A Beginner's Guide To Investing In Coindesk

CoinDesk is a media outlet that covers the cryptocurrency industry, including Bitcoin, Ethereum and Crypto News and Price Data. It also offers educational resources for those looking to learn more about crypto investing. For example, CoinDesk's Learn Crypto Investing Course teaches investors how to invest in Bitcoin without buying BTC. This includes information on how to use tax-sheltered accounts or certain banks to invest in Bitcoin, as well as how to navigate the daunting visage of an exchange order book. For those looking to get into crypto investing, CoinDesk also provides an overview of popular crypto exchanges and how to start trading on them, including Coinbase, Kraken and Binance.

Crypto exchange accounts

Centralized vs Decentralized Exchanges

Firstly, it's important to understand the difference between centralized and decentralized exchanges. Centralized crypto exchanges (CEX) are managed by one organization, like a brokerage company, and make it easy to get started with crypto by allowing users to convert fiat currency directly into crypto. Decentralized exchanges (DEX) distribute responsibility for facilitating and verifying crypto trades. DEXs are less user-friendly and don't always allow users to deposit fiat currency, but they may increase accountability and transparency and ensure the exchange can keep running if something happens to the company that created it.

Popular Centralized Exchanges

Some of the most popular centralized exchanges include:

• Coinbase: Coinbase has a simple user interface and gives users immediate access to over 100 different cryptocurrencies. It also allows users to deposit funds via debit cards, linked bank accounts, or PayPal. However, it has higher fees compared to other platforms and doesn't offer advanced trading features.
• Kraken: Kraken offers a smaller selection of cryptocurrencies (under 100) but provides more fiat currency options. It also has more in-depth trading and graphing data through Kraken Pro. Kraken is available in most U.S. states but not in New York or Washington.
• Binance: Binance has one of the widest selections of cryptocurrencies, with over 500 available, and some of the lowest fees in the market. It also has its own blockchain system and native utility tokens called Binance coins (BNB). However, due to issues with crypto regulation, many Binance features may be disabled in certain locations, making the platform less beginner-friendly.
• Crypto.com: Crypto.com provides over 250 cryptocurrencies and unique perks and rewards for Crypto.com Visa Card users. It also has high cybersecurity ratings. However, lower-volume trading incurs higher fees.
• EToro: eToro is a relative newcomer offering 27 cryptocurrencies and an online brokerage platform with access to stocks and ETFs. It offers an engaging communal experience and allows users to copy the trading strategies of advanced users.

Setting Up an Exchange Account

Setting up an exchange account will typically involve providing some personal information, such as your name and email address, and adding a payment method. Depending on the exchange and your desired level of engagement, you may also need to go through a more extensive "Know Your Client" (KYC) process, which involves verifying your identity and address. This is particularly important if you plan to make larger trades.

Bitcoin ETFs

A bitcoin exchange-traded fund (ETF) is a financial product that allows investors to gain exposure to bitcoin price movements without holding the asset. Shares of a bitcoin ETF are traded on traditional stock exchanges, making it easier for investors to participate in the cryptocurrency market.

There are two main types of bitcoin ETFs: spot and futures. A spot bitcoin ETF provides investors with direct exposure to the current market price of bitcoin. "Spot" refers to the immediate or current price of the underlying asset, which is bitcoin itself. A bitcoin spot ETF typically holds actual bitcoin as its underlying asset and attempts to track the real-time price of bitcoin as closely as possible.

On the other hand, futures bitcoin ETFs do not hold actual bitcoin. Instead, they use bitcoin futures contracts to gain exposure to the cryptocurrency. A bitcoin futures contract allows investors to speculate and bet on the future price of bitcoin.

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 January 2024, the SEC approved the first 11 spot bitcoin ETFs, including Grayscale's, which began trading shortly after.

One of the main advantages of bitcoin ETFs is ease of access. ETFs are traded on traditional stock exchanges, making it easier for mainstream investors to buy, hold, and trade bitcoin-related assets through their existing brokerage accounts. Regulatory oversight is another benefit, as it provides investors with protection and transparency, reducing concerns about fraud and market manipulation.

Additionally, bitcoin ETFs offer portfolio diversification. Investors can incorporate bitcoin into their investment portfolios without directly holding and managing digital assets. The introduction of a bitcoin ETF is also seen as a sign of mainstream acceptance and integration of cryptocurrencies into traditional financial systems.

However, it is important to note that investing in bitcoin ETFs carries risks, including crypto volatility, regulatory uncertainty, security risks, management fees, and tracking errors.

Peer-to-peer bitcoin markets

A peer-to-peer exchange is an online platform that allows users to interact with each other freely with minimal oversight. Early platforms lacked advanced functionality and resembled interactive lists with orders ranked by price. Users would check existing orders and, if they liked a particular offer, they would contact the person who opened the order and initiate the transaction.

Theft and scams were a huge concern, especially when Bitcoin started taking off several years later. Proper management and oversight systems were implemented, and peer-to-peer Bitcoin exchanges started changing and implementing new security features. A typical interface now hides any contact information until a trade is initiated on the website. Parties also have the option to make a security deposit (an escrow) to protect their interests.

This insurance helped early peer-to-peer platforms attract new users and build confidence in the market. Transactions were now better monitored and people were finalizing deals quicker since they were not afraid of losing money thanks to escrow.

Advantages of Bitcoin peer-to-peer platforms

Financial affordability: Since many decentralized exchanges take a hands-off approach to overseeing transactions, they take a very low commission which is attractive to conservative investors.

Privacy and security: You can find peer-to-peer Bitcoin trading sites where you don’t need to disclose any information except the email address used to establish communication between users. These exchanges do not take custody of your money, meaning that users are responsible for the safety of their funds.

Accessibility: To start trading on a peer-to-peer platform, you don’t need a bank account or a credit card. You may use these payment methods to trade with other users, but other options are always available. Whether you prefer using PayPal, Venmo, Payoneer, or any other payment system, you will be able to complete a trade.

Disadvantages of peer-to-peer crypto exchanges

Lack of integration with other services: Many decentralized platforms don’t have any integration with services like charting tools (like TradingView), analytical sites, or automation vendors like WunderTrading.

Anonymity concerns: Despite not demanding a lot of information, many peer-to-peer platforms still collect data and even encourage their users to display some personal data to boost their trustworthiness.

User interface: Creating a comprehensive menu for a peer-to-peer marketplace is challenging. Finding the right deal is tedious and starting a transaction can be quite complicated.

Speed: A peer-to-peer marketplace does not facilitate quick transactions. Two parties may spend hours setting up a trade which can be annoying.

Examples of peer-to-peer crypto exchanges

ByBit: A good destination for international retail traders, with a solid lineup of exchange pairs and a user-friendly interface.

Huobi P2P: A place to exchange tokens without many hassles and fees. The service offers a well-designed interface and quick exchange tools. Both sellers and buyers can exchange their tokens for free.

LocalCoinSwap: The biggest draw of this platform is the massive catalog of supported tokens, including all mainstream coins and some less popular cryptocurrencies. The platform takes only 1% in commission on all transactions.

KuCoin: Experienced traders and cryptocurrency experts consider this platform one of the best destinations for their investment activities due to its impressive selection of supported coins and trading volume.

Binance: This centralized exchange platform has been around since 2018 and quickly gained popularity thanks to its massive lineup of financial products, efficient management, and advanced technology.

Paxful: A powerful platform that offers peer-to-peer exchanges with no fees and additional payments. Paxful provides its users with a massive selection of payment options and protection tools.

Bitcoin ATMs

There are several providers of Bitcoin ATMs, including Coinhub, Lowest Fee Bitcoin ATMs, Byte Federal, Coinme, CoinFlip, Cash2Bitcoin, Bitstop, Just Digital Coin, HODL Digital Services, BudgetCoinz, and Bitcoin Depot. These companies offer varying features and services, such as high daily cash limits, instant registration and approval, low fees, and easy-to-use interfaces.

Using a Bitcoin ATM typically involves the following steps:

• Get a Bitcoin wallet: You need a digital tool to store, send, and receive Bitcoin.
• Find a Bitcoin ATM near you: There are thousands of Bitcoin ATMs globally, mainly in the United States.
• Buy Bitcoin from the ATM: Enter the amount you want to purchase, verify your identity if required, provide your Bitcoin wallet address by scanning the QR code, and make the payment.
• Receive the Bitcoin in your wallet: This may take a few minutes, and the ATM will provide a transaction ID to monitor the status.

Selling Bitcoin through an ATM follows a similar process:

• Enter the amount you want to sell and verify your identity if necessary.
• Send Bitcoin to the provided address by scanning the QR code and using your Bitcoin wallet app.
• Receive cash from the ATM once it receives the Bitcoin. This process may also take a few minutes, and you can monitor the transaction status.

Traditional stock brokers

Thanks to the growing popularity of bitcoin, several traditional brokers and FinTech brokerages now allow customers to buy and sell the digital asset on their platforms. These include Robinhood, eToro, TradeStation, Interactive Brokers, Webull, and Charles Schwab. Banks have also begun offering crypto trading desks, often for high-net-worth clients. Financial advisors and wealth managers may also be able to buy and hold bitcoin on behalf of their clients.

Traditional brokers typically don't offer direct trading in bitcoin, only futures. However, you will have access to a wide selection of other securities and can often buy bitcoin ETFs commission-free.

When choosing a traditional stock broker to invest in bitcoin, consider the following:

• Fees: Evaluate the broker's account fees, commissions, margin rates, transaction fees, and advisory fees.
• Account features: Assess the available account types (individual, joint, retirement, etc.), investment options, and platform accessibility (web, desktop, and mobile).
• Research and amenities: Compare the research tools, charting capabilities, screeners, deposit and withdrawal methods, order types, and educational resources offered by the broker.
• Security and protection: Ensure the broker is regulated and provides appropriate security measures, such as fraud protection and two-factor authentication.

Frequently asked questions