The Cost Of Investing In Bitcoin: A Comprehensive Guide

Bitcoin is a cryptocurrency, a virtual currency that can be used as a form of payment outside the control of any one person, group, or entity. It was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. It has since become the most well-known and largest cryptocurrency in the world.

There are several ways to invest in Bitcoin, including purchasing it on a cryptocurrency exchange, trading it on exchanges, or investing in Bitcoin-related companies or exchange-traded funds (ETFs). The amount of money it costs to invest in Bitcoin depends on various factors, including the current market price of Bitcoin, the amount of Bitcoin you want to purchase, and the fees charged by the exchange or platform you use.

It's important to note that investing in Bitcoin carries risks, including price volatility, regulatory uncertainty, security risks, and the lack of guaranteed returns. Before investing in Bitcoin, it's essential to carefully consider your financial situation, risk tolerance, and investment goals.

Bitcoin wallets

There are two main types of Bitcoin wallets: hot wallets and cold wallets. Hot wallets are connected to the internet, making transactions generally faster, while cold wallets are not connected to the internet and often incorporate extra security steps that help to keep your assets safe but also make transactions take longer.

Hot wallets are best for small amounts of cryptocurrency or cryptocurrency that is actively trading on an exchange and may be used like a checking account. Cold wallets are considered much more secure than hot wallets and are best for large amounts of cryptocurrency or cryptocurrency that is being held as a long-term investment.

There are several types of hot and cold wallets, including:

• Desktop wallets – these utilize encryption to keep a user’s private keys securely stored on their computer hard drive. They are excellent for securely conducting small crypto transactions using a computer. They are free and easy to use, and no third party holds your private keys. However, they are potentially vulnerable to malware or computer viruses, and anyone who has access to your computer could potentially access your crypto. Examples include BitPay, Exodus, and Electrum.
• Web wallets – these are wallets provided by a third party, typically a crypto exchange, which offer seamless access to a user’s holdings using a web browser. They are easy to use and generally favored by most crypto newcomers. They support a variety of transactions (buy, sell, swap, etc.) but require trusting a third party to secure your private keys and are potentially vulnerable to hackers. The computer used to access a web wallet is also subject to threats like viruses, malware, and keyloggers. Examples include Coinbase, Metamask, and Guarda.
• Mobile wallets – these allow users to quickly and securely spend or receive cryptocurrency anywhere they have their phone and an active internet connection. They are highly convenient and easy to use and are one of the easiest ways to spend cryptocurrency. However, they are only as secure as your phone, and the account could be compromised if the device is lost or stolen. Like a computer, phones are potentially vulnerable to viruses and malware. Examples include BitPay, Edge, Trust, Electrum, and Blockchain.com.
• Hardware wallets – these are physical devices, often resembling a USB thumb drive, that are offline unless plugged into a computer or mobile device. They are one of the most secure methods of crypto storage and are available at most major electronics retailers. Transactions are signed using the private key offline and are only brought online to upload the transaction to the blockchain. They can be challenging for crypto beginners, and they are not free, typically priced between $30-$200. Examples include Ledger Nano S, Trezor Model One, and Ledger Nano X.
• Paper wallets – these are an offline wallet solution where private keys are written down or printed and securely stored. Being completely offline makes them impossible to hack, and no third party has control of your private keys. They can include the optional inclusion of a QR code to allow for easier access. However, paper can be easily lost, stolen, incinerated, or otherwise destroyed, and they require more time and effort to move crypto between wallets and more technical know-how.

When choosing a Bitcoin wallet, it is important to consider your crypto goals and usage habits. It can be advantageous to use multiple wallets for different purposes (e.g., a hardware wallet for saving and a mobile wallet for regular spending).

Cryptocurrency exchanges

A cryptocurrency exchange is a platform for buying and selling cryptocurrencies. They are online platforms hosted by companies or other entities that make it convenient for users to purchase and sell cryptocurrency. Some crypto exchanges offer a variety of products and services, while others exist purely for buying and selling digital assets.

There are two main types of exchanges: centralized and decentralized. Centralized exchanges are overseen by a third party (called an exchange operator) which helps to ensure that customer sign-up and trading runs smoothly. Decentralized exchanges, on the other hand, lack third-party oversight, are open-source, and depend on peer-to-peer trading.

Some well-known cryptocurrency exchanges include:

• Gemini
• Kraken
• Coinbase
• Crypto.com
• Binance
• Robinhood
• Webull
• TradeStation
• Fidelity
• EToro
• Changelly

When choosing a cryptocurrency exchange, it is important to consider factors such as security features, trading fees, and the cryptocurrencies available. It is also crucial to use a reputable and regulated exchange to ensure the safety of your investments.

Additionally, it is worth noting that crypto exchanges typically charge fees for transactions, which can be based on the transaction size or the user's activity level. These fees can vary among different exchanges, so it is important to research and understand the associated costs before making a decision.

Overall, cryptocurrency exchanges provide an accessible way to buy and sell cryptocurrencies, offering various features, consumer protections, and fees to suit different investor needs and preferences.

Traditional stockbrokers

When choosing a platform to invest in Bitcoin, it is important to consider the minimum investment requirements and the reputation of the platform. Smaller or newer platforms may present security or liquidity risks.

It is also worth noting that, as of 2020, there is no Bitcoin exchange-traded fund, and there may not be one for years. This limits the options for investors who want to buy Bitcoin through a traditional brokerage account.

• Understand the risks: Bitcoin is a high-risk and volatile asset. Carefully consider your risk tolerance and investment strategy before investing.
• Diversify your portfolio: Invest in a variety of assets, including low-risk and medium-risk investments, to protect yourself from potential losses.
• Start with a small investment: If you are new to Bitcoin, consider starting with a small amount, such as $10 per week, to get a feel for the market and minimize your risk.
• Do your research: Before investing, take the time to learn about Bitcoin, its technology, and the factors that influence its value.
• Choose a reputable broker: Select a well-established and regulated broker with a good reputation to reduce the risk of fraud or security breaches.
• Monitor your investments: Keep track of your Bitcoin investments and be prepared to make adjustments as needed based on market trends and your investment goals.

Bitcoin ATMs

The process of buying Bitcoin from 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 using the ATM's camera to scan the QR code of your Bitcoin wallet address displayed in your Bitcoin wallet app.
• 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 from a Bitcoin ATM typically involves:

• Entering the amount to sell, which may require identity verification.
• Sending Bitcoin to the provided address by scanning the QR code of the provided address and sending the Bitcoin using your Bitcoin wallet app.
• Receiving cash from the ATM once it receives the Bitcoin.

There are tens of thousands of Bitcoin ATMs worldwide, with the majority located in the United States. The two largest Bitcoin ATM networks are Coinhub and Coinme, with 2,000 and 5,000 kiosks, respectively.

It is important to note that Bitcoin ATMs have been criticised for charging high transaction fees, with some reporting fees of up to 20%. Additionally, they are frequent targets for scams, and it can be challenging to track down scammers and recover funds in the event of fraud.

Bitcoin exchange-traded funds

Bitcoin ETFs are a way to gain exposure to the price movements of Bitcoin without actually owning the cryptocurrency. They are investment funds that hold Bitcoin-related assets and issue securities as shares of the fund, which can be traded on major exchanges. This allows investors to speculate on the price of Bitcoin without the need to buy, store, or secure the digital currency themselves.

The first Bitcoin-linked ETF was the ProShares Bitcoin Strategy ETF (BITO), approved by the SEC in October 2021. This ETF mainly uses futures contracts to track the price of Bitcoin. Other similar ETFs include the Valkyrie Bitcoin and Ether Strategy ETF (BTF), VanEck Bitcoin Strategy ETF (XBTF), and Global X Blockchain & Bitcoin Strategy ETF (BITS).

Bitcoin ETFs have several advantages. They provide a convenient way to invest in Bitcoin, eliminating the need for security procedures and the hassle of buying and storing the cryptocurrency directly. They also offer a familiar investment type for those who are more comfortable with traditional financial products. Additionally, they can be traded on regulated exchanges, providing a level of security that the crypto markets may lack.

However, there are also some limitations to consider. Bitcoin ETFs may not always accurately track the price of Bitcoin due to management fees, transaction costs, and other factors. The regulatory landscape for cryptocurrencies is still evolving, which can introduce uncertainty for investors. The liquidity of the underlying Bitcoin futures contracts is also crucial for the smooth operation of the ETF.

When investing in Bitcoin ETFs, it is important to consider factors such as risk tolerance, investment goals, and the overall portfolio. It is also essential to understand the potential risks and volatility associated with the crypto markets.

The cost of investing in Bitcoin can vary depending on the method you choose. Here are a few ways to invest in Bitcoin:

• Cryptocurrency exchanges: You can purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, or Crypto.com. These exchanges offer a variety of cryptocurrencies and carry different fees and consumer protections.
• Traditional stockbrokers: Robinhood was one of the first mainstream investment brokers to offer Bitcoin trading. Other options include Webull, TradeStation, and Fidelity.
• Bitcoin ATMs: These ATMs allow you to buy and sell Bitcoin with cash and are often placed in locations where you would find regular ATMs.
• Peer-to-peer money transfer apps: Apps like PayPal, Venmo, or Cash App allow users to purchase, store, send, and sell Bitcoin directly within the apps.
• Bitcoin ETFs: As mentioned earlier, Bitcoin ETFs provide a way to invest in the price movements of Bitcoin without owning the cryptocurrency directly.

The amount of money you need to invest in Bitcoin depends on your financial situation, risk tolerance, and investment goals. It is generally recommended to invest only what you can afford to lose, as Bitcoin and other cryptocurrencies are considered risky assets. You can start with a small amount, such as $25 or $100, to get a grasp of how the process works. Additionally, many crypto exchanges have minimum purchases of $10 or less.

Frequently asked questions