How To Buy Bitcoin - A Guide For New Crypto Investors

Once you’ve learned the lingo, accepted the risk, and met your other financial priorities, the next step to crypto investing is actually buying in.   

There are thousands of different cryptocurrencies, but experts say you should take a hard pass on most of them, at least to start. Crypto values fluctuate by the hour, and this can be especially true for lesser-known coins. Even more established cryptocurrencies like ethereum and bitcoin experience their share of volatility, but at least have a greater record of increasing in value over time.

Bitcoin is the most valuable and widely held crypto on the market, and with prices reeling in the crypto and stock markets, now could be a good time to buy if you’re comfortable with the risks and interested in investing.

1. Choose an Exchange

Bitcoin can’t be purchased through your bank or investing firm yet — though some organizations are working toward that possibility in the future. For now, you’ll have to go through a cryptocurrency trading platform to exchange your U.S. dollars for Bitcoin or other digital currencies. 

There are hundreds of cryptocurrency exchanges you can use to buy crypto online, but a few of the more popular ones are Coinbase, Gemini, and Kraken. These exchanges are online platforms where you can buy and sell cryptocurrencies. 

You can narrow down your search for the right platform based on a few factors:

Security

Cryptocurrency investments are not backed by a central institution like FDIC-insured bank accounts. If your account is compromised, or the platform where you keep your coins is hacked, you could be at risk of losing your investment. 

If you plan to keep your crypto on your account with an exchange (rather than move it into your own crypto wallet), make sure you choose an exchange that uses offline, cold storage, and has strong protections against theft. Some exchanges also have independent insurance policies to help protect investors from potential hacking. 

Fees

Exchange fees can vary greatly, and may be applied as a flat fee upfront or as a percentage of your trades. Fees can be based on price volatility, and many are charged per transaction. 

While fees should definitely be a consideration, experts say you also get what you pay for, especially when sticking to the bigger, more established exchanges like Coinbase. If an exchange has more protections, better security, or other important features to you, it may be worth slightly higher fees.

Some exchanges charge fees based on a spread, or margin on top of the market price. Others base fees on a flat rate or percentage of your total purchase, which can vary based on your location, payment method, and other factors. 

Exchanges with more active trading features often use a fee model determined by market price fluctuations, known as maker-taker fees. If you buy at the current market price, you’ll be charged a (usually higher) “taker” fee. Or, you can set a price at which you want to buy, and wait for the market to reach that point. That’s known as a limit order, and incurs a “maker” fee.

Make sure you know what fees you’ll be charged — which you can find on the exchange’s website — before signing up. The fee structure should be clearly stated when you make your purchase, but it can help to factor in that cost beforehand so you don’t spend more than you expected. 

Available coins

Not all exchanges offer every single cryptocurrency out there.

Popular coins like Bitcoin (BTC) and Ethereum (ETH) are available on most crypto exchanges, while more niche altcoins may only be available on certain exchanges. Since experts recommend sticking with these big two cryptos and more mainstream exchanges like Coinbase, this shouldn’t be an issue for most new investors. 

2. Fund Your Account

Depending on the exchange you choose, you may need to provide information like your Social Security number, ID, and your source of income when you create your account. 

With most exchanges, you’ll be able to connect your bank account or a debit card to transfer U.S. dollars into your exchange account. There may be different fees depending on which method you use to fund your account — typically, bank transfers will cost less than card options. 

Remember, funding your account isn’t the same as actually purchasing crypto. Just like with traditional investing, you never want to leave uninvested money sitting in your account. Once you fund your account, you’ll still need to exchange your dollars for Bitcoin. 

3. Place an Order

Once you’ve connected a payment method, you’ll be able to actually place your order for Bitcoin. This process can differ depending on the exchange you use. 

Generally, if you’re using a platform like Coinbase or PayPal, you can simply enter the amount in dollars you want to trade for Bitcoin, and buy at the current rate (after accounting for any fees). 

If you use an exchange designed for more active trading — such as Coinbase Pro — you may have the option to place both market and limit orders. A market order means you purchase the cryptocurrency at that moment, for the current market price. A limit order means you’ll set a price you want to pay for the cryptocurrency. Once the currency reaches that point it will automatically be purchased.

With Bitcoin, you’ll likely be purchasing a fractional share of a coin  a single coin has traded for around $20,000 in recent weeks after a massive crypto market crash in June. Whatever amount you put in will be reflected in the exchange as a percentage of a total Bitcoin. (Example: If you invested $1,000 at Bitcoin’s early July value of about $34,000, it would show that you own 0.029 of Bitcoin).

4. Practice Safe Storage

Many exchanges allow you to leave your investment within your account, which is easiest for most beginners. But if you want to further secure your digital assets, you can transfer them into a cryptocurrency wallet. 

(Read More: A Crypto Wallet Can Help Keep Your Coins Safe. Here’s How to Decide If You Need One)

A cryptocurrency wallet is a place to store digital currency. There are various types of cryptocurrency wallets available, and they all have different levels of security associated. 

The exchange you use may offer a wallet option, so you can easily transfer your coins from your exchange account to a more secure wallet. You can also use a third-party software, or opt for cold storage on an offline hardware device. 

Some platforms you can use to buy crypto — including PayPal and Venmo — don’t allow you to move your coins onto your own storage device. Consider whether that’s an option you want before you buy, whether for offline security of your assets or because you may want to trade using another platform in the future.

Alternative Ways To Buy Bitcoin

You can also now buy crypto through some digital payment platforms you may already have accounts with, like Venmo, PayPal, and Cash App, as well as the investment app Robinhood. But they might not be right for every investor.

Paypal and Venmo don’t let you transfer your holdings into your own crypto, meaning your private keys remain in the platform. Robinhood recently announced it’s creating a crypto wallet offering so customers can move their coins off-platform. But for crypto enthusiasts who believe in the common crypto mantra “not your keys, not your coins,” these platforms without the option to move your holding off-platform fall short. They can also charge high fees for buying and selling cryptocurrencies (and typically only offer a few coins, or only Bitcoin), so it’s worth comparing the prices you’ll pay to more traditional exchanges.

How to Buy Other Cryptocurrencies

You should follow the same steps for buying other cryptocurrencies as for buying Bitcoin. However, keep in mind that investing experts recommend sticking with the two largest cryptocurrencies, Bitcoin and Ethereum, if your goal is to invest in crypto as a long-term store of value.