How to Invest in Bitcoin

From its birth in 2009, Bitcoin’s worth has skyrocketed from under $1 per Bitcoin to an impressive peak of $69,000. With such extraordinary growth coupled with growing apprehension about the traditional banking system, it’s understandable that several investors continue to show interest in Bitcoin and other cryptocurrencies as we progress into 2023.

Whether you intend to back Bitcoin’s goal of decentralized finance, or you’re aiming to enhance your investment portfolio with a potent and promising asset, we are at your service to assist you on your investment path. Let’s explore How to Invest in Bitcoin in four crucial steps.

Step 1: Choose a Crypto Exchange/Platform

Every aspiring Bitcoin buyer will encounter a variety of exchanges vying for their attention. Choosing the most suitable one relies on multiple factors, with geographical location possibly being the most crucial.

Globally, exchanges are subject to different governmental regulations, necessitating diverse Know Your Customer and Anti-Money Laundering protocols based on the regions in question. To establish an account and begin trading on specific centralized exchanges, you must disclose personal information, which varies according to the exchange and location.

This brings us to the types of exchanges. There are distinct categories of crypto exchanges — centralized, decentralized exchanges (DEXs), and peer-to-peer. Centralized crypto exchanges are online platforms for registering an account using your preferred login credentials. You’re also asked to provide personal details, contingent on the exchange and the region.

On centralized exchanges, you deposit funds in cryptocurrency or fiat currency from a bank account and use those funds for trading BTC to USD. Depending on the particular exchange, you can trade a wide array of different crypto assets, all on a single unified platform. However, a potential drawback of this model is that you don’t technically own your funds when they’re stationed on the exchange.

In contrast, DEXs enable you to execute trades directly from your wallet. Essentially, DEXs consist of clusters of pooled liquidity for various assets on the blockchain upon which the DEX operates. For instance, Ethereum-based DEXs cater to trading for Ethereum-related assets. Trading Bitcoin on an Ethereum-based DEX is not directly possible, although there are certain alternatives to circumvent this restriction.

Trading Bitcoin is also possible through peer-to-peer (P2P) transactions. Numerous platforms exist that enable these exchanges, offering an escrow service to safeguard the funds of both involved parties.

Aside from dedicated cryptocurrency exchanges, Bitcoin can also be purchased on PayPal. However, the platform restricts users from transferring their Bitcoin outside its ecosystem and does not grant users access to their private keys.

Step  2: Register Your Bank Account with the Exchange

In the second step, your selected cryptocurrency exchange will inevitably require you to link a bank account as your primary mode of payment. You only need to provide them with your bank account and routing numbers.

Despite its simplicity, ask yourself if purchasing cryptocurrency using a credit card is possible. Unfortunately, the answer is typically no. Many crypto exchanges, including Coinbase, don’t even permit the addition of a credit card.

Here’s the explanation: Most financial institutions view crypto purchases as equivalent to cash advances. As a result, your bank will instantly impose a cash advance fee ranging from 3% to 5% of the purchase amount. They also won’t provide a grace period, implying that high interest on your crypto purchase begins to accrue immediately. If the exchange isn’t based in the United States, they might even slap on a foreign transaction fee. However, transferring money from your bank account to the exchange doesn’t bother banks. The reasoning is straightforward: It’s your funds, not theirs.

Step 3: Place Your Order

After your account has been verified and funded, you can begin your journey into Bitcoin investment. The precise steps to do so may vary based on your selected exchange platform. Some platforms make it as simple as clicking an “Acquire” or “Sell” button and specifying the quantity of Bitcoin you wish to transact.

Most cryptocurrency exchanges present at least three basic types of orders: market order, stop order, and limit order. To execute any of these, you would typically click on a Buy, Trade, or New Order button on the main page of the exchange. Following that, you can choose one of the order above types before pressing the Submit button to complete your order.

Step 4: Store the Bitcoin

Even though the safety of larger exchanges is improving, the shadow of hacking and fraud still looms over the cryptocurrency industry. Given these circumstances, it’s sensible for Bitcoin investors, particularly those with hefty investments, to consider self-storage of their BTC.

Traders who are well-versed in cybersecurity may choose to have their own wallets, allowing them to transact their cryptocurrencies as they wish, free from the constraints of an exchange. Thus, when delving into Bitcoin investment, secure storage of your digital assets should be a key consideration.

How to Purchase Bitcoin Using PayPal

It might be unexpected, but regardless of your specific trading strategy, purchasing Bitcoin via PayPal can be challenging, depending on your location. Many exchanges avoid these payment methods, insisting users link their bank accounts instead. Private sellers are also typically cautious about such transactions, favoring cash.

This caution is due to the phenomenon known as “chargebacks.” Transactions done through credit cards or a simple call to the card issuer can often reverse PayPal. However, Bitcoin transactions cannot be undone, and with the difficulty in proving that any goods were exchanged during a Bitcoin transaction, this payment method is generally avoided. To buy cryptocurrency, first set up a PayPal account. If you already have one, click the “crypto” button and select BTC to purchase Bitcoin. You need:

• Available funds
• A connected debit card
• A linked bank account to complete your purchase

How to Purchase Bitcoin Using a Credit Card

Numerous cryptocurrency exchanges provide the option to purchase Bitcoin using a credit card, though this method comes with associated exchange fees. These transaction fees are a primary revenue source for crypto exchanges, and opting to use a credit card could significantly increase your costs due to potential broker fees.

If the crypto exchange is outside the United States, your credit card applies a foreign transaction fee to each purchase you make. This fee can range from 1% to 3% of the total transaction value. The possibility of purchasing cryptocurrencies with a credit card also depends on the policies set by your credit card issuer. For instance, while American Express currently permits the purchase of digital currencies, it restricts buying traditional currencies.

Provided your chosen exchange and credit card provider permits such transactions, the setup process for these operations is typically quite similar to linking and verifying your bank account through an automated clearing house (ACH).

Endnote

With cryptocurrency gaining tremendous traction over the last few years, now might be the perfect time for those who can afford it to take a chance on Bitcoin, and hopefully make some money while they’re at it. However, you should always research and have an informed understanding of the technology before investing.