Although there are thousands of different cryptocurrencies, experts advise that you avoid most of them. Cryptocurrency prices change by the hour, which is especially true for lesser-known coins. Even more established cryptocurrencies, such as Ethereum and Bitcoin, are subject to volatility, but they have a better track record of gaining in value over time.
The procedure for purchasing Ethereum — or any other cryptocurrency — is the same as for purchasing Bitcoin, but we’ll use Bitcoin as an example throughout because it’s the most valuable and widely-held crypto on the market at the moment.
Here are the steps to get started as a new crypto investor:
- Choose an Exchange
1. Choose an Exchange
Bitcoin isn’t yet available for purchase through your bank or investment firm, however several institutions are attempting to make it possible in the future. For the time being, you’ll have to convert your US dollars for Bitcoin or other digital currencies through a cryptocurrency trading platform.
There are hundreds of cryptocurrency exchanges where you may buy cryptocurrencies online, but Coinbase, Gemini, and Kraken are three of the most popular. These exchanges are online marketplaces for buying and selling cryptocurrency.
A few things can help you narrow down your search for the best platform:
Cryptocurrency investments are n
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 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.
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.
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 You’ll most likely be buying a fractional share of a coin with Bitcoin – a single coin has recently traded for between $30,000 and $60,000. Whatever amount you put in will be expressed as a percentage of the total Bitcoin in the exchange. (For example, if you invested $1,000 in Bitcoin at its early July value of around $34,000, you would possess 0.029 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.
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 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 may now buy cryptocurrency using several digital payment platforms, such as Venmo, PayPal, and Cash App, as well as the investment app Robinhood if you already have an account with them. However, they may not be suitable for all investors.
Because Paypal and Venmo do not allow you to transfer your crypto holdings to your own wallet, your private keys remain on the network. Robinhood just announced the launch of a crypto wallet to allow consumers to move their funds off the platform. These services, without the possibility to shift your holdings off-platform, fall short for crypto aficionados who believe in the widespread crypto motto “not your keys, not your coins.” They can also demand hefty fees for buying and selling cryptocurrencies (and usually only offer a few coins, if at all), so it’s worth comparing the rates you’ll pay to those on more established exchanges.
These apps can be a simple solution to buying Bitcoin, though. For beginners, using your Venmo or Cash App account to buy Bitcoin may be more accessible than an exchange like Coinbase and allow you to buy in while you learn more about investing in cryptocurrency. Just keep in mind that if you ever reached a point where you had a larger crypto position, these apps might limit your ability to transfer it to another platform.