How to buy the original cryptocurrency
What to consider before you invest in bitcoins
Whether it’s a good or bad thing, there’s nothing quite like Bitcoin.
The original cryptocurrency, launched in 2009, is perhaps one of the most polarizing financial assets.
If you’re thinking about jumping on the bitcoin bandwagon, there are several things to consider, starting with what exactly you’re getting into.
What is bitcoin?
Bitcoin is a virtual currency. It’s designed to exist outside the control of any central entity, such as banks or governments.
Fiat currencies like the U.S. dollar and the British pound are created by government orders as legal tender. In contrast, bitcoin offers a peer-to-peer form of money without an intermediary. That’s why it’s known as decentralized currency.
Like most cryptocurrencies, bitcoin is created through cryptographic computer technology called a blockchain. The blockchain and bitcoin were created by a person or group using the pseudonym Satoshi Nakamoto.
The blockchain on which bitcoin runs can be considered a distributed ledger. Transactions are recorded on the blockchain, continuously updated by volunteers known as miners and available for all to see on the internet.
Another key difference between bitcoin and conventional money is that there is a hard cap of 21 million coins. When the supply reaches this number, no more bitcoin will be created.
Fiat currency, on the other hand, is created by central banks or governments, and its supply is governed by monetary policies.
Is bitcoin a currency?
Some experts argue bitcoin hasn’t achieved currency status.
“A viable currency must have low volatility,” said Kelly Gilbert, owner and principal at EFG Financial. It’s hard to use a currency that is worth $500 one day and $50 the next.
“For this reason, bitcoin is not yet a viable currency,” Gilbert said. “If you buy bitcoin now, remember it is more of a speculative stock than it is a viable currency”
How to buy bitcoin through a crypto exchange
Several companies offer bitcoin trading. But they vary in terms of whether they offer actual ownership or just exposure. If you’re looking to buy bitcoin, a good place to start is with a trading app like etoro or through a crypto exchange like Coinbase or Gemini.
Remember that trading fees and other factors, such as storage, apply.
● Step 1: Choose a crypto trading platform. The easiest way for an individual to buy bitcoin is through a crypto exchange, such as Kraken or Binance.us.
Online stockbrokers, such as Robinhood, also offer their customers the ability to buy bitcoin and other cryptocurrencies.
Tip: You’ll need a crypto wallet to store your coins. While crypto trading platforms offer exchange accounts, storing your crypto in a cold wallet tends to be more secure.
Step 2: Set up an account. Most accounts require users to authenticate their identity and register a payment method.
While some decentralized exchanges allow users to remain anonymous, most popular exchanges require identifying documentation.
The setup process is nearly the same as what is required for brokerage accounts, as many centralized exchanges follow Know Your Customer standards. You may be asked to provide the following:
● Government-issued ID.
● Social Security number or taxpayer identification number.
● ID photo or video confirmation.
● Proof-of-address documents. When selecting a crypto trading platform, be aware that different exchanges allow different payment methods and fees will vary.
Step 3: Place an order. Crypto exchanges offer many of the same order types as online brokers. Most popular crypto exchanges facilitate the following:
Market order. You receive the next available price after your trade is placed.
Limit order. You set a specified price for selling or buying crypto so you receive the limit price or better. If your limit price isn’t met, your order is canceled.
Stop-limit order. A pending order that becomes a market order once your desired price is met. You may receive a final price that is above or below your limit price.
Step. 4: Store your crypto. You can store your bitcoin in myriad ways. Two popular methods are hot wallets and cold wallet.
Hot wallet. You can store bitcoin on an online wallet or exchange account. These hot wallets are known for their convenience and ease of accessibility. But they also have drawbacks, including security risks. Hot wallets are more vulnerable to hacks and cyberattacks because of their online nature.
Cold wallet. Cold wallets are small, encrypted portable devices that sometimes look like a USB drive. They are often considered more secure because their offline nature prevents hacks through traditional means.
Things to consider before buying
The most important thing to consider when purchasing bitcoin is its risk profile. Bitcoin is a highly volatile asset that swings wildly.
Bitcoin’s price performance over the past few years offers a stark example. The original crypto’s trading price fell from roughly $69,000 in November 2021 to less than $17,000 in December 2022. It reached a new high of more than $73,000 in March 2024. Year to date, Bitcoin’s trading price is up 45%, as of March 20.
This year’s gains are a result of the Securities and Exchange Commission’s approval of spot bitcoin ETFS, according to Gilbert.
“This legitimizes the investment and has prompted large purchases by the likes of Blackrock that are sending the prices upward at an accelerated rate,” he said.
But this demand may be temporary. “It will cool off almost as fast as it began, so if you decide to invest now, be vigilant and aware of this,” Gilbert said.
Consider bitcoin only as part of a diversified portfolio and only if it matches your risk tolerance.
How to sell bitcoin
You generally can sell bitcoin where you purchased it.
Remember that fees will be payable once more when you trade out of the asset. Taxes also may be a factor, depending on whether the sale is profitable and where you are domiciled. For instance, if you sell your bitcoin for a profit, the sale might be subject to capital gains tax.
Also consider what assets you are selling. For some exchanges and trading platforms, it may be possible to sell bitcoin only into a crypto stablecoin, such as USD coin (USDC) or tether (USDT), instead of fiat currency. In this case, you must take the additional step of selling that asset into fiat, which may require an additional layer of fees.