How to Buy Bitcoin
Editor’s Note: This article is archived and exists for reference and historical context. It may contain outdated information or practices that no longer reflect current editorial standards. Please keep that in mind while reading.
Over the last decade, Bitcoin has experienced incredible growth, evolving from the first mainstream cryptocurrency to a widely recognized digital asset. By the end of 2024, Bitcoin had reclaimed its position among the top 10 global assets with a market capitalization of over $1 trillion.
With increasing institutional acceptance, fuelled by the SEC’s decision in early 2024 to allow bitcoin spot ETFs, more people than ever are wondering how to buy Bitcoin.
Despite the complexity of blockchain technology and the mainstream confusion that often comes with buying Bitcoin, it has never before been easier to purchase. That being said, first-time buyers should consider where and when to buy the cryptocurrency, as well as secure storage methods and any potential risks.
Key Considerations Before Buying Bitcoin
The question of ‘How do you buy bitcoin?’ should go hand-in-hand with an investor’s risk management strategy, with cryptocurrencies considered a high-risk investment for both new and experienced buyers. This is due, in part, to the decentralized infrastructure in which cryptocurrencies operate.
Peer-to-peer (P2P) exchange is a core concept, with cryptocurrencies and crypto companies focusing on removing centralized control from the process. This shift introduces new privacy and security risks that are not present within traditional finance. The removal of third-party intermediaries requires investors to assume control of the security, privacy, and protection of their assets, exposing them to increased vulnerabilities.
Bitcoin also operates in a highly volatile market and experiences sudden price fluctuations that can be difficult to predict or navigate. Legal and regulatory considerations add additional complexity, with cryptocurrencies operating in a widely unregulated and ever-evolving legal environment, making customer protection challenging. Read more about Bitcoin Price Prediction.
Bitcoin investments are also taxable and subject to country-dependent rules. Profits from sales, trades, or payments will typically trigger capital gains taxes, while bitcoin earned through methods such as mining or staking is immediately taxable. Although privacy is an attractive feature of cryptocurrency and bitcoin-specific investments, failure to report earnings can result in penalties and fines.
How to Buy Bitcoin from a Trading Platform
Step 1: Create an Account
Go to the trading platform of your choice and click “Sign Up.” Enter your email, create a password, and complete the captcha. Verify your email to activate your account.
Step 2: Deposit Funds
Log in to your account, click “Wallet” in the top menu, then select “Deposit.” You can fund your account with Bitcoin or other cryptocurrencies by copying the deposit address.
Step 3: Select Bitcoin Trading Pair
Navigate to the “Trade” tab. In the trading pair dropdown, select BTC/USD or BTC/USDT. This sets Bitcoin as the asset you’re buying.
Step 4: Choose Order Type
Choose between “Market” or “Limit” orders. Market orders buy Bitcoin instantly at the current price, while limit orders allow you to set a preferred price.
Step 5: Enter Purchase Amount, Review, and Place Order
Specify the amount of Bitcoin or the USD equivalent you want to buy. Confirm the amount to proceed. Double-check all order details, including type, amount, and cost. When ready, click “Buy BTC” to finalize the purchase.
Step 6: View Your Balance and Safeguard Your Bitcoin
After completing your purchase, go to your “Wallet” tab to view your Bitcoin balance. For enhanced security, it’s best to transfer your Bitcoin to a non-custodial wallet, since they give you full control of your private keys, ensuring only you have access to your funds.
To transfer, go to “Withdraw”, enter your wallet address, specify the amount, and confirm.
Where to Buy Bitcoin – An Overview
Deciding how to get bitcoins is the first step for those looking to invest. It is important to be aware of the options available, and assess these in line with your goals, risk appetite, and wider investment strategy.
Cryptocurrency Exchanges
Cryptocurrency exchanges are widely considered the best way to buy Bitcoin. While some exchanges offer thousands of cryptocurrencies, others focus only on those that are most popular. Centralized exchanges (CEXs) are operated by a centralized entity, whereas decentralized exchanges (DEXs) rely on blockchain technology to operate without intermediaries, instead using smart contracts to facilitate the automatic execution of transactions.
Traditional Stockbrokers, Trusts or Exchange-Traded Funds (ETFs)
While only a few traditional brokers currently offer cryptocurrency transactions, the landscape is evolving. Robinhood was the first traditional broker to offer bitcoin trading, and Proshares introduced the first bitcoin-linked ETF in October 2021.
Some ETFs are linked to Bitcoin through holdings in cryptocurrency-related companies, while Fidelity included Bitcoin investing in 401k accounts in 2022.The SEC approval for spot Bitcoin ETFs in early 2024 also signals growing institutional adoption.
Cryptocurrency Apps
For those asking, ‘How do I buy bitcoin?’, it is possible to buy bitcoin directly through a cryptocurrency app, which will often take the form of a crypto wallet. Using blockchain technology, users can purchase digital assets within the project’s wallet or software.
It is vitally important that investors differentiate between custodial and non-custodial wallets to determine whether they will retain control of their own assets or whether they will need to rely on third-party management.
Peer-to-Peer (P2P) Platforms
Peer-to-peer platforms facilitate direct Bitcoin transactions between users, eliminating the need for exchanges. Users can post requests to buy or sell Bitcoin, and these platforms often utilize a reputation system based on transaction history, rather than identity. While this offers users the opportunity to compare Bitcoin prices for the best deal, it lacks the anonymity of decentralized exchanges.
Additional Ways to Buy Bitcoin
The cryptocurrency landscape is constantly evolving, and alternative ways to buy Bitcoin are regularly introduced.
Buy Bitcoin With PayPal
Users can buy bitcoin with PayPal in various ways, whether that’s by depositing funds into a cryptocurrency exchange using PayPal, or by funding their account and purchasing Bitcoin directly on the platform. The latter may be a preferred method for those familiar with PayPal’s user interface.
Alternatively, the PayPal application offers a “Checkout With Crypto” feature, enabling users to make online purchases with Bitcoin.
Buy Bitcoin With Credit Card
Investors may choose to buy bitcoin with a credit card, but this usually incurs higher transaction fees than other methods, often making it less preferable. While it has not always been widely accessible, many exchanges and credit companies now support cryptocurrencies.
Buy Bitcoin With Cash
To buy Bitcoin with cash, individuals can deposit into a Bitcoin ATM. These function like normal ATMs but connect users to a wallet, rather than a bank account to facilitate the transfer of Bitcoin.
It’s important to understand how to use a bitcoin ATM or teller service, as the process has a few more nuances than using a normal ATM. Users should always ensure they know what fees they will be charged. As is true with traditional cash machines, these can be high.
Storing Your Bitcoin Safely
Anyone buying Bitcoin will need a safe place to store it. Cryptocurrency can be stored in two kinds of wallet: hot or cold. A hot wallet is typically digital, while a cold wallet is physical.
Hot Wallets vs. Cold Wallets
A hot wallet is a digital storage solution accessible through an internet browser or web-based application. Custodial hot wallets involve a third-party intermediary, such as a crypto exchange, automatically storing purchased crypto. Non-custodial hot wallets grant users complete control over their assets, including security responsibility.
Conversely, cold wallets are physical storage options. These can be encrypted portable devices or “paper wallets” (physical documents containing private and public key information). While no one wallet is fundamentally better than another, each comes with unique advantages and disadvantages.
Hot wallets are likely better for quick and proactive management of crypto assets, so are more suitable for those interested in short-term investments.
On the other hand, cold wallets offer greater long-term security. Non-custodial wallets will offer users more control over their assets, whereas custodial wallets are perhaps more beginner-friendly and come with third-party support, such as wallet or account recovery in the event of a lost private key.
How to Sell Bitcoin
Bitcoin functions as both an investment and a medium of exchange, allowing investors to spend, trade, or hold it. Unless an individual is planning to “HODL” for the long term or is interested in knowing where to use Bitcoin, having an exit strategy, typically involving selling Bitcoin, is essential.
Generally, selling bitcoin mirrors the buying process. A cryptocurrency exchange can facilitate an instant sale, while a peer-to-peer platform will allow a user to specify the desired price at which they wish to sell.
Most platforms impose a percentage fee upon selling crypto, and exchanges usually have withdrawal limits. Investors can choose to exchange bitcoin for another cryptocurrency, transfer it to a stablecoin to steady the price, use it for purchases or convert it to fiat currency for a “cash out” option.
Read more about How to Sell Bitcoin.
Final Thoughts on Bitcoin Investing
The future looks bright for investing in bitcoin. As the cryptocurrency industry moves closer towards institutionalization and decentralized finance enters mainstream consciousness, investing in bitcoin is likely to get easier and more accessible in the future.
Keep in mind that diversification is essential for risk management when investing in cryptocurrency. A well-balanced portfolio should extend further than just Bitcoin to span various coins and tokens with diverse use cases, blockchain networks, and market caps. This approach effectively spreads investments across the entire crypto market.
FAQs
Should I Invest in Bitcoin?
Consider your investment style, personal goals, overall strategy, and risk appetite when deciding how to buy bitcoin, or even whether you should buy bitcoin. Remember, although bitcoin is less volatile than other cryptocurrencies, the bitcoin price is far more likely to fluctuate significantly compared to traditional assets.
How Much Bitcoin Should I Buy?
Bitcoin’s all-time price high reached $68,000 in 2021. Investors do not need to purchase a whole bitcoin and fractional shares allow for flexible investment. Sensible strategies involve incorporating bitcoin into a broader investment plan, perhaps buying incrementally or dollar-cost averaging to smooth price fluctuations.
When Will Bitcoin’s Value Increase?
Many investors anticipate a rise in bitcoin’s value in 2024, coinciding with the fourth halving event. Historical patterns suggest a post-halving bull run, which will likely drive Bitcoin’s price up. Moreover, many believe that the SEC approval of bitcoin spot ETFs will introduce the asset to a whole new realm of investors, and thus further increase its value.
What is Bitcoin Mining?
Bitcoin mining involves validating blockchain blocks by solving cryptographic puzzles. Miners receive bitcoin rewards upon reaching a correct solution, for helping to secure the network. This is also how new bitcoin is introduced to the circulating supply.
Are Bitcoin Purchases Protected by SIPC?
Historically, cryptocurrency has not been protected by the Securities Investor Protection Corporation (SIPC). However, recent SEC approval of spot bitcoin ETFs traded through SIPC-insured brokers may provide protection in case of broker bankruptcy.
What’s the Best Way to Keep Crypto Assets Safe?
Investors should take every precaution to ensure the safety of their crypto assets, including secure wallet storage. As with any form of investment, do not give away passwords or personal information, and always have a safely stored written copy of any private keys.
How do I Create a Bitcoin Wallet?
There are multiple ways to create a wallet. Exchanges often offer custodial hot wallets automatically, while other hot wallet software may require a user to install software or download an application, create an account, and safeguard their private key. Cold wallets (physical storage) require an initial hardware purchase and come with specific setup instructions.
How Does a Bitcoin Exchange Work?
Exchanging bitcoin can be accomplished through a wide variety of methods and platforms, such as a cryptocurrency exchange (a digital marketplace upon which to buy and sell bitcoin), peer-to-peer platforms, or by exchange for goods and services.
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