Investopedia's Guide To Investing In Bitcoin

Bitcoin is a cryptocurrency that has become increasingly popular among investors in recent years. Its value has increased by more than 763% in just one year, outpacing traditional gains in the stock market.

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

- Bitcoin Wallets and Cryptocurrency Exchanges: You can purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, and Crypto.com. These platforms offer a variety of cryptocurrencies and carry different fees and consumer protections.

- Traditional Brokers: A few traditional brokers, such as Robinhood, Webull, TradeStation, and Fidelity, offer their customers the ability to buy and sell Bitcoin.

- 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.

- Bitcoin ATMs: These work like regular ATMs, but they allow you to buy and sell Bitcoin. You can often find them in locations where regular ATMs are placed, such as convenience stores.

- Bitcoin Exchange-Traded Funds (ETFs): The Securities and Exchange Commission recently approved spot Bitcoin ETFs, which track the price of Bitcoin and trade over major exchanges. This makes it easier for traditional investors to gain access to Bitcoin.

Before investing in Bitcoin, it is important to understand the risks involved. Bitcoin is a highly volatile asset, and its value can fluctuate dramatically over a short period. It is not backed by any physical asset or central regulator, and there is no guarantee of its long-term success. Therefore, it is crucial to carefully consider your risk tolerance, investment strategy, and financial goals before investing in Bitcoin.

How to choose a crypto-trading service or venue

When choosing a crypto-trading service or venue, there are several factors to consider. Here are some key points to help you make an informed decision:

• Supported assets: If you plan to invest in cryptocurrencies beyond Bitcoin, check the list of supported assets offered by the exchange. Some platforms may only support a limited number of cryptocurrencies, while others offer a wider range of options.
• Payment methods: Crypto exchanges typically offer various ways to fund your account or purchase cryptocurrencies directly. While most exchanges support wire transfers, some also allow the use of credit cards, debit cards, and other digital payment methods.
• Fees: Crypto exchanges usually charge trading fees and withdrawal fees, and these can vary significantly between platforms. High fees can eat into your investment returns, so it's essential to research and compare the fee structures of different exchanges before making a decision.
• Security: Crypto exchanges are often targeted by hackers due to the nature of their business. Therefore, it is crucial to prioritise security when choosing an exchange. Look for platforms with robust security measures, such as two-factor authentication, encryption, and cold storage of assets.
• Customer service: As a beginner or even an experienced investor, you may need assistance at some point. Opt for exchanges that offer responsive and knowledgeable customer support to guide you through any issues or queries you may have.
• Reputation: Conduct thorough research into the reputation of the exchange. Read reviews, check for security breaches or hacks, and assess how the platform has addressed any past issues. A good track record can indicate a more reliable and trustworthy exchange.
• Account creation process: A rigorous account creation process that requires multiple verification steps is often a positive sign. While convenience is essential, an exchange that prioritises security will make it more challenging to create an account, reducing the risk of unauthorised access.
• Location and regulations: Ensure you understand the legal and regulatory framework surrounding crypto exchanges in your jurisdiction. Look for exchanges that provide a physical address and comply with relevant laws and regulations to protect yourself and your investments.
• User feedback: Consider what other users are saying about their experience with the exchange. Are there common complaints or praises across different platforms? User feedback can provide valuable insights into the reliability, security, and overall user satisfaction with a particular exchange.

How to connect your exchange to a payment option

After choosing a crypto-trading service or venue, the next step is to connect your exchange to a payment option. This is a crucial step in the process of investing in Bitcoin. Here's a detailed guide on how to do it:

Choose a Payment Method

The first step is to select a suitable payment method that is accepted by your chosen exchange. Various options are typically available, including:

• Bank account
• Debit card
• Credit card
• Cryptocurrency wallet
• Peer-to-peer (P2P) exchange
• Bitcoin ATM

Each payment method has its own advantages and disadvantages, so it's important to consider factors such as convenience, fees, and security when making your choice.

Provide Necessary Information

Depending on the exchange and the payment method you choose, you may need to provide personal identification information. This could include a picture of your driver's license or Social Security card, as well as details about your employer and source of funds. The process is similar to setting up a standard brokerage account.

Connect Your Payment Method

Once you have chosen and set up your payment method, it's time to connect it to your exchange account. This usually involves providing the exchange with your payment details. For example, if you're using a credit or debit card, you'll need to enter the card number, expiration date, and security code. If you're using a bank account, you'll need to provide your account number and routing number.

Understand the Fees

It's important to note that different payment methods may have different fee structures. For example, deposits via a bank account, debit card, or credit card may incur varying fees. Additionally, exchanges typically charge fees per transaction. These fees can vary depending on the exchange and the payment method used. Therefore, it's essential to review the fee schedule of your chosen exchange before proceeding.

Complete a Test Transaction

Before making a large investment, it's a good idea to start with a small test transaction to ensure that your payment method is working correctly. This will also help you familiarize yourself with the process of buying Bitcoin. Send a small amount of funds from your payment method to your exchange account and verify that the transaction goes through successfully.

Proceed with Your Investment

Once you have successfully connected your payment method and completed a test transaction, you can proceed with your Bitcoin investment. Remember to always do your research, assess the risks, and make sure you understand the fees involved before committing to any investment.

How to place an order

To place an order for Bitcoin, you will need to follow these steps:

• Choose a cryptocurrency exchange: Select a reputable and well-known exchange platform that offers a wide range of cryptocurrencies and has a large selection of currencies. Examples include Coinbase, Binance, Gemini, Kraken, Crypto.com, and more.
• Establish an account: Sign up and create an account on your chosen exchange platform. You will need to provide personal information and verify your identity as part of the registration process.
• Fund your account: Before buying any cryptocurrency, you need to deposit funds into your exchange account. You can use fiat money, such as US dollars, or other cryptocurrencies if you already own some.
• Decide on the cryptocurrency: Research and decide which cryptocurrency you want to invest in. The most popular option is Bitcoin, but there are also other established coins like Ethereum.
• Place a buy order: Follow the steps provided by the exchange platform to submit and complete your purchase. Specify the amount of cryptocurrency you want to buy and any other relevant details.
• Store your cryptocurrency in a digital wallet: Once you have completed your purchase, you will need to store your cryptocurrency in a digital wallet. You can choose between a wallet hosted by the exchange or an independent wallet provider.

It is important to carefully research any cryptocurrency before investing and to be aware of the risks involved, as the market is highly volatile. Additionally, pay attention to transaction fees, as they can vary depending on the currency and platform.

How to safely store your Bitcoin

When it comes to storing your Bitcoin, safety and security are paramount. There are several options for storing your Bitcoin, each with its own advantages and disadvantages. Here are some detailed instructions on how to safely store your Bitcoin:

Understand the Basics

Before purchasing Bitcoin, it is essential to understand the basics of crypto storage. You need a crypto wallet to store your Bitcoin, and there are various types available, including hot wallets, cold wallets, custodial wallets, and non-custodial wallets.

Choose a Secure Wallet

Hot wallets are connected to the internet and are typically available as mobile or desktop apps. While they offer convenience and ease of access, they are more susceptible to hacking. Cold wallets, on the other hand, are offline storage methods, such as hardware wallets or paper wallets. They are considered more secure since they are not connected to the internet but may be less user-friendly.

Select a Reputable Provider

If you opt for a hot wallet, choose a reputable provider that offers strong security features, such as two-factor authentication. Popular options include Coinbase, Binance, and Kraken. For cold wallets, Ledger and Trezor are well-known providers.

Practice Safe Habits

Whether you choose a hot or cold wallet, it is crucial to practice safe habits. Use strong passwords, enable two-factor authentication, and browse the internet safely. Additionally, back up your wallet regularly and store your recovery phrases securely. Avoid taking screenshots or photos of your recovery phrases, and never share them with anyone.

Consider a Hybrid Approach

Many serious Bitcoin investors use a hybrid approach, combining hot and cold wallets. They may keep a majority of their Bitcoin in a cold wallet for security and a smaller amount in a hot wallet for easy access and trading.

Stay Informed

Stay up to date with the latest security measures and best practices in the crypto space. The field of cryptocurrency is constantly evolving, and it is essential to adapt your storage methods to match.

Remember, there is no one-size-fits-all solution for storing Bitcoin. The best approach depends on your individual needs and risk tolerance. By following these guidelines and staying informed, you can significantly reduce the risk of losing your Bitcoin to theft or user error.

How to buy Bitcoin with PayPal

Using a Crypto Exchange

To buy Bitcoin with PayPal, you can use a crypto exchange such as Paxful, which is a peer-to-peer marketplace that allows you to find offers that accept PayPal as the preferred payment method.

To get started, you will need to create an account with the exchange, provide your personal information, and verify your identity.

Once registered, you can browse the available offers and choose one that suits your needs. It is important to read and agree to the seller's requirements before initiating the trade.

For added security, some sellers may require additional steps to confirm the identities of their trading partners, such as presenting ID cards, selfies, or screenshots.

Using the PayPal App

You can also use the PayPal app to buy Bitcoin directly. Here are the steps to follow:

• Choose an amount and frequency (Daily, Weekly, Biweekly, or Monthly). The frequency will default to One-time.
• Select a starting date and confirm.
• Confirm your amount and choose a payment method.
• Tap Authorize and Schedule.

It is important to note that PayPal does not allow the use of credit cards or PayPal Credit to purchase crypto. Additionally, crypto purchases made through the PayPal app are subject to various fees and charges.

Other Options

If you prefer not to use a crypto exchange or the PayPal app, there are other options available:

• Peer-to-peer money transfer apps: Cash transfer services like Venmo or Cash App allow users to purchase, store, send, and sell Bitcoin directly through their apps.
• Broker-dealers: Certain broker-dealers, such as Robinhood, offer access to Bitcoin and other cryptocurrencies.
• PayPal Holdings Inc.: You can invest in companies like PayPal Holdings Inc. (PYPL), which support cryptocurrency.

Frequently asked questions