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How to invest in Bitcoin
Get started investing in Bitcoin with these simple strategies suitable to both beginners and experienced investors.
How you invest in Bitcoin (BTC) will mainly depend on whether you want to use a cryptocurrency exchange, a trading app or a stock-trading platform. Don’t worry if you’ve never used any of these before – each method is straightforward and should take less than 30 minutes to get started.
They each have their own unique pros and cons, which you’ll need to weigh up before making a decision about how to invest in Bitcoin.
- Buying and holding Bitcoin through an exchange or broker is the most straightforward way to invest in Bitcoin and takes around 30 minutes to get set up with a smartphone or computer.
- If you have an existing stock-trading account, you may be able to purchase a Bitcoin ETF that will give you exposure to the price of Bitcoin, but you won’t own the actual asset itself.
- Dollar-cost averaging is a popular strategy for investing in many types of assets, including Bitcoin. It involves small but regular purchases of Bitcoin in order to mitigate market volatility and remove emotions from your investment strategy.
5 ways to invest in Bitcoin
- Buy from an exchange
- Invest through a trading app
- Buy a Bitcoin ETF
- Use a Bitcoin ATM
- Invest through a hardware wallet
Buy Bitcoin from an exchange
- Pro: Straightforward buying and selling of Bitcoin accessible to all experience levels.
- Con: You’ll need to learn how to use the spot market to get the best value for your money — otherwise you can use an instant purchase method, but you’ll have to deal with higher fees.
The easiest and most convenient way to invest in Bitcoin is to simply purchase it from a reputable cryptocurrency exchange such as Binance, Coinbase or FTX. These exchanges serve as crypto banks of sorts, taking custody of your crypto assets and holding them on your behalf. This eliminates the need for you to manage private keys, which is one of the more complex parts of using cryptocurrency. Other upsides are that you are able to sell or buy BTC at any time, invest in other cryptocurrencies offered by the exchange and some exchanges even let you maximize your investment by earning yield on your Bitcoin through a crypto savings account.
Making a purchase
Using an exchange requires learning how to use the spot market, which is where you buy and sell Bitcoin on the open market. The spot market isn’t necessarily difficult to navigate, but if you want to avoid this, then look for an exchange or broker that also offers an “instant buy” service. This will allow you to buy Bitcoin instantly with a simple credit card transaction. These services also let you set up recurring purchases to enact investment strategies like dollar-cost averaging. But watch out for the fees that can be several times higher than on the spot market.
Exchanges also provide you with a wide array of trading options such as market, limit and stop-loss orders that help you execute your trades with precision. So if you plan on an active investment strategy that involves trading, then an exchange is what you will need.
How to mitigate risk
One major risk associated with cryptocurrency exchanges is the possibility of theft. Malicious actors can steal your cryptocurrency through phishing attacks that trick you into handing over your password or by outright hacking the exchange itself. Here are a few ways to protect yourself:
- Choose an exchange that has a good track record in how it deals with hacks (such as reimbursing stolen funds).
- Look for an exchange that’s registered locally so that you have better access to legal recourse should something go wrong.
- Check for extra layers of security. Some exchanges, such as Binance, are taking steps to mitigate these risks to users by launching insurance funds. Security software providers such as Fireblocks are also used by a number of exchanges to amplify security and reduce the risk of theft.
- You can also protect yourself from hacks by moving your cryptocurrency off an exchange into a hardware wallet. Hardware wallets are considered the most secure way of holding Bitcoin, although there is a bit of a learning curve and more personal responsibility involved.
Invest through a trading app
- Pro: Easy and convenient for users new to crypto with minimal fuss.
- Con: Often you don’t receive actual Bitcoin and the fees can be vague.
Bitcoin and other cryptocurrencies can be purchased through a trading app such as SoFi, Webull or Robinhood with little difficulty if you’re already used to investing in more traditional assets such as stocks or commodities.
Investing in Bitcoin through a trading app is much easier than creating an exchange account and Bitcoin wallet, but these assets often exist on a closed loop and are not actually on the blockchain. This means you may not actually own Bitcoin or other cryptocurrencies but rather a synthetic asset (like an IOU) that mirrors its price and only exists to allow traders to speculate on the real asset’s value. In practice, however, there may not be much difference to the average investor, with the main one being that you may not be able to withdraw BTC to your own wallet. Regardless, investing in Bitcoin via trading apps is convenient and easy to manage if your only goal is direct exposure to the price of Bitcoin.
Watch out for spreads
If you choose an app like this to invest in Bitcoin, then be aware that while they may advertise “zero commission” trading, you may still be charged a spread. A spread is the difference between the market price of an asset (e.g. Bitcoin) and the price the retailer actually sells the asset to you for.
You can think of this as a markup on the price, as trading apps often act as brokers and sell assets to you, rather than letting you choose your own price by trading with other users like you would on an exchange. This is not necessarily a bad thing though, as spreads can be low making some apps competitive with exchanges.
Buy a Bitcoin ETF
- Pro: Can be purchased using an existing stock-trading account and the ETF manages your Bitcoin on your behalf.
- Con: Will rarely mirror the exact price of Bitcoin and may even trail behind as most ETFs track futures contracts instead of real BTC.
A US-based Bitcoin exchange-traded fund (ETF) has been the Holy Grail of crypto investors for years, as it would likely unleash an avalanche of retail and institutional investment in Bitcoin thanks to the regulated and accessible nature of this asset class. Unfortunately, the only Bitcoin-related ETF in the US right now is a Bitcoin futures ETF, although you may be able to access true Bitcoin ETFs from other markets such as Canada through a stock-trading platform that has access to multiple markets.
The key difference is that a futures-based ETF tracks futures contracts, which traders use to bet on the future price of Bitcoin. As such, they are not perfectly correlated with the price of Bitcoin, and instead capture something similar to market sentiment. On the other hand, a “true” Bitcoin ETF is simply comprised of Bitcoin. There is a third popular type of Bitcoin ETF, which tracks companies associated with Bitcoin, rather than the asset itself.
As such, you need to thoroughly investigate each ETF before making a decision, so that you know exactly what the ETF is composed of and what you are buying. You can compare a range of Bitcoin ETFs with our dedicated guide that explains what type of assets are in each ETF.
Why you might consider a Bitcoin ETF
- If your investment options are restricted. This may be the case for those using retirement investment accounts,for example, as they may not be allowed to purchase and hold Bitcoin directly due to their fund’s rules. Instead, they are allowed to purchase a Bitcoin ETF as ETFs are a traditional investment vehicle offered by most brokers.
- If you don’t want to learn how to use a cryptocurrency exchange or a Bitcoin wallet. The time and knowledge needed to manage and understand how to create these accounts may not be easy for some to grasp, making an indirect investment a more convenient option that still allows for exposure to the evolving and dynamic cryptocurrency market.
Use a Bitcoin ATM
- Pro: Immediate, private and accessible to anyone able to operate an ATM.
- Con: High fees that will dissuade most experienced Bitcoin investors.
While many experienced crypto traders would consider a Bitcoin ATM a terrible way to purchase Bitcoin due to high margins and unreasonable fees, there are several benefits to choosing an ATM for investing in Bitcoin. Privacy, immediacy and convenience are just some of the benefits that exchanges or trading apps can’t provide.
Users unable to access traditional banking tools or investment vehicles can immediately purchase Bitcoin via an ATM. Little crypto knowledge is needed to purchase from an ATM, and unlike most exchanges that require either KYC or data from the bank funding the trade, some Bitcoin ATMs can be used anonymously.
The ATMs send the BTC to your wallet, typically via the scanning of a QR code. If you don’t have a wallet already, the machine can help you create one. Cash is not dispensed but rather deposited by the user in order to purchase the crypto. Depending on the country, phone numbers and government-issued IDs may also be part of the purchasing process.
Every Bitcoin investment strategy has its advantages or disadvantages depending on a trader’s needs or limitations. Bitcoin ATMs are a great choice for unbanked investors or those wishing to maintain their privacy.
Buy Bitcoin with a hardware wallet
- Pro: You have total control over your investment, which is secured by the Bitcoin blockchain rather than a third-party like an exchange.
- Con: Learning to use a blockchain can be difficult, transactions are irreversible and your funds are at risk of human error.
For those who believe in the concept of “not your keys, not your Bitcoin” and want to have physical control over their crypto assets, a non-custodial or hardware wallet might be the answer. These offer full control over your funds as well as more privacy thanks to a lack of KYC requirements (e.g. providing photo ID when signing up for an exchange).
Using either a hardware wallet like Ledger or Trezor to buy Bitcoin with your local currency (usually with a credit card) is essentially as easy as doing it on a regular exchange. This is thanks to a plethora of seamlessly integrated third-party exchange services like Changelly and Simplex that are usually accessible in-app from your wallet.
While this may be considered more of a storage option than an investment method, it’s one that all crypto users should keep in mind given the additional security that comes with it. By using a hardware wallet, you are keeping your Bitcoin stored on the Bitcoin blockchain at all times. The blockchain has never been hacked and is much more secure than an exchange.
The catch though is that your security is only as secure as you. You are responsible for managing your private key (think of it like a password used to access your wallet) and seed phrase (a sequence of words used to recover your wallet should you lose your private key).
Read more in our hardware wallets guide to see if this is the right storage option for you.
4 investing strategies for Bitcoin
There are infinite ways you can approach your investment strategy for Bitcoin. But as a beginner, it’s often preferable to start slow and explore more advanced strategies as you learn more about the industry and investing in general. Here are some simple, low-risk strategies to get you started.
1. Dollar-cost averaging (DCA)
Dollar-cost averaging (DCA) is a popular strategy that involves making small, repeated investments on a regular basis in order to reduce the risk of market volatility on your decision-making. It involves purchasing a set amount of Bitcoin at a regular interval, regardless of the price or market conditions. An example of this would be if you set up a recurring order that purchased $100 worth of Bitcoin at the start of every month. You can think of it like setting aside a portion of your paycheck to deposit into a savings account each week, except you’re buying Bitcoin with it instead.
The idea is that you ignore price swings in the market. This reduces your susceptibility to emotional decision-making, which can be a trap for beginner investors. While we all think we are smart enough to “buy low, sell high”, the reality is as the market moves upwards, people become afraid of missing out and invest at the top of the market. By sticking to dollar-cost averaging, you remove your emotional decision-making from your investment strategy.
2. Take profits on the way up, not down
Investing in Bitcoin or any assets is done with the goal to turn a profit, but it’s easy to let unrealized gains disappear if you haven’t prepared an exit strategy beforehand. If Bitcoin or any liquid asset turns profitable, selling small portions of your investment will ensure profits are taken, even if some money ends up left on the table. Markets will always turn, and buying a future red day with your gains will be possible if profits were taken beforehand.
3. Embrace volatility
As investing mogul Warren Buffet said in a famous letter to shareholders, sometimes the best time to buy is when fear is high. Emotions don’t belong in an investment strategy, and if your confidence in the asset you own is high, then a bad day is the perfect time to buy as it provides a low entry point. Likewise, selling a considerable portion on a high day can also result in huge gains that can be used to buy the next time the market dips.
4. Invest only what you can afford
Cryptocurrencies are extremely volatile, and investing is a zero-sum game. Invest with the assumption that any money you invest could be lost. This mentality will help protect you from investing beyond your means and ensure that money you can’t afford to lose is not at risk. Not investing too much capital will make it easier to resist selling on a bad day, and this will prevent you from revenge trading to regain lost funds that should not have been invested in the first place.
You may also explore using stop-loss orders on a cryptocurrency exchange to mitigate your potential downside.
Is Bitcoin a good investment?
Bitcoin is a digital asset not associated with any government and one of the most recognizable, liquid and desirable assets worldwide. Often conceptualized as a digital version of gold, Bitcoin derives its value from scarcity and acts similar to a currency. However, currencies are backed by a central government that guarantees they can be used to exchange goods or services. Bitcoin is not backed by any government, but unlike a typical currency that requires faith in a government to be considered legitimate, Bitcoin is trusted by ordinary people because blockchain technology makes every Bitcoin transaction transparent and traceable but at the same time pseudonymous.
An investment in Bitcoin involves different risks than traditional investments because of the unknown road cryptocurrencies continue to travel. Governments, financial institutions and international agencies are constantly updating their guidelines and regulations. The mass adoption of virtual assets like Bitcoin will determine the role they play in the future. With governments and institutions holding a magnifying glass over Bitcoin and other cryptocurrencies, volatility is almost guaranteed as new laws are created to protect investors and prevent financial crimes.
3 facts to know about Bitcoin before you invest
- Virtual assets are still facing scrutiny from governments that haven’t determined how to tax, regulate or limit them. Bitcoin in particular is getting a lot of flak for its high consumption of electricity, as it’s one of only a few top blockchains to still use a proof-of-work (PoW) consensus mechanism. Despite surviving a proposed ban on Bitcoin mining in the EU last month, environmental concerns are likely to continue to grow, especially after rival cryptocurrency Ethereum switches from PoW to environmentally friendly proof of stake (PoS) this year, which may put pressure on the Bitcoin community to act.
- Bitcoin has a finite supply of 21 million (with the last BTC to be mined in 2140) and is traded and stored on the blockchain, a decentralized ledger system that tracks all transactions publicly.
- Satoshi Nakamoto, the person or group that created Bitcoin in 2009, is to this day anonymous and holds a wallet of 1 million Bitcoin that hasn’t moved in over 10 years.
Investing in Bitcoin requires high conviction in the idea that blockchain technology and virtual assets will play a big role in the future, despite environmental and regulatory pressure. Trading strategies can be deployed to mitigate your risk and help achieve profits. External events or market turmoil can affect the price of Bitcoin or other cryptocurrencies regardless of how effective or valuable the technology is.
If you decide to invest in Bitcoin, it’s prudent to only put in what you can afford to lose and take profits on the way up. Use strategies like DCA and avoid buying on emotions induced by market euphoria. Cryptocurrencies are still not fully accepted by many governments, and future legislation will impact cryptocurrency prices until the air is cleared on how they will be taxed, regulated and adopted.
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