The Ultimate Guide To Investing In Bitcoin

Bitcoin is a highly volatile asset that has experienced dramatic price surges and slumps over the years. As such, investing in it can be risky, but potentially rewarding. There are several ways to invest in Bitcoin, each with its own advantages and drawbacks. Here are some of the most common methods:

- 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, so it's important to do your research before choosing one.

- Traditional stockbrokers: While the options are limited, some traditional brokers like Robinhood, Webull, TradeStation, and Fidelity allow customers to buy and sell Bitcoin. These platforms often charge lower fees for Bitcoin trades.

- Peer-to-peer 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, which is convenient for those already familiar with these interfaces.

- Bitcoin ATMs: These work like regular ATMs, but allow you to buy and sell Bitcoin. You can find them in locations where regular ATMs are usually placed, such as convenience stores. Be sure to check the fees and have a plan for where to send your Bitcoin before making a transaction.

- Bitcoin exchange-traded funds (ETFs): These are funds that track the price of Bitcoin and trade over major exchanges. This option became available in 2024 and is expected to make it easier for traditional investors to gain access to Bitcoin.

- Bitcoin exchange-traded products (ETPs): Similar to ETFs, ETPs give you exposure to the value of Bitcoin without needing to buy the coin itself. They can be bought through traditional routes like brokerage accounts, IRAs, and trusts, which may simplify tax and estate planning considerations. However, ETPs don't offer direct ownership of Bitcoin and have unique trading limitations and investment risks.

- Buying crypto stocks: Another way to indirectly invest in Bitcoin is by buying stocks of companies closely tied to the cryptocurrency industry, such as crypto exchanges, Bitcoin mining companies, and banks that provide solutions for crypto companies. Examples include RIOT, MARA, and COIN.

Regardless of the method you choose, it's important to understand the risks and volatility of the Bitcoin market before investing. It's also crucial to prioritize security and protect your investments from potential hackers and scammers.

Buy Bitcoin directly

Overview

Buying Bitcoin directly is an increasingly popular option among investors, thanks to the increasing ease of access via cryptocurrency exchanges. As of December 8, 2023, one Bitcoin is worth almost $66,000 AUD. However, unlike traditional investments, 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.

When you buy Bitcoin directly, you gain full ownership of your investment. This direct approach provides complete control over your digital assets. Moreover, Bitcoin, as one of the most liquid digital assets, offers the advantage of ease in buying and selling, facilitating quick portfolio adjustments in response to market movements.

Process

The process of buying Bitcoin on an exchange is relatively straightforward. First, you must choose a reputable exchange that adheres to local regulations and security standards. After creating and verifying an account, you can deposit funds, typically through bank transfer or credit card, and then proceed to buy Bitcoin. This step is crucial, as selecting a trustworthy exchange can significantly mitigate some security risks associated with owning digital currencies.

Security

The most notable challenge of investing in Bitcoin is storing it. Owning cryptocurrency requires meticulous management of your digital wallet, which poses its own set of security risks. The cryptocurrency space is prone to hacking and theft, and safeguarding your investment requires diligence.

You can opt for a third-party wallet, which a crypto exchange or other crypto provider generally manages. While convenient for quick transactions, third-party wallets require trusting a third party with your money and are not generally considered the best option.

Cold wallets, such as hardware wallets, offer offline storage, significantly enhancing security. Implementing robust security measures like strong passwords and two-factor authentication is essential regardless of the storage method chosen. Additionally, maintaining a backup of your wallet details in a secure location is crucial for asset recovery in case of device failure or loss.

Use a cryptocurrency exchange

Using a cryptocurrency exchange is one of the most common ways to invest in Bitcoin. These exchanges allow you to buy and sell Bitcoin and other cryptocurrencies. Some popular exchanges include Coinbase, Gemini, Kraken, Crypto.com, Binance, and Robinhood.

When choosing a cryptocurrency exchange, it is important to consider the fees, consumer protections, and the number of cryptocurrency options available. Each exchange will carry a variety of different fees and consumer protections, so it is essential to research and understand the terms before selecting one.

• Fees: Cryptocurrency exchanges typically charge fees for buying, selling, and withdrawing cryptocurrencies. These fees can vary significantly between exchanges, so it is important to compare them before selecting one.
• Security: The security of your investment is crucial. Look for exchanges that offer two-factor authentication and other security measures to protect your account and investments.
• Reputation: Choose an exchange with a good reputation and a track record of secure and reliable operations.
• Regulatory compliance: Ensure that the exchange adheres to local regulations and security standards. This can help mitigate some security risks associated with owning digital currencies.
• Number of cryptocurrency options: Some exchanges offer dozens of cryptocurrency choices, while others may only have Bitcoin and a few alternatives. Consider your investment goals and whether you want to invest in multiple cryptocurrencies.
• User-friendliness: Some exchanges are designed to be user-friendly and intuitive, making them ideal for beginners. Others may have more advanced features that can be overwhelming for new investors.

Once you have selected a cryptocurrency exchange, you will need to create and verify an account. This typically involves providing personal information, such as your name, address, and date of birth. You may also need to provide a photo ID and proof of address. After your account is set up, you can deposit funds into your account using a bank transfer or credit card.

When buying Bitcoin on an exchange, you can specify the quantity of coins you want to purchase. Many exchanges also allow you to buy fractional shares of Bitcoin, which means you don't have to buy a whole Bitcoin. This flexibility makes it accessible for both small and large investors.

It is important to note that investing in Bitcoin carries risks, and the value of your investment can go up or down. Always do your research and only invest what you can afford to lose.

Store Bitcoin in a hot or cold wallet

When it comes to storing Bitcoin, there are two main options: using a hot wallet or a cold wallet. Each has its own advantages and disadvantages, so it's important to understand the differences before making a decision.

A hot wallet is always connected to the internet or another device, making it convenient for sending, receiving, and accessing your Bitcoin. Examples of hot wallets include web-based, mobile, and desktop wallets. While hot wallets offer ease of use, they are more vulnerable to online attacks and hacks. It's generally recommended to keep only a small portion of your crypto-assets in a hot wallet.

On the other hand, a cold wallet is typically not connected to the internet, providing an extra layer of security for your Bitcoin. Cold wallets can be in the form of hardware wallets, which look like small to medium-sized USB sticks, or paper wallets, where your private and public keys are physically printed. Cold wallets are considered to be more secure than hot wallets but are less convenient as they require additional steps to access your Bitcoin.

To strike a balance between functionality and security, many people use a combination of hot and cold wallets. For example, you can use a hot wallet for day-to-day transactions and a cold wallet for storing a larger amount of Bitcoin. This way, you can take advantage of the convenience of hot wallets while also ensuring the security of your crypto-assets.

When choosing a hot wallet, it's important to consider factors such as security features, cost, user experience, supported cryptocurrencies, and integration with exchanges. For cold wallets, factors like security, cost, and ease of use are also important. Additionally, make sure to follow best practices for crypto cybersecurity and enable two-factor authentication to protect your digital assets.

Invest in Bitcoin through ETFs

ETFs, or exchange-traded funds, are an excellent way to invest in Bitcoin, especially for those who want to avoid the complexities and risks of direct crypto investments. ETFs are investment funds that track a particular asset or market index, and in the case of crypto ETFs, they are designed to track the performance of Bitcoin or other cryptocurrencies.

Crypto ETFs can be structured in different ways, but they generally fall into two categories: futures-based ETFs and spot ETFs.

• Futures-based ETFs invest in futures contracts, which are agreements to buy or sell an asset at a specified price on a future date. These ETFs don't hold Bitcoin directly but speculate on its future price, providing exposure to Bitcoin's potential without direct engagement with the cryptocurrency.
• Spot ETFs aim to track the current market price of Bitcoin by holding the cryptocurrency directly. They provide a more direct exposure to Bitcoin's price movements and are often preferred by investors seeking an investment that mirrors the cryptocurrency's real-time value.

Benefits of Investing in Bitcoin through ETFs

• Familiarity and Regulation: ETFs are a familiar investment structure for those who are used to the traditional stock market. They are regulated investment products, which can provide added peace of mind compared to the often less-regulated world of cryptocurrencies.
• Diversification: ETFs allow investors to gain exposure to Bitcoin and the broader cryptocurrency market without putting all their eggs in one basket. This diversification can help reduce the risk associated with investing in a single cryptocurrency.
• Abstraction from Direct Crypto Investments: Futures-based ETFs, in particular, offer a layer of abstraction from direct crypto investments. This can appeal to investors who are cautious about the volatility and risks of direct crypto holdings.
• Ease of Investment: Investing in Bitcoin through ETFs is a relatively straightforward process, especially for those already familiar with investing in stocks. You can buy and sell ETF shares through a brokerage or online share trading account, just like traditional stocks.
• No Need for Digital Wallets: When investing in Bitcoin through ETFs, you don't need to worry about setting up and securing a digital wallet, which is often a complex and time-consuming process.

Things to Consider

• Fees and Performance Discrepancies: ETFs, especially those based on futures contracts, may have fees that eat into potential returns. Additionally, the performance of the ETF may not always match the underlying asset's performance, especially in volatile market conditions.
• Regulatory Landscape: The regulatory environment for crypto is constantly evolving, and this can impact the availability and structure of crypto ETFs. For example, spot Bitcoin ETFs were only approved by the SEC in the US in 2024.
• Tax Implications: The tax treatment of ETFs, especially those related to cryptocurrencies, can be complex and vary by jurisdiction. It's essential to consult with tax professionals to understand the tax implications before investing.

Examples of Crypto ETFs

• ProShares Bitcoin Strategy ETF (BITO): A futures-based ETF that provides exposure to Bitcoin's potential without directly holding the cryptocurrency.
• Global X Blockchain & Bitcoin Strategy ETF (BITS): This ETF provides exposure to a diversified basket of cryptocurrency stocks and the broader crypto industry.
• Global X 21Shares Bitcoin ETF (EBTC): Available on the Cboe Australia exchange, this ETF tracks the price of Bitcoin, providing a closer alignment with the cryptocurrency's actual performance.

These are just a few examples, and the availability of crypto ETFs will depend on your location and the regulatory environment. It's important to research the specific ETFs available to you and understand their investment strategies, fees, and potential risks before investing.

Buy Bitcoin using a credit card

Buy Bitcoin with a credit card

Using a credit card to buy Bitcoin is a straightforward process. You can use your credit card to purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, Crypto.com, and Bitcoin.com. These platforms offer a wide range of cryptocurrencies, allowing you to buy Bitcoin alongside other leading cryptocurrencies.

When buying Bitcoin with a credit card, it is important to consider the applicable fees and consumer protections offered by the platform. Some platforms may charge higher fees or have less robust security measures in place. It is also crucial to understand the risks associated with investing in Bitcoin, as it is a highly volatile and unregulated asset.

Additionally, when choosing a platform, look for one that provides a free Bitcoin wallet where you can store your purchases. This will ensure quick and easy access to your Bitcoin.

The process of purchasing Bitcoin with a credit card is similar to making any other online purchase. You will need to enter your credit card details and the amount of Bitcoin you wish to buy. Some platforms may also require you to create an account and verify your identity.

It is worth noting that while buying Bitcoin with a credit card is convenient, it is generally not recommended to take on high-interest debt to invest in a risky asset. If the value of Bitcoin decreases, you could be left with substantial losses. Therefore, it is crucial to only invest an amount that you are comfortable losing.

Overall, using a credit card to buy Bitcoin can be a fast and simple way to enter the world of cryptocurrency. However, it is important to carefully consider the risks and choose a reputable platform that offers low fees and robust security measures.

Frequently asked questions