How to Buy Bitcoin for Beginners
Bitcoin has experienced meteoric growth since its launch in 2009: its value increased by nearly 30,000 percent from October 2013 to early June 2021, for example. While this is impressive in and of itself, some analysts believe Bitcoin's value will continue to rise as cryptocurrencies and the blockchain technology that underpins them become more ubiquitous and integrated into people's daily lives.
However, there is one huge caveat to buying Bitcoin: while it has seen incredible highs, it has also seen terrible lows.
For example, after reaching nearly $20,000 in 2017, its value dropped and did not rise above half of that until 2020. Even though it's been trending upward since then, it's still a very risky investment, and an ill-timed tweet from Elon Musk can wipe it out. As a result, experts advise just investing a modest portion of your savings in Bitcoin.
With that said, if you still want in on the action, here's how to get your hands on some Bitcoin.
4 Steps to Buying Bitcoin
1. Select a Cryptocurrency Exchange
You'll need a crypto exchange to acquire Bitcoin or any other cryptocurrency. This is where buyers and sellers meet to trade money for coins.
There are hundreds of exchanges to choose from, but as a novice, you'll want to go with one that offers a good mix of ease of use, minimal fees, and excellent security. If you don't already have a crypto exchange in mind, check out our top selections, which include Coinbase, Gemini, and Binance.US.
Check to see if your exchange platform has a Bitcoin wallet; if it doesn't, you'll need to create your own. You can also buy crypto on a platform like Robinhood, Paypal, or Venmo, though buying crypto this way frequently means you won't be able to withdraw or move your coins to another platform. You'll need to sell your crypto and then repurchase it on a separate exchange if you want to keep it in a different wallet.
2. Select a Payment Method
Before you can start investing in Bitcoin, you must first fund your account with funds from an exchange. You can fill your account with bank transfers from a checking or savings account, PayPal, wire transfers, a cryptocurrency wallet, or even a credit or debit card, depending on the exchange.
Keep in mind, however, that certain funding choices may incur additional transaction fees. When you make an electronic transfer from a bank account, for example, Coinbase doesn't charge a fee. It does, however, charge $10 for wire transfers and 2.5 percent for PayPal transactions.
Things get considerably more expensive if you buy cryptocurrency directly using PayPal or a debit card rather than first funding your account and then using transferred funds: The cost on Coinbase has increased to 3.99 percent of the transaction value. On other platforms, credit card transaction costs are frequently at least as high.
Because fees lower the amount of money you can invest (and thus the amount of money you have to grow and multiply), electronic transfers from a bank account make more sense than alternative options. Furthermore, if you buy cryptocurrencies with a credit card, it will be treated as a cash advance, and you will be charged a greater interest rate than you would on regular charges. Furthermore, using debt to purchase volatile investments is exceedingly dangerous.
3. Make a Purchase
You can place your first order to acquire Bitcoin once your account has been financed. You might be able to buy it simply hitting a button, or you might have to type in Bitcoin's ticker symbol, depending on the platform you're using (BTC). After that, you'll need to enter the amount you want to invest.
You will own a fraction of a Bitcoin once the transaction is completed. This is due to the fact that purchasing a single Bitcoin today necessitates a sizable initial commitment. To buy a Bitcoin at the current price of $38,000, for example, you'd need to invest $38,000. If you put in less money, say $1,000, you'll obtain a percentage of a Bitcoin, in this case 0.026 percent.
4. Choose a Secure Storage Option
Your crypto exchange most likely includes an integrated Bitcoin wallet or at the very least a favored partner where you may store your Bitcoin safely. Some users, on the other hand, are wary about leaving their crypto connected to the internet, where it could be taken more easily by hackers.
Most large exchanges have private insurance in place to reimburse customers in the event of a breach, and they're gradually holding the majority of user assets in offline "cold" storage. You can store your Bitcoin in an online or offline Bitcoin wallet of your choice if you want the highest level of protection. However, keep in mind that if you withdraw cryptocurrency from an exchange, you may be charged a modest withdrawal fee. Furthermore, if you utilize a third-party crypto wallet custodian, you may lose access to your coins forever if you lose the private key that serves as your wallet password. Some Bitcoin millionaires have been robbed of their wealth as a result of this.
If you decide to sell your Bitcoin, you can place a sell order through your exchange, just like you did when you first bought your BTC. Most exchanges offer several types of orders, so you can choose to only sell when bitcoins reach a certain price, or you can place orders that will fill immediately.
You can choose to sell your entire Bitcoin holdings or just a certain amount. After the sale is complete, you can transfer the money to your bank account. However, your exchange may have a hold period before you can issue a refund to your bank account. This is nothing to worry about; It just takes some time to make sure the transaction is clear.
If you sell your bitcoins, you can make a profit. If you do, you will be subject to capital gains tax, as cryptocurrency sales are now required to be reported to your taxes.
Should You Buy Bitcoins?
Especially when the price of Bitcoin skyrockets, it can be tempting to invest in a popular cryptocurrency. But while it has the potential to be a profitable investment, you should be careful: This is a highly volatile purchase that experts don't recommend using a large percentage of your invested dollars.
If you're not sure whether investing in Bitcoin or another cryptocurrency is a good idea for your needs, you should meet with a financial planner who can help you figure out where cryptocurrencies fit into your investment strategy.