How to Buy Bitcoin

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You can acquire Bitcoin by purchasing it through exchanges or stockbrokers, or by obtaining it from other individuals. It is important to consider the potential risks associated with investing in digital assets, regardless of where you obtain them.

Acquiring Bitcoin is often the initial step that investors take into the realm of cryptocurrency, which may be an unfamiliar terrain for those accustomed to traditional financial products. The value of Bitcoin, the first and most widely used cryptocurrency, has fluctuated significantly. It rose from roughly 6 cents shortly after its launch in August to an all-time high of over $68,000 in November 2021, but then dropped to around $17,000 by December 2022 during the broader cryptocurrency market decline. 

As with all cryptocurrencies, investing in Bitcoin is speculative and characterized by greater volatility compared to more established investments such as stocks, bonds, and mutual funds.

How to buy Bitcoin in 4 steps

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When deciding to invest in Bitcoin, it is important to consider where to purchase it from. Cryptocurrency exchanges such as Coinbase, as well as some traditional brokers such as Robinhood, can facilitate the purchase of Bitcoin.

It is also crucial to think about how to securely store your cryptocurrency. This may involve deciding between keeping it in a "hot" or "cold" wallet.

Once you have determined where to buy and how to store your Bitcoin, you can then decide on the amount you wish to invest.

Finally, it is important to manage your investment by having a long-term plan for it. This may involve regularly monitoring market trends and determining a specific buying and selling strategy.

1. Decide where to buy Bitcoin

There are various methods to acquire Bitcoin and other digital currencies, such as through cryptocurrency exchanges or traditional brokerage platforms.

One way to acquire Bitcoin is through cryptocurrency exchanges. These platforms offer a range of options for purchasing digital currencies, with some providing access to dozens of different cryptocurrencies, while others may only have Bitcoin and a few other options. The fees and consumer protections offered by these exchanges can vary, so it is important to thoroughly research and compare them before making a choice. Some examples of cryptocurrency exchanges where you can buy Bitcoin include Gemini, Kraken, Coinbase, and Crypto.com.

Another option for purchasing Bitcoin is through traditional stockbrokers. Currently, there are limited options for traditional brokers that provide customers with the ability to buy and sell Bitcoin. Robinhood was one of the first mainstream investment brokers to offer Bitcoin trading, through its Robinhood Crypto platform which is available in most, but not all, U.S. states. Similar to its stock trading platform, Robinhood does not charge fees for Bitcoin trades. Other online brokers that offer access to Bitcoin or other cryptocurrencies include SoFi Active Investing, WeBull, TradeStation, and Firstrade.

There are other methods for purchasing or investing in Bitcoin beyond cryptocurrency exchanges and traditional stockbrokers. These include:

- Bitcoin ATMs: These work similarly to traditional ATMs, allowing users to buy and sell Bitcoin.

- Trusts or exchange-traded funds: Some financial firms, such as ProShares and Grayscale Investments, offer exchange-traded funds or trusts that allow investors to indirectly invest in Bitcoin through futures contracts or trust funds. These options can be purchased through many discount brokers and may offer the benefit of not requiring investors to worry about storage and security of their digital assets.

- Peer-to-peer money transfer apps: Popular cash transfer services such as PayPal, Venmo, and Cash App now allow users to purchase, store, and sell Bitcoin directly within the app. Some apps, such as PayPal and Cash App, also allow for sending and receiving payments in Bitcoin.

2. Decide how to store Bitcoin

Bitcoin and other cryptocurrencies can be stored in two types of digital wallets: hot wallets or cold wallets. A hot wallet, transactions are typically faster and more convenient, as they are easily accessible and connected to the internet. On the other hand, a cold wallet offers added security measures to protect your assets, but the transactions may take longer as the wallet is not connected to the internet.

A hot wallet is a digital wallet where Bitcoin is stored by a trusted exchange or provider on the internet, accessible through an app or web browser. When you join a trading exchange, they will provide a free hot wallet for you to store your purchases. However, some users prefer to transfer and store their Bitcoin with a third-party hot wallet provider, which is typically free to download and use.

Choosing a wallet from a provider other than an exchange may provide additional security for your Bitcoin. While the blockchain technology behind Bitcoin is considered to be secure, hot wallets are a popular target for hackers. It is important to note that many exchanges and online wallets have suffered from security breaches in the past, and they may not provide enough insurance and security to be used as a bank.

Cold wallets offer offline storage, which means they are not connected to the internet and therefore less susceptible to hacking. Transactions made with a cold wallet also typically require additional steps, such as physically connecting the device to a computer and entering a code, adding an extra layer of security. Cold wallets are often recommended for storing large amounts of Bitcoin and other cryptocurrencies for long-term investment.

3. Make your purchase

The final step in linking your Bitcoin wallet to the exchange of your choice is to decide how much Bitcoin you want to purchase. Bitcoin is a cryptocurrency that can be bought and sold in fractional shares, so you can start with a small investment, even as low as $25, as the cost of a single Bitcoin is currently thousands of dollars. Its trading symbol is BTC or XBT.

4. Manage your investment

Day trading is a risky investment strategy that involves buying and selling frequently. Investors who engage in this strategy attempt to purchase Bitcoin at a low price and then sell it when its value increases. On the other hand, if you believe in the future of Bitcoin as a digital currency, you may choose to buy and hold it for the long term. Regardless of your strategy, it's important to be aware that owning Bitcoin creates a complex tax situation.

Read More: how to invest in stocks

Source: https://www.nerdwallet.com