The Simplest Route To Bitcoin Investment

Investing in Bitcoin can be a daunting task for beginners, but it has become increasingly popular in recent years. Here are some simple steps to help you get started:

1. Choose a Crypto Exchange or Platform: Select a reputable cryptocurrency exchange or platform that allows you to buy and sell Bitcoin. Examples include Coinbase, Binance, Kraken, and Gemini. These platforms act as middlemen for cryptocurrency investing, similar to a stock brokerage.

2. Create an Account: Sign up and provide the necessary personal information, such as your name, contact details, and proof of address. This step helps exchanges comply with anti-money laundering regulations.

3. Fund Your Account: Deposit money into your account using a bank transfer, credit card, or debit card. Bank transfers are usually the cheapest way to fund your account, as credit and debit card deposits often incur higher fees.

4. Place Your Bitcoin Order: Decide how much Bitcoin you want to buy. You don't have to purchase a whole Bitcoin; you can invest as little as $25 or even less. Place your order on the exchange, and you'll become the owner of Bitcoin.

5. Store Your Bitcoin: Consider where you want to keep your Bitcoin. You can leave it on the exchange or platform where you bought it, known as a custodial wallet. Alternatively, you can move it to a non-custodial crypto wallet, such as a hot wallet (online) or a cold wallet (offline). Hot wallets are convenient but carry a higher risk of being hacked. Cold wallets, like hardware wallets, offer greater security by keeping your Bitcoin offline.

6. Understand the Risks: Remember that Bitcoin is a highly volatile and speculative investment. Its value can fluctuate significantly over time. There is a potential for both profit and loss, so invest only what you can afford to lose.

7. Diversify Your Portfolio: As a high-risk investment, Bitcoin should be a small part of your portfolio. Diversify your investments by prioritizing low-risk options like government bonds or index funds, followed by medium-risk choices, and then allocating a smaller portion to high-risk assets like Bitcoin.

Using a cryptocurrency exchange

Step 1: Choose a Cryptocurrency Exchange

First, decide on a cryptocurrency exchange to use. Examples of popular exchanges include Coinbase, Binance, Kraken, Gemini, and Bitfinex. When choosing an exchange, consider factors such as security, fees, the range of cryptocurrencies available, and whether it is available in your country.

Step 2: Create an Account

Once you've selected an exchange, create an account by providing personal information such as your name and contact details. You may also need to provide proof of address and a copy of your ID for identity verification purposes.

Step 3: Fund Your Account

Most cryptocurrency exchanges offer multiple ways to deposit funds, such as bank transfers, credit cards, or debit cards. Bank transfers are usually the cheapest way to fund your account, while credit and debit card deposits often come with higher fees.

Step 4: Place Your Bitcoin Order

After funding your account, you can place your first order to buy Bitcoin. You can usually buy a fraction of a Bitcoin, so you don't need to purchase a whole Bitcoin. The amount you invest will depend on the current price of Bitcoin and how much you want to spend.

Step 5: Store Your Bitcoin

You can choose to store your Bitcoin in a wallet provided by the exchange or a third-party wallet. There are two main types of wallets: hot wallets and cold wallets. Hot wallets are connected to the internet and are more convenient but less secure. Cold wallets, such as hardware wallets, are offline and provide greater security but may require more technical knowledge to set up.

Remember to do your research, understand the risks involved, and only invest what you can afford to lose.

Using a traditional stockbroker

Step 1: Choose a Brokerage Firm

Firstly, you'll need to select a brokerage firm that offers Bitcoin trading. Examples of well-known brokerage firms that facilitate Bitcoin transactions include Robinhood, Webull, TradeStation, and Fidelity. When making your decision, consider factors such as security, fees, and the range of cryptocurrencies offered.

Step 2: Create an Account

Once you've chosen a brokerage firm, you'll need to create an account. This typically involves providing personal information such as your name, contact details, and proof of address. You may also need to upload a copy of your ID and verify your identity.

Step 3: Fund Your Account

To start investing in Bitcoin, you'll need to deposit funds into your brokerage account. Most brokerage firms offer multiple funding options, including bank transfers, credit cards, and debit cards. Keep in mind that credit card deposits often incur higher fees, so using a bank transfer is usually the most cost-effective method.

Step 4: Place Your Bitcoin Order

With your account funded, you're now ready to place your first Bitcoin order. The process will vary depending on the brokerage firm you've chosen, but you'll typically need to navigate to the Bitcoin trading page and specify the amount you want to invest. Remember, you don't have to buy a whole Bitcoin; most brokerage firms allow you to purchase fractions of a Bitcoin, so you can invest as much or as little as you're comfortable with.

Step 5: Store Your Bitcoin

After purchasing Bitcoin, you'll need to decide where to store it. You have two main options: a custodial wallet provided by the brokerage firm or a non-custodial wallet that gives you full control over your Bitcoin. Custodial wallets are more convenient and are often insured, but they come with the risk of exchange failure. Non-custodial wallets, such as hot wallets (online) or cold wallets (offline), give you more control and are considered more secure, but they require you to take responsibility for the security of your private keys.

Step 6: Manage Your Bitcoin Investments

Once you've purchased Bitcoin, you can choose to hold onto it as a long-term investment or actively trade it. If you decide to trade, you can do so directly on the brokerage platform by buying and selling Bitcoin as you please. Remember that Bitcoin is a highly volatile asset, so it's crucial to carefully assess your risk tolerance and investment strategy before making any trades.

Using a money transfer app

Some crypto apps, such as games, crypto wallets or other online services that use blockchain technology, allow users to buy and sell digital assets directly within their app. If you're using cash in one of these apps, you may wind up using a third-party service such as MoonPay to fill your order. Such services can cost a bit more than regular exchanges, but they offer some advantages in the form of quick, relatively painless transactions.

• Understand your risk tolerance: Bitcoin is a high-risk investment, so carefully review your risk tolerance before investing. If you don't feel comfortable investing in volatile assets or only have a small sum of money to invest, you may want to consider other options.
• Diversify your portfolio: The best way to protect yourself from investment losses is to diversify. Your primary investments should be low-risk, like government bonds or index funds. Next, consider medium-risk investments, like real estate or corporate stocks, and make high-risk investments, like Bitcoin, your smallest and least-prioritised.
• Start small: If you're unsure, start with a small amount. You could invest as little as $10 a week.
• Cash App: One of the most user-friendly ways for beginners to trade Bitcoin. There's no separate account needed — if you use the Cash App to send money, you're already equipped to buy Bitcoin and stocks.
• Venmo: A popular money transfer app that also allows users to buy, sell, and store Bitcoin.
• PayPal: You can buy Bitcoin through PayPal, but you cannot move your Bitcoin around easily. You can, however, use PayPal as a deposit method to fund your account on crypto exchanges like Coinbase and eToro.

Using a Bitcoin ATM

• Get a Crypto Wallet: Before using a Bitcoin ATM, you will need a crypto wallet that supports Bitcoin (BTC). There are different types of wallets, including paper, digital, and hardware wallets. You can download a digital wallet app on your phone or use a hardware wallet, which is a physical device that stores your coins.
• Find a Bitcoin ATM Near You: Bitcoin ATMs are not as common as traditional ATMs, so you may need to use a live map like Bitcoin ATM Map or Coin ATM Radar to locate one near you. These maps allow you to filter your search by proximity, operator, fees, and supported cryptocurrencies.
• Set Up Your Transaction: At the Bitcoin ATM, you will need to verify your identity and enter your PIN. Then, select the cryptocurrency you want to purchase (if the ATM offers multiple options) and choose the amount you wish to buy.
• Enter Your Wallet Information: Provide your Bitcoin wallet address by scanning the QR code or entering it manually. Double-check that the address is correct to ensure your Bitcoin is sent to the right place.
• Insert Cash: Insert the required amount of cash into the ATM and confirm the purchase.
• Confirm the Purchase: Review all the transaction details and confirm the purchase. Your Bitcoin will then be sent to your wallet.

However, there are also some risks and considerations to keep in mind. Bitcoin transactions are irreversible, so you must be careful when entering your personal information. Bitcoin ATMs may also have higher fees compared to other financial services, and they may not offer the same level of insurance for funds as traditional banks.

Overall, using a Bitcoin ATM is a straightforward and accessible way to invest in Bitcoin, especially for those who want to avoid using a bank account or prefer a more direct method of buying and selling cryptocurrencies.

Using a Bitcoin exchange-traded fund (ETF)

An Exchange-Traded Fund (ETF) is an investment fund that can be traded on stock exchanges and allows investors to gain exposure to various assets, including Bitcoin. ETFs are a popular way to invest in Bitcoin, especially for those who are familiar with the traditional stock market structure but want exposure to Bitcoin and other cryptocurrencies.

How Bitcoin ETFs Work

There are two main types of Bitcoin ETFs: futures-based and spot ETFs.

• Futures-based Bitcoin ETFs invest in futures contracts rather than holding Bitcoin directly. These contracts speculate on the future price of Bitcoin, providing an investment pathway tied to its future market expectations rather than its current price. This approach can lead to discrepancies between the ETF's performance and Bitcoin's spot price, especially in volatile market conditions.
• Spot Bitcoin ETFs aim to track the current market price of Bitcoin. They provide a more direct exposure to Bitcoin's price movements by holding the cryptocurrency directly. Spot ETFs offer a closer alignment with Bitcoin's real-time value, making them a preferred choice for investors seeking an investment that mirrors the cryptocurrency's performance.

Benefits of Using a Bitcoin ETF

Using a Bitcoin ETF offers several advantages:

• Familiar investment structure: ETFs are traded on stock exchanges, making them a more familiar and regulated investment route for traditional investors.
• Diversification: ETFs allow investors to gain exposure to a basket of assets or companies, reducing the risk associated with investing directly in a single asset like Bitcoin.
• No need for a digital wallet: Investing in a Bitcoin ETF does not require setting up and managing a digital wallet, eliminating the security concerns associated with owning cryptocurrencies.
• Potential for increased demand: If major institutions' pending applications for spot Bitcoin ETFs are approved, they will need to buy significant quantities of Bitcoin to hold as backing. This could drive substantial demand for Bitcoin, potentially increasing its price in the future.

How to Invest in a Bitcoin ETF

To invest in a Bitcoin ETF, you need a brokerage or online share trading account that gives you access to the relevant stock exchanges. Through this account, you can buy and sell ETF shares just like traditional stocks.

In Australia, for example, investors can access ETFs such as the Global X 21Shares Bitcoin ETF (EBTC) and the BetaShares Crypto Innovators ETF (CRYP). These ETFs are available on the Cboe Australia (CXA) and Australian Securities Exchange (ASX) respectively.

Considerations

While Bitcoin ETFs offer a convenient and regulated way to invest in Bitcoin, there are a few considerations to keep in mind:

• Performance discrepancies: Futures-based ETFs may not always accurately track the spot price of Bitcoin, especially during volatile market conditions.
• Regulatory uncertainties: The cryptocurrency space is subject to regulatory changes, which can impact the availability and performance of Bitcoin ETFs.
• Fees and expenses: As with any investment, there are fees and expenses associated with ETFs, including management fees, transaction costs, and potential tax implications.
• Market risk: Bitcoin is a highly volatile asset, and its value can fluctuate significantly. Investing in a Bitcoin ETF carries the same market risk as investing directly in Bitcoin.

Frequently asked questions