Ameritrade Bitcoin Investment: A Beginner's Guide To Crypto Trading

Investing in Bitcoin has become increasingly popular, especially after the cryptocurrency hit record highs in March 2024. There are several ways to invest in Bitcoin, including through cryptocurrency exchanges, traditional stockbrokers, money transfer apps, Bitcoin ATMs, and Bitcoin ETFs. TD Ameritrade, now acquired by Charles Schwab, is one such platform that allows investors to buy Bitcoin. In this article, we will explore the different ways to invest in Bitcoin, the benefits and risks associated with each method, and provide a step-by-step guide to purchasing Bitcoin through a brokerage account.

Cryptocurrency exchanges

There are two types of cryptocurrency exchanges: centralized and decentralized. Centralized exchanges closely follow financial regulations from government authorities. Many of these exchanges insure US dollar deposits and require proof of identity to use the platform. Examples include Coinbase, Gemini, Kraken, and Crypto.com. Decentralized exchanges, on the other hand, are unregulated online exchanges hosted on distributed nodes that are user-owned. While lacking central authority, they offer transparent transactions and fees, as well as direct peer-to-peer exchange of cryptocurrency.

When choosing a cryptocurrency exchange, it is important to consider security, fees, and the range of cryptocurrencies offered. It is also crucial to understand how your cryptocurrency is stored and whether you can take custody by transferring it to your digital wallet.

Traditional stockbrokers

Webull offers 44 crypto assets and is known for its ease of use. Although there is no commission charged for trading crypto, you still pay the spread, where Webull charges a markup of 100 bps, or 1%.

Fidelity, one of the world's largest brokers, is a trusted financial institution with trillions in client assets under its brokerage. It is an excellent choice for passive investors looking for a reliable crypto custodian for holding bitcoin long-term. Trading costs for crypto are based on a bid-ask spread of 1% of the execution price, and you can trade as little as $1 worth of crypto in your Fidelity account.

Interactive Brokers offers both the underlying crypto assets, including Bitcoin and several other popular cryptocurrencies, through its partnership with Paxos, and cryptocurrency futures traded on U.S. regional exchanges such as the CME. Interactive Brokers doesn't mark up the underlying spread, making it one of the most affordable brokers for crypto trading.

Charles Schwab offers trading in Bitcoin futures. Schwab also has no account minimum, but any futures contracts you trade will require some minimum margin to hold them open. Schwab offers an attractive commission of $2.25 per contract, and if you're able to bring big money to the table, you'll receive a welcome bonus, too.

When investing in Bitcoin through traditional stockbrokers, it is important to note that you may not be able to buy or sell individual cryptocurrencies directly in your brokerage account. For example, while Schwab has several choices for gaining exposure to cryptocurrency markets, spot trading of cryptocurrency is not currently available. Instead, clients looking for spot bitcoin ETFs or spot ether ETFs can find these and other third-party ETF and mutual fund products available at Schwab.

Bitcoin exchange-traded funds

A Bitcoin ETF issues publicly traded securities that are linked to the performance of Bitcoin. Investors can buy and sell shares of the ETF on stock exchanges, just like they would with any other stock. The ETF holds Bitcoin or Bitcoin-related investments, such as futures contracts, and its price is designed to follow the price of Bitcoin.

Benefits of Bitcoin ETFs:

Bitcoin ETFs offer several advantages for investors:

• Ease of Access: ETFs allow investors to gain exposure to Bitcoin through traditional brokerage accounts, without the need to set up separate cryptocurrency wallets or exchange accounts.
• Diversification: ETFs can hold a range of assets, including spot Bitcoin, Bitcoin futures, or even shares of blockchain companies and crypto exchanges, providing investors with a diversified exposure to the cryptocurrency market.
• Lower Risk: While still a risky investment, ETFs are considered lower-risk compared to directly purchasing Bitcoin. This is because ETFs are typically managed by established investment firms, providing an additional layer of security and regulatory oversight.
• Cost-Effectiveness: ETFs generally have lower fees compared to other investment vehicles, such as mutual funds. Additionally, the cost of trading ETFs is often lower due to higher trading volumes.

Examples of Bitcoin ETFs:

• IShares Bitcoin Trust (IBIT): Backed by BlackRock, the world's largest asset manager, IBIT has over $17.2 billion in assets under management. It offers exposure to Bitcoin's spot price during market hours for a competitive fee structure.
• Fidelity Wise Origin Bitcoin Fund (FBTC): Fidelity is a trusted name in the investment industry, and its Bitcoin ETF provides investors with access to Bitcoin through a well-known and established firm.
• Bitwise Bitcoin ETF (BITB): This ETF made history by being the first to disclose its public wallet address, allowing prospective investors to verify its reserves and transactions. It has attracted over $2.1 billion in assets under management.
• Grayscale Bitcoin Trust ETF (GBTC): Grayscale was one of the first firms to offer Bitcoin in a fund structure, and its longstanding fund, GBTC, has been around for nearly a decade.

Risks and Considerations:

While Bitcoin ETFs offer a more regulated and accessible way to invest in Bitcoin, it's important to consider the risks and complexities associated with this investment:

• Volatility: Bitcoin and the cryptocurrency market are known for their high volatility, and prices can fluctuate significantly in a short period.
• Regulatory Landscape: The regulatory environment for cryptocurrencies and Bitcoin ETFs is still evolving, and changes in regulations can impact the availability and pricing of these investment products.
• Fees and Expenses: While ETFs generally have lower fees, it's important to carefully review the expense ratios, management fees, and other potential costs associated with the ETF before investing.
• Tax Implications: Investing in Bitcoin ETFs can create a complex tax situation. Be sure to understand the tax implications for your specific country or region.

In conclusion, Bitcoin ETFs provide investors with a regulated and accessible way to gain exposure to the price movements of Bitcoin. As with any investment, it's important to carefully consider your financial goals, risk tolerance, and the unique characteristics of the Bitcoin market before investing in Bitcoin ETFs.

Peer-to-peer money transfer apps

Peer-to-peer (P2P) money transfer apps allow users to transfer funds from their account to another person's bank account or to their preferred P2P payment app. The P2P payment system eliminates the need for physical cash, as transactions are done using a mobile app. Examples of P2P apps include Zelle, Venmo, Cash App, and PayPal.

How to Use a P2P Money Transfer App

To start using a P2P money transfer app, you need to download the app of your choice, set it up, and link it to your bank account, credit card, or debit card. Depending on the app, you may need to undergo several rounds of identity or information verification.

Pros of Using P2P Payment Apps

• P2P payment providers let you send and receive money instantly.
• You can pay without using physical cash, allowing you to complete transactions even if you don't have your wallet with you.
• Most P2P payment apps are free to use.
• P2P payment apps are available for both Android and iOS devices.
• Some services charge low to no transaction, processing, or service fees.
• Some P2P payment providers let you enjoy better currency exchange rates compared to banks or traditional money transfer services, allowing you to save money.
• P2P networks are encrypted and equipped with features to monitor fraud, providing ample security for every transaction.
• Depending on your chosen platform, P2P transactions can offer some level of anonymity.

Cons of Using P2P Payment Apps

• Transaction durations can vary across P2P payment providers. While some let you send and receive money instantly, others can take several business days.
• Some P2P payment providers charge transaction or service fees.
• Refunds or disputes may be difficult to initiate due to the lack of middlemen.
• There is plenty of room for human error, such as entering wrong transaction details like the recipient's account number or the amount being sent.
• P2P transactions are still susceptible to potential fraud and security threats. While they have security measures in place, such as encryption, they are not totally impervious to attacks and security risks. Given that your P2P account is linked to your bank account or cards, hackers may be able to bypass security measures and gain access to your account details.
• Transactions using peer-to-peer money transfer can be unpredictable at times, especially if you're dealing with different currencies, and currency exchange rates may fluctuate.
• Issues regarding privacy can also arise, as some apps may sell or use your data for third-party entities.

Cryptocurrency coin trusts

Coin trusts are a good option for investors who want exposure to cryptocurrencies but want to avoid the hassles associated with holding the actual digital coins themselves. They are designed to trade like stocks while tracking an underlying cryptocurrency.

However, there are some downsides to coin trusts. They can trade at a premium/discount to net asset value (NAV), involve high volatility, hefty fees, and other risks. For example, the Grayscale Bitcoin Trust charges an annual fee of 2%, while Osprey's fee is 0.49%.

• Grayscale Bitcoin Cash Trust
• Grayscale Digital Large Cap Fund
• Bitwise 10 Crypto Index Fund
• Ethereum Classic Investment Trust (ETCG)
• Bitcoin Investment Trust (GBTC)

Frequently asked questions