR code with your Bitcoin wallet app.
• Receiving cash from the ATM once it has received the Bitcoin.

There are a few things to keep in mind when using Bitcoin ATMs. First, they often charge high transaction fees, including a purchase fee and a conversion fee for exchanging fiat currency to Bitcoin. Second, they are a frequent target for scams, as they offer anonymity and accessibility. Finally, Bitcoin and other cryptocurrencies purchased via ATMs are not insured by the Federal Deposit Insurance Corporation (FDIC) and are not regulated by the federal government.

Bitcoin ETFs

The first Bitcoin ETFs were approved by the Securities and Exchange Commission (SEC) in January 2024, marking a significant milestone for the cryptocurrency industry. This decision opened up a more accessible and regulated way for investors to invest in Bitcoin through their brokerage accounts.

One of the main advantages of Bitcoin ETFs is their convenience. They lower the barriers to entry into the crypto market by eliminating the need for investors to manage wallets, navigate crypto exchanges, or deal with private and public keys. This makes asset management simpler and more attractive to those accustomed to traditional investments.

Another benefit is liquidity. Bitcoin ETFs make buying and selling Bitcoin more accessible through familiar brokerage accounts, mirroring the process of trading traditional stocks or ETFs. This provides an intuitive transition for mainstream investors. Additionally, Bitcoin ETFs offer regulatory oversight, providing rules and protections that are absent when purchasing Bitcoins directly.

In terms of fees, while Bitcoin ETFs do charge management fees or expense ratios, these costs can be higher than those of traditional equity ETFs due to the additional expenses associated with exchanging and securing Bitcoins.

It's important to note that investing in Bitcoin ETFs still carries risks. The volatility of Bitcoin prices can lead to significant financial losses, and the lack of a clear regulatory framework means there is uncertainty about how issues like fraud, manipulation, and loss of assets will be addressed. Additionally, the large number of coins held by these ETFs makes them attractive targets for cybercriminals, and successful breaches could result in significant financial losses and damage investor confidence.

Overall, Bitcoin ETFs have the potential to enhance market liquidity, aid in better price discovery, and attract more institutional participation, playing a pivotal role in stabilizing and boosting Bitcoin adoption. However, the increased demand and speculative trading may also lead to concerns about overvaluation.

Frequently asked questions