The Partial Bitcoin Investment Guide For Beginners

Investing in Bitcoin can be a daunting task for those who are used to traditional financial products. However, there are many ways to buy Bitcoin, and other cryptocurrencies, from stockbrokers to dedicated exchanges and even in-app purchases.

One of the most popular ways to invest in Bitcoin is through a cryptocurrency exchange, such as Gemini, Kraken, Coinbase, or Crypto.com. These exchanges offer a variety of cryptocurrencies and allow users to buy, sell, and hold their digital assets. Another option is to use a traditional stockbroker, such as Robinhood, Webull, or TradeStation, which offer access to Bitcoin and other cryptocurrencies.

For those looking for a more familiar investment structure, exchange-traded funds (ETFs) provide a convenient and regulated way to gain exposure to Bitcoin. Bitcoin ETFs track the price of Bitcoin and trade over major exchanges, making it easier for traditional investors to access the cryptocurrency market.

It's important to note that investing in Bitcoin carries risks, and the market is highly volatile. Before investing, it's crucial to understand the potential risks and do thorough research. Additionally, it's important to consider the security of your digital assets, as Bitcoin wallets can be vulnerable to hacking and theft.

Buy Bitcoin directly

Bitcoin is an innovative payment network and a new kind of money. It uses peer-to-peer technology to operate without central authority or banks. Transactions and the issuing of bitcoins are carried out collectively by the network. Bitcoin is open-source, meaning its design is public, and no one owns or controls it.

How to buy Bitcoin directly

There are several ways to buy Bitcoin directly. You can use a Bitcoin wallet app, a brokerage, or a cryptocurrency centralized exchange (CEX).

Bitcoin wallet apps

You can download a Bitcoin wallet app, such as the Bitcoin.com Wallet app, and follow the instructions to buy Bitcoin. The benefit of using a Bitcoin wallet app is that you can get Bitcoin in minutes.

Brokerages

You can buy Bitcoin through brokerages like eToro.

Cryptocurrency centralized exchanges (CEXs)

You can also buy Bitcoin through a cryptocurrency centralized exchange (CEX). Examples of CEXs include Coinbase, Gemini, Kraken, and Binance.

Things to consider before buying Bitcoin

• You will need to verify your identity to purchase Bitcoin.
• There may be fees for buying Bitcoin, such as transaction fees.
• You will need a way to store your Bitcoin purchases safely, such as a hot wallet or a cold wallet.
• The value of Bitcoin is volatile, so there is a risk of losing money if the price drops.
• Bitcoin transactions are traceable, and researchers and the FBI have claimed that they can track transactions made on the Bitcoin blockchain to users' other online accounts.
• Before buying Bitcoin, check the legal, regulatory, and tax status of purchasing it in your country or region.

You don't need to buy a whole Bitcoin. You can purchase just a fraction, making it a flexible option for both small and large investors. For example, Coinbase requires a minimum investment of 1 unit of your local currency, such as $1 or €1.

Payment methods

Valid methods of Bitcoin payment include bank accounts, debit cards, and credit cards. You can also get Bitcoin at specialized ATMs and via peer-to-peer (P2P) exchanges.

Security considerations

It is important to find out about safe storage practices and take the necessary crypto security measures, as Bitcoin wallets or exchange accounts can be compromised. When creating accounts for your digital wallets and currency exchanges, use strong passwords and two-factor authentication.

Where to buy?

If you are in Australia, you can buy Bitcoin through a cryptocurrency exchange using Australian dollars. Choose a reputable exchange that adheres to local regulations and security standards, and make sure to verify your account before depositing funds and buying Bitcoin.

Invest in Bitcoin through ETFs

Bitcoin ETFs (exchange-traded funds) are a popular way to gain exposure to Bitcoin's price movements without needing to own the cryptocurrency directly. These investment funds hold Bitcoin-related assets, such as futures contracts, and are traded on traditional stock exchanges.

Step 1: Understand Bitcoin ETFs

Bitcoin futures ETFs are designed to offer investors exposure to Bitcoin's price movements without the need to buy and store the cryptocurrency directly. These ETFs purchase and bundle futures contracts, which are then actively managed. This structure eliminates the security concerns and high costs associated with direct Bitcoin ownership.

Step 2: Choose a Bitcoin ETF

When selecting a Bitcoin ETF, it's important to consider factors such as the fund's expense ratio, assets under management, and investment strategy. Here are some popular Bitcoin ETFs to consider:

• IShares Bitcoin Trust ETF (IBIT)
• Bitwise Bitcoin ETF (BITB)
• Grayscale Bitcoin Trust ETF (GBTC)
• ProShares Bitcoin Strategy ETF (BITO)
• Invesco Galaxy Bitcoin ETF (BTCO)

Step 3: Open a Brokerage Account

To purchase Bitcoin ETFs, you'll need a brokerage account. Popular options include Fidelity and Interactive Brokers, among others. Compare brokers based on their offerings and fees to find one that aligns with your needs.

Step 4: Purchase the Bitcoin ETF

Once your brokerage account is open and funded, you can search for the desired Bitcoin ETF by its name or ticker symbol. Compare the available options based on their expense ratios and investment strategies.

Placing your trade is typically straightforward. After specifying the number of shares and reviewing your order, you can click "buy" to complete the transaction.

Key Considerations:

• Expense Ratios: Bitcoin ETFs charge ongoing fees, known as expense ratios, which can be relatively high compared to stock index ETFs. These fees are deducted from your investment returns.
• Taxes: Remember that crypto sales are subject to taxes. If you buy and sell Bitcoin ETFs through a traditional brokerage, these transactions should be included in your annual trading activity for tax purposes.
• Loss of Control: Investing in a Bitcoin ETF means you don't have direct control over the underlying holdings. This contrasts with direct Bitcoin ownership, where you have full autonomy.

Invest in crypto-related stocks

Crypto-related stocks include stocks of companies with significant involvement in the cryptocurrency industry, such as Bitcoin miners and cryptocurrency exchanges. This method offers indirect exposure to the crypto market and is less volatile than investing in cryptocurrencies themselves.

• Coinbase Global (COIN): A leading cryptocurrency trading exchange that allows users to trade various major cryptocurrencies and altcoins. Coinbase earns a small transaction fee whenever someone buys or sells a cryptocurrency on its platform.
• Block Inc. (SQ): Formerly known as Square, Block's Cash App allows users to buy, sell, send and receive Bitcoin. The company has also invested directly in Bitcoin, with holdings of around $235 million.
• PayPal Holdings, Inc. (PYPL): PayPal is a leading technology platform that facilitates digital and mobile payments and allows users to buy, transfer and sell cryptocurrencies. Its mobile wallet, Venmo, also enables users to buy and sell cryptocurrency.
• Riot Platforms Inc. (RIOT): Riot Platforms is a cryptocurrency mining company that independently mines Bitcoin and provides co-location services and other critical infrastructure for institutional-scale Bitcoin mining companies.
• Marathon Digital Holdings Inc. (MARA): Marathon is one of the largest Bitcoin mining companies, providing transaction and custody verification and blockchain security services to the crypto industry. The company also emphasises its commitment to using renewable energy sources, such as wind power.
• CME Group: CME Group operates a large market for trading futures and derivatives, including Bitcoin futures. It was one of the first international stock exchanges to offer Bitcoin futures trading in 2017.

These stocks can be purchased through a traditional brokerage account, offering a familiar investment framework while providing exposure to the crypto market.

Choose a crypto exchange

There are several crypto exchanges to choose from, each with its own unique features, fees, and security protocols. Here are some factors to consider when selecting a crypto exchange:

• Reputation and Security: Opt for well-known and reputable exchanges that adhere to local regulations and security standards. Security is paramount when dealing with cryptocurrencies, so ensure the exchange has robust security measures in place to protect your investments.
• Range of Cryptocurrencies: Different exchanges offer different cryptocurrencies. While some exchanges offer dozens of options, others may only have Bitcoin and a few alternatives. Choose an exchange that provides the variety you seek.
• Fees: Transaction fees can vary significantly between exchanges. Some exchanges charge a flat fee, while others charge a percentage of the trade value. Consider the fee structure that works best for you, especially if you plan on making frequent trades.
• User Interface and Features: The user interface and functionality of exchanges can vary. Look for an exchange with a user-friendly interface that makes it easy to navigate and execute trades. Additionally, consider the features offered, such as wallet options, recurring investments, and order types.
• Payment Methods: Ensure that the exchange supports your preferred payment method, such as bank transfers, credit cards, or debit cards.
• Customer Support: Opt for an exchange that provides reliable customer support to guide you through any issues or queries you may encounter.
• Coinbase: Coinbase is a well-known and widely used exchange that offers a range of cryptocurrencies, including Bitcoin. It provides an intuitive platform for buying, selling, and storing cryptocurrencies. Coinbase also offers a mobile app, making it convenient for users to manage their investments on the go.
• Kraken: Kraken is another reputable exchange that supports various cryptocurrencies. It offers advanced order types, such as market, limit, stop-loss, and take-profit orders, giving users more control over their trades.
• Binance: Binance is one of the largest crypto exchanges globally, offering a vast selection of cryptocurrencies. It is known for its low fees and advanced trading features, catering to both beginner and experienced traders.
• Crypto.com: Crypto.com is a popular exchange that provides a simple and user-friendly platform for buying and selling cryptocurrencies. It also offers a range of features, including crypto wallets and crypto-backed loans.
• Gemini: Gemini is a regulated exchange that prioritises security and compliance. It offers a range of cryptocurrencies, including Bitcoin, and provides features such as wallet services and crypto trading.

Remember to do your research and compare multiple exchanges before making a decision. Consider the factors mentioned above and choose an exchange that aligns with your investment goals, risk tolerance, and preferences.

Store Bitcoin in a hot or cold wallet

Hot and cold wallets are two types of storage options for crypto wallets. They differ in terms of user experience and security levels.

Hot Wallets

Hot wallets are applications or platforms that are connected to the internet and allow you to manage your cryptocurrency holdings. They are user-friendly, mostly free, and convenient, especially if you are using a hot wallet linked to a particular exchange. Examples of hot wallets include MetaMask, Exodus, and Mycelium.

However, hot wallets are more vulnerable to being hacked since they are connected to the internet. They also have restricted features in certain countries or jurisdictions due to local laws.

Cold Wallets

Cold wallets, on the other hand, store a user's private keys offline, adding an extra layer of security from potential hacks. Cold wallets are usually hardware storage devices that are not connected to the internet. They are considered one of the safest ways to store your Bitcoin. Examples of cold wallets include Ledger, Trezor, and KeepKey.

While cold wallets provide better security and a sense of control, they tend to be more expensive than hot wallets. They are also less practical and not as easily accessible as hot wallets.

The right answer may be a combination of hot and cold wallets, depending on your goals with cryptocurrency in both the long and short term. Many people use both options to balance security and convenience, storing smaller amounts of crypto in hot wallets for easy access and trading, and keeping larger amounts in cold wallets for long-term storage.

Frequently asked questions