The Ultimate Guide To Investing Money In Bitcoin

Bitcoin is a well-known cryptocurrency that has become increasingly popular among investors in recent years. Despite the debates surrounding it, Bitcoin has seen a meteoric rise in value, with its valuation increasing by more than 763% in a single year.

Investing in Bitcoin can be done in a few simple steps, but it's important to understand the risks involved. Here's a beginner's guide on how to invest money in Bitcoin:

Step 1: Choose a Crypto Exchange

Popular crypto exchanges include Coinbase, Robinhood, eToro, FTX, Gemini, and BlockFi. When choosing an exchange, consider factors such as fees, reputation, and whether it supports transferring Bitcoin out of the brokerage account.

Step 2: Open an Account

To open an account, you'll typically need to provide basic contact information and valid identification to meet the exchange's Know Your Customer (KYC) requirements. This may include submitting a scan of your driver's license or passport.

Step 3: Fund Your Account

You can usually fund your account through an online funds transfer from your bank account or using payment apps like PayPal. Some exchanges may also allow you to use a credit or debit card.

Step 4: Place a Buy Order

Once your account is funded, you can place a buy order for Bitcoin. The exchange will convert your fiat currency into Bitcoin, which will be stored in your cryptocurrency account.

Step 5: Store Your Bitcoin Safely

Consider storing your Bitcoin in a secure cryptocurrency wallet, such as a cold wallet (hardware wallet) or a hot wallet (software wallet). Cold wallets are considered safer as they are not connected to the internet.

Investing in Bitcoin carries significant risks due to its highly volatile nature. The value of Bitcoin can fluctuate drastically, and it is susceptible to government actions and hacking. Therefore, it is crucial to only invest an amount you are comfortable losing and to prioritize the safe storage of your Bitcoin.

Choose a crypto exchange

Choosing a crypto exchange is an important step in investing in Bitcoin. There are many options available, so it is essential to do your research and select one that suits your needs and preferences. Here are some key factors to consider when choosing a crypto exchange:

• Reputation and Security: Look for a well-established and reputable exchange with strong security features. Check for a physical address, transparency, and a good track record in addressing security issues. The harder the account creation process is, the better.
• Fees: Understand the fee structure, as fees can eat into your profits. Some exchanges charge transaction fees based on the size of the transaction or your activity level. Be aware of both the exchange and blockchain transaction fees.
• Currency Pairs: Consider the range of currency pairs offered by the exchange. If you plan to trade obscure altcoins, ensure the exchange supports them.
• Features and Functionality: Evaluate the features and functionality offered by the exchange, such as trading tools, order types, and security options like two-factor authentication.
• Regulatory Compliance: Ensure the exchange complies with relevant regulations and security protocols. Check if it requires user identification and follows laws that protect your investments.
• User Experience: Assess the user interface and platform navigation. Choose an exchange with a user-friendly design and intuitive functionality.
• Mobile Access: If you plan to trade on the go, select an exchange that offers a mobile app or mobile-friendly platform.
• Customer Support: Opt for an exchange that provides reliable customer support to assist you with any issues or queries.
• Location and Legal Status: Consider the location of the exchange and whether it is legal and compliant in your region.
• Payment Options: Ensure the exchange supports your preferred payment methods, such as bank transfers, credit/debit cards, or payment apps.
• Coinbase: One of the most popular exchanges, offering a wide range of coins, strong security, and user-friendly interfaces.
• Binance: A crypto exchange with a strong focus on altcoins.
• Kraken: A well-established exchange with robust security features and a wide range of cryptocurrencies.
• Gemini: Offers services catering to both casual and veteran Bitcoin investors with different user interfaces and fee structures.
• Crypto.com: Known for its user-friendly mobile trading app and various reward opportunities.
• Abra: A global crypto exchange serving institutions and private clients, offering comprehensive investment solutions and wealth management services.

Choose a payment method

The next step is to choose a payment method. Most major platforms offer the option of linking your bank account for wire and ACH transfers, as well as the option of linking a debit card. Some also let you pay via PayPal.

Regardless of the option you choose, you will have to verify your identity when first signing up for an account and registering a payment method. In the US, you're usually required to submit a scan of a state-issued ID, such as a driver's license or identification card.

Depending on where you are and on your chosen platform, you may also be required to provide scans of additional documentation (such as your passport), as well as being asked to submit a proof of address.

Payment Options

• Bank account transfers: The fastest and cheapest way is typically with an online funds transfer from a connected bank account.
• Debit or credit cards: At most exchanges, you can connect your bank account directly or you can link it to a debit or credit card. Although you can use a credit card to purchase cryptocurrency, cryptocurrency price volatility could inflate the overall cost of purchasing a token when combined with a credit card's interest charges.
• PayPal: PayPal allowed users to buy and sell bitcoins starting in 2020. Starting in June 2022, PayPal allowed users to withdraw the coins from their accounts.
• Cash: You can also buy Bitcoin with cash at Bitcoin ATMs, which can be found at retailers like Walmart.

Things to Consider

• Fees: Fees vary for deposits via a bank account, debit, or credit card, and exchanges also charge fees per transaction.
• Security: It's important to keep your digital currency accounts extremely secure. If someone gets ahold of your Bitcoin wallet address and password (private key), they can take your Bitcoin and you likely won't have any way to recoup losses.

Place your order

Once you've chosen a crypto exchange and payment method, it's time to place your Bitcoin order. This process varies according to the exchange you use, but most exchanges offer at least three basic order types:

• Market order: the option to choose if you simply want to buy Bitcoin at its current price. This type of order is usually completed in a matter of seconds, depending on the time of day.
• Stop order: an order where you specify the price at which you will buy or sell Bitcoin. This type is good if you want to make sure you sell Bitcoin before it falls too sharply. This type of order can take some time to execute, depending on how quickly the market moves.
• Limit order: instructs the exchange to execute a buy or sell order at a specific price or better. In contrast to stop orders, limit orders are visible to the market and can take longer to fill.

Executing any one of these options usually involves clicking a 'Buy', 'Trade', or 'New order' button on an exchange's home screen. You'll then be able to choose from the above three (and more advanced) options, before clicking a 'Submit' button or something equivalent.

Remember, all exchanges will let you buy a fraction of a bitcoin (BTC). So while the price of 1 BTC may seem prohibitively expensive right now, you will be able to choose to buy 0.1 BTC, 0.01 BTC or whatever else you type into the exchange's interface.

Store your crypto in a safe place

Storing your cryptocurrency in a safe place is crucial, as neglecting to do so can result in the loss of your funds. There are several ways to securely store your Bitcoin, each with its own advantages and disadvantages. Here are some detailed instructions on how to keep your crypto safe:

Hot Wallets vs. Cold Wallets

Firstly, it is important to understand the difference between hot wallets and cold wallets. Hot wallets are connected to the internet, making your funds easily accessible. Examples of hot wallets include exchange wallets, which are custodial and controlled by a third party, and mobile wallets, which are usually self-custodial. While hot wallets offer convenience, they are more susceptible to hacking and theft.

On the other hand, cold wallets are offline storage methods that provide an extra layer of security by keeping your funds offline. Examples of cold wallets include hardware wallets and paper wallets. Cold wallets are considered safer than hot wallets but may be more confusing for less technical users and are generally not suitable for those who frequently transact with their crypto.

Choosing a Storage Option

When deciding how to store your crypto, consider factors such as the amount you have invested, how often you plan to spend or send your crypto, and your level of technical expertise.

If you hold a significant amount of crypto, it is generally recommended to use a cold wallet, such as a hardware wallet, for added security. However, if you frequently transact with your crypto, you may want to keep a small balance in a hot wallet for easier access.

For those with less technical expertise, a combination of a hot wallet for frequent transactions and a cold wallet for secure storage may be a good option. Additionally, using a non-custodial wallet can provide both ease of use and increased security, as the keys are controlled by the user rather than a third party.

Best Practices for Secure Storage

• Use a strong password and two-factor authentication for your digital wallets and currency exchange accounts.
• Avoid sharing your private keys or wallet passwords with anyone.
• Keep your private keys and passwords safe and secure, as losing them could result in permanent loss of access to your crypto.
• Be cautious when clicking links in emails or direct messages on social media, as these could be phishing attempts. Always verify the source before clicking.
• Set up 2-factor authentication for added security.
• Regularly back up your wallets to minimize the risk of loss due to user error or device failure.
• Educate yourself about the mechanics of your chosen wallet to reduce the chance of user error.

In conclusion, storing your crypto in a safe place involves understanding the different types of wallets, weighing the benefits and drawbacks of each, and implementing security measures to protect your funds. By following these guidelines, you can help ensure that your crypto investments remain secure.

Understand the risks

Bitcoin is a relatively new and risky asset. While it's possible that Bitcoin could double, triple, or even 10x in value over a short period of time, it could also drop to zero. As with any investment, it's important to only invest what you can afford to lose.

Volatile Market

The price of Bitcoin is constantly changing and is highly unpredictable. For example, in the space of a week in December 2017, the price of Bitcoin topped $20,000 before dropping to $14,626. With such a volatile market, there's no guarantee of a return on your investment.

Susceptible to Hacking

Bitcoin is susceptible to certain forms of hacking. If someone gets hold of your Bitcoin wallet address and password (private key), they can take your Bitcoin, and you're unlikely to be able to recoup your losses.

Regulatory Risk

The Bitcoin market is currently operating without any major regulations. The government doesn't have a clear stance on cryptocurrency as it's a new market. It is not taxed, which can make it enticing as an investment opportunity, but a lack of taxation could lead to problems should Bitcoin pose competition for government currency.

Technology Reliance

Bitcoin is an online exchange that is entirely reliant on technology. Without the technology, Bitcoin is worthless. This also means that Bitcoin owners are more vulnerable to cyber threats and online fraud.

Limited Acceptance

There are few companies that accept Bitcoin as a viable form of currency. Currently, some online stores and travel companies allow cryptocurrency exchanges, but many companies do not recognize Bitcoin as legitimate.

Legal Risk

There is a widespread belief that cryptocurrencies provide criminal organizations with a new means of committing fraud and money laundering. While this may not directly impact most investors, it does mean that investors who are victims of financial crime do not have the same legal options as traditional victims of fraud.

Tax Implications

In the US, the IRS has defined cryptocurrencies as property rather than currencies. This means that investors are subject to capital gains tax laws when reporting cryptocurrency profits and expenses on their annual tax returns.

Frequently asked questions