How To Buy Bitcoin
When buying bitcoin, the first question to answer is: Is it my ultimate goal to buy real bitcoin that I will be able to control and store in a personal wallet? Or am I fine buying a bitcoin surrogate of bitcoin ‘I owe You’ (IOU) that represents a claim on a real bitcoin but is no actual bitcoin? This question is paramount because it determines how I will be able to handle the bitcoin I have purchased.
Bitcoin, as well as any other cryptocurrency for this matter, is a digital bearer instrument. This means that the asset can be held self-sovereignly apart from any third-party. If one chooses to go for this option, cryptoassets allow for the optionality of self-custody. Bearing this in mind helps you pick the correct venue to buy bitcoin from.
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Fintech: Convenient options with downsides
A straightforward option for the unacquainted buyer to purchase bitcoin and other cryptocurrencies are fintech companies like Robinhood or Revolut. Both of them currently offer a variety of cryptoassets that can be bought at the click of a button. This convenience comes at a price as the cryptocurrencies purchased through their services cannot be sent onto a personal wallet and stay under their control. Although Robinhood has announced that this is going to change, at the moment the bitcoin bought on these platforms are mere bitcoin IOUs. When it comes to fees, Robinhood’s offer is free. With Revolut and Paypal, fees are rather high being in the range of 1% or higher. The same goes for spreads, the difference between the price you buy at (ask) and the price you sell for (bid).
Crypto Exchanges: The Place to Go
Among the cheapest venues to buy bitcoin and other cryptocurrencies are crypto exchanges. Looking at Coinmarketcap, there are currently over 300 cryptocurrency spot exchanges. At most, only about a dozen of these should really be used by a retail trader. Among them are Binance, Coinbase, Kraken, Bitfinex, Huobi Global, KuCoin, Bistamp, and a few others. These are the preferred ones to use because they have the greatest liquidity, giving them the option to offer competitive pricing. In addition to competitive fees, they usually offer a large variety of different cryptoassets to buy from.
The basic steps to setting up an exchange account:
- Sign up for an account
- Provide ID
- Set up two factor authentication
- Transfer money from bank (usually takes 24 hours)
- Use that money to buy bitcoin
- For safety, store on an hardware device (more below)
When signing up with a crypto exchange, one usually has to go through a KYC procedure. Once identification is completed, users have their own account on the cryptocurrency exchange. But remember: Keeping one’s bitcoin on an exchange means that you don’t really own your cryptos. In case an exchange gets hacked, your coins might be gone in a flash. This is why Bitcoiner and cryptocurrency enthusiasts keep on repeating their mantra: “Not your keys, not your coins”. Fortunately though, unlike Paypal or Revolut, cryptocurrency exchanges make it possible for you to send the purchased cryptoassets from your own exchange account to a wallet that you control, such as Ledger, Trezor, Casa, Wasabi Wallet & Mycelium.
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More Options to Buy
While most buying and selling of bitcoin and other cryptos nowadays happens on cryptocurrency exchanges, there are some further interesting options to buy and sell. One of these comes in the form of peer-to-peer platforms like LocalBitcoins or Paxful. In accordance with Bitcoin’s true vision, such peer-to-peer exchange services help people connect and buy and sell cryptocurrencies in a direct and instant way without any intermediaries. Another project is Bisq, which is fully open-source and requires no identification to conveniently buy bitcoin via an app. Bitcoiners specifically recommend using Bisq with Wasabi Wallet, a privacy-focused bitcoin wallet.
Some privacy can also be gained when using a bitcoin ATM. As of now, over 16,500 crypto ATMs are known to exist and they are spread across 69 countries. While crypto ATMs usually offer the buying and selling of major cryptoassets like bitcoin and ether, a few exotic ATMs can be found that offer other cryptos like Dash, Monero, ZCash, or even Ripple.
If things need to go rather fast and you need to buy bitcoin immediately, services that allow you to use your credit card offer a convenient and fast way. There are various options. Many exchanges like Coinbase and Binance and also brokers like Revolut, Paypal and N26 allow for this option. And there are other players like Bitpanda, Luno, or Crypto.com that make crypto currency purchases via credit or debit card possible. Of course, such a convenient and fast way to buy comes at a price. The fees when using a credit card are usually rather high. While cryptocurrency exchange charges 3.99 %, UK-based crypto exchange Luno charges 3.5 % on credit card transactions.
Pathways for Traditional Investors
If all these options can sound a little complicated or unavailable to you for whatever reason. Then you might be better off telling your financial advisor to buy bitcoin or any other cryptocurrency through some of the traditional vehicles that help investors gain exposure to this new and rapidly emerging world of crypto. For one, there are various structured products on Bitcoin and even other cryptos like tracker certificates, mini futures, or reversible convertibles. At the same time, the market is offering more and more crypto funds, be they actively or passively managed.
The most famous traditional products on the market are bitcoin and ether futures that are traded on renowned trading venues like CME. The most popular trust that covers different cryptoassets is Grayscale. Not as big yet, but still reputable in size are the many different crypto exchange-traded products (ETP) that are issued by companies like 21Shares or WisdomTree. As of 2021, there are also the first two Bitcoin ETFs that have been launched in Canada, with a third one being just around the corner.
Whichever of these various ways investors choose to buy bitcoin, it is important to have a clear vision of the purpose of such an investment. For the sole financial participation in bitcoin’s price increase, buying bitcoin through an intermediary like Revolut or buying the cryptocurrency on an exchange and keeping it there might be the right strategy. For people wanting to own their own money outside of the fiat system, an option must be chosen that allows for the withdrawal of their crypto to a personal wallet.
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