Ameritrade's Bitcoin Investment: A Beginner's Guide

Bitcoin is a cryptocurrency that allows for direct peer-to-peer exchange of value on a decentralised payment network. It is the most well-known cryptocurrency, but there are thousands of others. Cryptocurrencies are usually created using blockchain technology, which makes it possible to exchange them without a central authority like a bank. Bitcoin can be purchased through online brokers like Charles Schwab, Fidelity, E*Trade, and TD Ameritrade. It can also be bought on cryptocurrency exchanges such as Gemini, Kraken, Coinbase, and Crypto.com.

Cryptocurrency exchanges

There are two main types of cryptocurrency exchanges: centralized and decentralized. Centralized cryptocurrency exchanges are overseen by a third party (called an exchange operator) to ensure that customer sign-up and trading runs smoothly. These platforms also make it quick and easy to link your bank account or debit card to buy crypto. However, this ease of access usually comes with fees to the exchange operator, on top of the asset purchase. On many centralized exchanges, investors can buy and sell digital assets with both fiat currency and other cryptocurrencies. Examples of centralized exchanges include Gemini, Kraken, Coinbase, and Crypto.com.

Decentralized cryptocurrency exchanges, or DEXs, lack third-party oversight, are open source, and depend on peer-to-peer (P2P) trading. DEXs often require more technological skill and intimate knowledge of cryptocurrencies to use than centralized exchanges. Examples of decentralized exchanges include Etherdelta, IDEX, and HADAX.

When choosing a cryptocurrency exchange, it is important to do your research. Consider factors such as accounts, key storage, wallets, security, user satisfaction, and features. Fees can vary between exchanges, so make sure you understand how each exchange and blockchain charge for transactions. It is also important to use a reputable and regulated exchange for your own safety. Look for the physical address associated with the exchange, as transparency is often a sign of legitimacy.

Traditional stockbrokers

In addition to these, investors can now buy Bitcoin through online brokers like Charles Schwab, E*Trade, and TD Ameritrade. TD Ameritrade, Inc. has been acquired by Charles Schwab, and all accounts have been moved.

It is important to note that while Bitcoin can be traded as fractional shares, investing in Bitcoin can be risky. It is recommended to invest no more than 10% of your portfolio in individual stocks or risky assets like Bitcoin.

Bitcoin exchange-traded funds

Bitcoin futures ETFs are exchange-traded funds that aim to offer exposure to the price movements of Bitcoin. They use futures contracts to achieve this goal. Fund managers purchase these contracts and bundle them into a fund.

The first concept for an ETF that held Bitcoin emerged shortly after investors and brokers noticed that Bitcoin prices were trending upward and gaining popularity among investors. This signalled an opportunity to generate returns by trading Bitcoin. As Bitcoin's price rose to tens of thousands of dollars, retail and average investors lost the opportunity to invest directly in Bitcoin. Brokerages, responding to the demand for investor access to Bitcoin, began to design Bitcoin exchange-traded funds. Applications with the Securities and Exchange Commission (SEC) for approval started in 2013 with the Winklevoss brothers.

The first official Bitcoin-linked ETF was the ProShares Bitcoin Strategy ETF (BITO), which mainly uses futures contracts. It was approved by the SEC in October 2021 and is listed on the New York Stock Exchange.

In many crypto fans' minds, a Bitcoin ETF would consist of Bitcoin purchased by a company, which would securitize them and offer shares to investors. However, the Security and Exchange Commission rejected these proposals until 2024. A court order in August 2023 forced the SEC to reconsider these proposals, and on 10 January 2024, the Commission approved 11 Bitcoin spot ETFs. These spot ETFs, which hold Bitcoin as opposed to futures like the ProShares ETF, began trading in January 2024.

On 10 January 2024, the Securities and Exchange Commission opened the door for spot Bitcoin ETFs, which track the price of Bitcoin and trade over major exchanges. This was a long-awaited approval from the SEC, and one that is expected to make it even easier for traditional investors to gain access to Bitcoin. The spot Bitcoin ETFs started trading on 11 January 2024, and are available through traditional brokerage accounts.

Peer-to-peer money transfer apps

Peer-to-peer (P2P) money transfer apps allow users to transfer funds from their bank account, credit card, or debit card to another person's bank account or preferred P2P payment app. They are convenient, easy to use, and provide instant transactions.

• Zelle: Zelle is offered by most major banks in the US and is compatible with many banks and credit unions. It allows users to send money to other Zelle users through their bank account or the Zelle app. While Zelle does not charge any fees for its services, it only works with domestic banks and does not support credit card payments.
• Venmo: Venmo is owned by PayPal and is one of the most popular P2P services globally. It allows users to send and receive money for free through a linked bank account, Venmo balance, or credit card. However, there is a 3% fee for sending money via credit card and a 1.75% fee for instant cash-out transfers to a bank account.
• Cash App: Cash App is a money transfer app created by Block Inc. that allows users to send money via their Cash App balance, linked bank account, credit card, or debit card. It also offers an optional debit card and features that allow users to invest in stocks and buy and sell Bitcoin. Sending money via credit card incurs a 3% fee, and there is a 0.5%-1.75% fee for instant deposits.
• PayPal: PayPal is a widely used payment service that facilitates personal money transfers, online purchases, and e-commerce. It offers high transfer limits of up to $60,000 per transaction and multiple payment methods. However, there is a 2.9% transaction fee for sending money via credit card, debit card, or PayPal Credit, and a 1.75% fee for instant withdrawals to a bank account.
• Apple Cash: Apple Cash is built into iPhones as part of Apple Wallet, allowing users to send and receive money domestically with other Apple Cash users through iPhone messages. It offers instant and free transfers and can be used at 85% of US retailers. However, it does not support international transfers or credit card payments, and can only be used by Apple device users.
• Meta Pay: Meta Pay allows users to send and receive money through Facebook Messenger and, in some cases, WhatsApp. It is convenient for those who frequently use these messaging platforms and offers free and instant transfers. However, it has relatively low maximum transfer amounts and is not available for international money transfers for US residents.

While P2P money transfer apps offer numerous benefits, it is important to be cautious when using them. Always verify the recipient's contact information and only send money to people you know and trust. Additionally, be aware of potential transaction fees, security risks, and the lack of purchase protection associated with these apps.

Bitcoin ATMs

• Get a Bitcoin wallet: When you purchase Bitcoin, you need a place to store it. A Bitcoin wallet is a digital tool that allows users to store, send, and receive Bitcoin securely.
• Find a Bitcoin ATM near you: There are tens of thousands of Bitcoin ATMs globally, most of them in the United States.
• Enter the amount to purchase: Depending on local regulations and the amount you are purchasing, you may need to verify your identity.
• Provide your Bitcoin wallet address: Use the Bitcoin ATM's camera to scan the QR code of your Bitcoin wallet address displayed in your Bitcoin wallet app.
• Pay: In addition to cash, you may be able to pay with a credit card, payment app, etc.
• Receive the Bitcoin in your wallet: This generally takes a few minutes. The Bitcoin ATM will provide a transaction ID to monitor the status of the purchase.
• Enter the amount to sell: Depending on local regulations and the amount you are selling, you may need to verify your identity.
• Send Bitcoin to the provided address: The Bitcoin ATM will generate a Bitcoin address for your transaction. You can scan the QR code of the provided address and send the Bitcoin to that address using your Bitcoin wallet app.
• Take your cash: Once the Bitcoin ATM receives the Bitcoin, it will dispense your cash. This generally takes a few minutes, and you can monitor the status of the transaction using your Bitcoin wallet app.

It is important to note that most US cryptocurrency ATMs charge transaction fees between 6.5% and 20%. Additionally, some Bitcoin ATM providers require users to have an existing account to transact on the machine.

Frequently asked questions