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NerdWallet: How to Purchase Bitcoin (BTC)


Buying Bitcoin is often the first step that investors take into the world of cryptocurrency — and right now, more investors may be looking to take that step: After a lengthy price slump, Bitcoin is up over 160% in 2023.

But buying even a more mainstream cryptocurrency like Bitcoin can feel like an unfamiliar landscape for someone used to traditional financial products. The good news: There are many ways to buy Bitcoin and other cryptocurrencies, from stockbrokers to dedicated exchanges and even in-app purchases in some crypto-linked applications.

🤓Nerdy Tip

Before you dive in, it's worth thinking about your appetite for risk. Like all cryptocurrencies, Bitcoin is speculative and subject to much more volatility than many tried-and-true investments, such as stocks, bonds and mutual funds.

6 ways to buy Bitcoin

Two of the most common ways to buy Bitcoin include Bitcoin wallets and centralized crypto exchanges. But you can also purchase Bitcoin through some traditional online brokers, as well as a select few money transfer apps. First, decide how much Bitcoin you want to buy. While a single Bitcoin costs tens of thousands of dollars, the cryptocurrency can be bought and sold as fractional shares, so your initial investment could be as low as, say, $25.

Here's an overview of how to buy Bitcoin:

1. Cryptocurrency exchanges

You can purchase bitcoin from cryptocurrency exchanges. Many offer dozens of cryptocurrency choices, while others simply have Bitcoin and a few alternatives. They carry a variety of different fees and consumer protections, so do your diligence before choosing. Cryptocurrency exchanges where you can purchase bitcoin include Gemini, Kraken, Coinbase and Crypto.com.

2. Traditional stockbrokers

The choices among traditional brokers that give customers a way to buy and sell Bitcoin are few right now — Robinhood was the first mainstream investment broker to offer Bitcoin (Robinhood Crypto is available in most, but not all, U.S. states). Like its stock-trading platform, Robinhood charges no fees for Bitcoin trades. Other online brokers that offer access to Bitcoin or other cryptocurrencies include WeBull, TradeStation and Fidelity.

3. Bitcoin ATMs

These work like normal ATMs, only you can use them to buy and sell Bitcoin. They are often placed in locations where you might find normal ATMs, such as convenience stores. Before you carry out a transaction, make sure you look at the fees you'll be charged, and have a plan for where to send the Bitcoin once you buy it.

4. Trusts or exchange-traded funds.

The financial firm ProShares launched the first Bitcoin-linked ETF in October of 2021. The fund (ticker: BITO) doesn't invest directly in Bitcoin, however — instead, it invests in futures contracts for Bitcoin. There are a handful of other ETFs that hold Bitcoin futures contracts or the stock of companies that own a lot of Bitcoin or cryptocurrency (or are connected to those industries).

The digital currency assets manager Grayscale Investments also offers Bitcoin trust funds. Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Classic Trust (ETCG) are publicly traded, which means you can buy them through many discount brokers.

There are fees, and GBTC sometimes trades at a premium — which means GBTC shares often cost more than Bitcoin, even though Bitcoin is its only holding. Some investors are willing to pay extra to buy Bitcoin through a traditional exchange, without needing to worry about wallets and storage.

5. Peer-to-peer money transfer apps

Cash transfer services like PayPal, Venmo, or Cash App allow their users to purchase Bitcoin using the apps. You can purchase, store, send and sell Bitcoin directly through the apps, which is convenient if you're used to those interfaces.

6. Wallet software

Some crypto apps, such as games, crypto wallets or other online services that use blockchain technology, allow users to buy and sell digital assets directly within their app.

If you're using cash in one of these apps, you may wind up using a third party service such as MoonPay to fill your order. Such services can cost a bit more than regular exchanges, but offer some advantages in the form of quick, relatively painless transactions.

How to store the Bitcoin you buy

If you're purchasing Bitcoin, you'll need a place to keep it.

Bitcoin can be stored in two kinds of digital wallets: a hot wallet or a cold wallet. With a hot wallet, transactions generally are faster, while a cold wallet often incorporates extra security steps that help to keep your assets safe but also make transactions take longer.

Hot wallet

With a hot wallet, Bitcoin is stored by a trusted exchange or provider in the cloud and accessed through an app or computer browser on the internet. Any trading exchange you join will offer a free Bitcoin hot wallet where your purchases will automatically be stored. But many users prefer to transfer and store their Bitcoin with a third-party hot wallet provider, also typically free to download and use.

Why choose a wallet from a provider other than an exchange? While advocates say the blockchain technology behind Bitcoin is even more secure than traditional electronic money transfers, Bitcoin hot wallets are an attractive target for hackers. As Bitcoin.org warns: “Many exchanges and online wallets suffered from security breaches in the past and such services generally still do not provide enough insurance and security to be used to store money like a bank.”

Cold wallet

A cold wallet is a small, encrypted portable device that allows you to download and carry your Bitcoin. Cold wallets can cost less than $100 and are considered much more secure than hot wallets.

When creating accounts for your digital wallets and currency exchange, use a strong password and two-factor authentication.

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What to do with the Bitcoin you buy

Bitcoin can function either as an investment or a medium of exchange. So you can either spend it, trade it or hold it. If you're spending Bitcoin, there are a handful of retailers and digital services that allow you to use crypto as payment.

If you're investing, it's good to think about what kind of investor you want to be. Investors who day trade — a risky investment strategy that involves frequent buying and selling — try to buy Bitcoin low and sell it if and when its value moves higher.

But if you see a future for Bitcoin as a digital currency, perhaps your investment plan is to buy and hold for the long haul. Whatever your plan, know that owning Bitcoin may create a complex tax situation.

Frequently asked questions

Is Bitcoin right for you?

Bitcoin can be a risky investment, so it's important to think carefully about your goals and your strategy before you decide.

That said, there are some basic guidelines. One common rule of thumb is to invest no more than 10% of your portfolio in individual stocks or risky assets like Bitcoin. And as always, it's a good idea to make sure you understand what you're investing in.

If you're not ready to put a large amount of money at risk, you can start small and still get a good grasp for how the process works. Many crypto exchanges have minimum purchases of $10 or less.

Cryptocurrencies are digital assets that are usually created using a cryptographic computer networking technology called blockchain, which makes it possible to exchange them without the need for a central authority such as a bank. Cryptocurrencies are traded on public exchanges, but they are generally not subject to the same regulations as stocks and other traditional investment products.

Why choose Bitcoin instead of other cryptocurrencies?

Bitcoin is the dominant force in the market for cryptocurrencies, but there are thousands of other cryptocurrencies — some reputable, some not. Different cryptocurrencies are often designed for different purposes. For instance, Bitcoin was developed as a payment system.

Some other cryptocurrencies, such as Ethereum, are used to carry out more complex transactions. Some, such as Dogecoin, were created as jokes but have attracted investor interest anyway.

If you're thinking about buying Bitcoin or any cryptocurrency, there are a few ways to think about the risks and potential rewards. Bitcoin is a bet both on the cryptocurrency space itself and the specific technology behind Bitcoin. Both are relatively new and untested, and neither is guaranteed to reach the potential some of its proponents anticipate.

If you believe in the ideas behind cryptocurrency in general, but you're not convinced that Bitcoin is the ultimate expression of those concepts, you might want to consider a more diversified portfolio of cryptocurrencies.

What do you need to buy Bitcoin?

For investors who are ready to buy Bitcoin, here are a few things to consider before getting started:

Have information you may need handy. Setting up a cryptocurrency account takes minutes, but you'll need to provide some information, including your Social Security number and the number to your bank account, debit card or credit card to fund your Bitcoin account. Some providers also may require you to have a picture ID. Record and safeguard any new passwords for your crypto account or digital wallet (more on those below).

Don’t take on credit card debt to make the purchase. Although some providers allow you to purchase Bitcoin by credit card, it's best to avoid taking on high-interest debt to invest in a risky asset like Bitcoin. If the value of Bitcoin sinks, you could get stuck with big losses.

Understand investor protections. Or in this case, the lack thereof: Bitcoin and other cryptocurrency investments are not insured by the Securities Investor Protection Corporation for exchange failures or theft, a protection that traditional stock brokerage accounts enjoy on up to $500,000. Some exchanges provide private insurance, but that doesn’t protect against individual online breaches, such as someone stealing your password.

Use a secure, private internet connection. This is important any time you make financial transactions online. Buying Bitcoin while at the coffee shop, in your hotel room or using other public internet connections is not advised.

Can you get rich buying Bitcoin?

While Bitcoin's price has appreciated dramatically at times, not every person who has bought it has gotten a piece of those gains. Because cryptocurrency markets in general are very volatile, it's nearly impossible to find the "right time" to buy or sell — the price could soar moments after you sell, or plummet as soon as you buy.

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