The Ultimate Guide To Investing In Bitcoin Stock

Bitcoin is a cryptocurrency that has experienced some wild swings in price since its introduction in 2009. It is a decentralised version of digital cash, and its value is derived from its finite supply, store of value and payment system.

If you're considering investing in Bitcoin, there are several ways to buy it. You can purchase it directly or indirectly from traditional brokers, as well as some newer apps and exchanges.

1. Choose a Bitcoin Exchange or Brokerage: Select a platform that suits your needs, considering factors such as fees, reputation, and whether you plan to transfer your Bitcoin out of the brokerage account. Examples include Coinbase, Robinhood, eToro, FTX, Gemini, and BlockFi.

2. Open an Account: Provide basic contact information and valid identification to meet the exchange's know your customer (KYC) requirements.

3. Fund Your Account: Typically, the fastest and cheapest way is through an online funds transfer from a connected bank account. Some exchanges may also allow the use of payment apps like PayPal.

4. Place a Purchase Order: When you're ready, click the buy button to enter an order. The exchange will convert your fiat currency into Bitcoin, which will be stored in your cryptocurrency account, similar to holding stocks in a brokerage account.

Choosing a Bitcoin exchange or brokerage

There are two ways to trade cryptocurrencies: via an exchange or using a cryptocurrency broker. Both have their advantages and disadvantages, so it's important to understand the differences before deciding which route to take.

Cryptocurrency Exchange

A cryptocurrency exchange works similarly to a stock exchange, with buyers and sellers trading based on the current market price of the cryptocurrency. An exchange acts as a middleman and charges a transaction fee. Some people use a bitcoin exchange to exchange fiat currencies for bitcoin, while others exchange between different cryptos. Cryptocurrency exchanges are a common choice among average crypto traders but are less feasible for larger amounts.

Pros of Using a Cryptocurrency Exchange

• Direct trades: You can directly trade cryptocurrencies on a crypto exchange, buying or selling crypto for another crypto or fiat currency without dealing with the price difference.
• Variety: Crypto exchanges offer an easy way to buy, sell and trade cryptocurrencies, with users able to access a wide range of digital currencies and trading pairs in one place.
• Liquidity: Crypto exchanges are very popular and experience high trading volumes and increased liquidity, making it easy for users to buy and sell cryptocurrencies quickly and at competitive prices.
• Security: Reputable crypto exchanges take security seriously and use measures such as cold storage and two-factor authentication to protect users' funds.
• Regulation: Some crypto exchanges are regulated for safer trading, providing added protection for users and making the platform more trustworthy.

Cons of Using a Cryptocurrency Exchange

• Security risks: Despite security measures, crypto exchanges have been targeted by hackers in the past, resulting in the loss of millions of dollars worth of cryptocurrency.
• Limited control: Crypto exchange users rely on the exchange to keep their funds safe and execute trades accurately, so if you want total control over trading cryptocurrencies in real-time, an exchange could be limiting.
• Fees: Trading cryptocurrencies on an exchange can be expensive, with transaction fees eating into your profits.
• Downtime: Although rare, exchanges can experience technical issues such as system outages, preventing users from accessing their funds or executing trades.
• Lack of regulations: While many reputable exchanges are regulated, some are not, increasing the risk of fraud and reducing protection for users.

Cryptocurrency Broker

A cryptocurrency broker is a company or individual that acts as an intermediary between buyers and sellers of cryptocurrencies, helping traders buy and sell different cryptos. Crypto brokers sometimes provide a platform for traders to buy and sell at a price set by the broker, taking a commission or fee for each transaction. Crypto brokers are generally regulated by financial authorities and offer a more hands-on approach, making them a popular choice for beginners.

Pros of Using a Cryptocurrency Broker

• Convenience: Buying and selling cryptos through a broker is often more convenient than using a decentralised exchange, especially for those new to crypto trading.
• Security: Crypto brokers typically offer more security for your funds than holding them on an exchange, making them a better option for those investing large sums.
• Regulation: All crypto brokers are regulated by financial authorities, providing an extra level of protection for your investment.
• Education: Some brokers provide educational resources and market analysis to help traders make informed decisions.
• Trading CFDs: CFD trading is easier with brokers.
• Support: Crypto brokers typically offer a high level of support, often available 24/7.

Cons of Using a Cryptocurrency Broker

• Fees: Brokers often charge higher fees than decentralised exchanges, which can impact your trading profits, especially for large trades.
• Limited cryptocurrency selection: Not all brokers offer trading in all available cryptocurrencies, so it's important to choose a broker that offers the specific type of crypto you plan to trade.
• Lack of control: When you hand over your funds to a broker, you lose some control over your investment moves and are dependent on the broker's security measures.
• No direct exchanges: Traders using brokers miss out on the chance to trade crypto and fiat currency directly.
• Trust: There are many fake or unreliable crypto brokers, so it's important to verify their credentials and make sure they are competent and secure.

Opening an account

Choose a Bitcoin Exchange or Brokerage

First, you need to select a suitable platform to buy and store your Bitcoin. Some popular options include Coinbase, Robinhood, eToro, FTX, Gemini, and BlockFi, among others. When making your choice, consider factors such as fees, the reputation of the exchange, and whether it supports transferring Bitcoin out of the brokerage account.

Open an Account

Once you've chosen your preferred platform, it's time to open your brokerage or cryptocurrency account. For individuals in the United States, this typically involves providing basic contact information and valid identification to meet the exchange's "know your customer" (KYC) requirements.

Fund Your Account

After opening your account, the next step is to add funds. The fastest and cheapest method is usually through an online funds transfer from your bank account. Depending on the exchange, you may also have the option to use payment apps like PayPal.

Place a Purchase Order

When you're ready to make your Bitcoin purchase, click the buy button to place your order. The exchange will convert your fiat currency (e.g., USD or EUR) into Bitcoin, which will be stored in your cryptocurrency account, similar to holding stocks in a brokerage account. Once the transaction is executed, you officially become a Bitcoin owner.

Funding your account

There are several ways to fund your account when investing in Bitcoin. You can use an online wallet, a desktop wallet, or a mobile wallet. You can also opt for hard cash, credit or debit cards, or wire transfers, depending on whom and where you are buying from.

Online Wallets

An online bitcoin wallet is a wallet hosted in the cloud. You can access it through a website from any computer, where you can deposit and withdraw funds. The advantage is that you don't need to install any software or download the blockchain, which is currently more than 30 gigabytes. The disadvantage is that you are dependent on a third-party service to store your bitcoins, which can be unstable, offline, or even shut down. Blockchain.info is an example of a stable online wallet.

Desktop Wallets

A desktop wallet downloads and stores the entire blockchain, which means it will have the entire ledger with every bitcoin transaction ever made. The size of the bitcoin blockchain is currently over 30 gigabytes and growing, so it will take some time to download, and you will not be able to access your wallet until the download is complete. You also need to ensure that the wallet is backed up, or you will lose all your coins if your hard drive fails. Bitcoin.org offers a "Bitcoin Core" wallet that you can download.

Mobile Wallets

Mobile payment apps such as Venmo, Cash App, and PayPal have adapted to the growing popularity of bitcoin by integrating services that enable users to buy, sell, and hold bitcoin directly within their platforms. These apps offer a convenient and accessible way to purchase bitcoin quickly from a mobile device, making them suitable for individuals with limited knowledge of bitcoin who still seek exposure to it. However, transactions on these apps may incur fees that can be higher than those on dedicated crypto exchanges.

Credit and Debit Cards

You can also use credit or debit cards to fund your account, although not all exchanges allow this due to associated processing fees and the risk of fraud. Credit card processing can tack on extra charges, and credit card issuers treat bitcoin purchases as cash advances, charging hefty fees and interest rates.

Bank Transfers

Most exchanges allow you to fund your account through bank transfers, although you may need to provide personal identification information. Fees vary for deposits via bank transfer, and exchanges also charge fees per transaction.

Other Options

Other options for funding your account include Bitcoin ATMs, which operate similarly to regular cash ATMs but allow you to buy and sell bitcoin, and peer-to-peer bitcoin markets, where you can purchase bitcoin directly from other bitcoin owners via platforms like Paxful, Binance P2P, and NoOnes.

Buying Bitcoin

There are several ways to buy Bitcoin, each with its own advantages and disadvantages. Here are some of the most common methods:

• Cryptocurrency Exchanges: These are platforms that allow you to buy and sell cryptocurrencies, including Bitcoin. Examples include Coinbase, Kraken, Gemini, and Binance. They offer a range of features and support various cryptocurrencies, but it's important to research their fees and consumer protections before choosing one.
• Traditional Stockbrokers: While limited, some traditional brokers like Robinhood, Webull, TradeStation, and Fidelity offer Bitcoin trading. Robinhood, for instance, charges no fees for Bitcoin trades.
• Peer-to-Peer Money Transfer Apps: Cash transfer services like PayPal, Venmo, or Cash App allow users to purchase, store, send, and sell Bitcoin directly through their apps. This option is convenient if you're already familiar with these interfaces.
• Bitcoin ATMs: These machines function like regular ATMs but allow you to buy and sell Bitcoin. They are often placed in locations such as convenience stores, and it's important to consider the associated fees before using them.
• Bitcoin Exchange-Traded Funds (ETFs): A spot Bitcoin ETF approved by the Securities and Exchange Commission allows investors to track the price of Bitcoin and trade it on major exchanges. This option is expected to make it easier for traditional investors to access Bitcoin.

Regardless of the method you choose to buy Bitcoin, it's essential to understand the risks and potential rewards. Bitcoin is a highly volatile asset, and its value can fluctuate significantly over a short period. It's also important to have a secure digital wallet to store your Bitcoin, such as a hot wallet or a cold wallet, each with its own advantages and disadvantages in terms of security and transaction speed.

When buying Bitcoin, it's crucial to have the necessary information ready, such as personal identification documents and bank account details. Additionally, using a secure, private internet connection is recommended when making financial transactions online.

Before purchasing Bitcoin, it's essential to understand your risk tolerance, investment strategy, and financial goals. Bitcoin is a high-risk investment due to its volatility, and it's not backed by any physical asset or central regulator. As such, carefully consider the potential risks and rewards before investing.

Storing your Bitcoin

When you buy Bitcoin, you're given a public key and a private key. The public key is used to encrypt information and is your wallet address, and the private key allows you to decrypt the information or access your Bitcoin. This is the key you need to store and safeguard.

There are several ways to store your Bitcoin, each with its own pros and cons. Here are some of the most common methods:

• Hardware wallets allow users to hold their private keys in cold storage, making them inaccessible to hackers. Examples include Ledger, Trezor, and Coldcard.
• Mobile wallets are hot wallets held on your smartphone, which can be great for sending or paying with crypto. However, they may be less secure than cold wallets and are not recommended for storing large balances.
• Paper wallets involve printing out your private and public keys. While paper wallets are highly secure, they are susceptible to physical damage, wear and tear, and theft.
• Desktop wallets are downloaded and installed on your computer, storing the private keys on your hard drive or solid-state drive. They are more secure than online and mobile wallets but are still connected to the internet, making them vulnerable to hacks.
• Web wallets or exchange wallets store your private keys on a server controlled by a third party. While they offer convenience, they are frequently targeted by hackers.

When choosing a storage method, it's essential to consider your needs and risk tolerance. For example, if you need quick access to your Bitcoin for frequent transactions, a hot wallet like a mobile or web wallet might be suitable. On the other hand, if you want to focus on security and store your Bitcoin offline, a cold storage solution like a hardware wallet or paper wallet could be a better option.

Additionally, it's worth noting that no storage method is entirely safe from theft or loss. It's recommended to research and understand the risks associated with each storage option before making a decision.

Frequently asked questions