1. Choose a Broker or Crypto Exchange
To buy cryptocurrency, first you need to
pick a broker or a crypto exchange. While either lets you buy crypto, there are
a few key differences between them to keep in mind.
What Is a
Cryptocurrency Exchange?
A cryptocurrency exchange is a platform where
buyers and sellers meet to trade cryptocurrencies. Exchanges often have
relatively low fees, but they tend to have more complex interfaces with
multiple trade types and advanced performance charts, all of which can make
them intimidating for new crypto investors.
Some of the most well-known cryptocurrency exchanges are Coinbase, Gemini
and Binance.US. While these companies’ standard trading interfaces may
overwhelm beginners, particularly those without a background trading stocks,
they also offer user-friendly easy purchase options.
The convenience comes at a cost,
however, as the beginner-friendly options charge substantially more than it
would cost to buy the same crypto via each platform’s standard trading
interface. To save on costs, you might aim to learn enough to utilize the
standard trading platforms before you make your fist crypto purchase—or not
long after.
An
important note: As someone new to crypto, you’ll want to make sure your
exchange or brokerage of choice allows fiat currency transfers and purchases
made with U.S. dollars. Some exchanges only allow you to buy crypto using
another crypto, meaning you’d have to find another exchange to buy the tokens
your preferred exchange accepts before you could begin trading crypto on that
platform.
What
Is a Cryptocurrency Broker?
Cryptocurrency brokers take the complexity out of purchasing
crypto, offering easy-to-use interfaces that interact with exchanges for you.
Some charge higher fees than exchanges. Others claim to be “free” while making
money by selling information about what you and other traders are buying and
selling to large brokerages or funds or not executing your trade at the best
possible market price. Robinhood and SoFi are two of the most
well-known crypto brokers.
While
they’re undeniably convenient, you have to be careful with brokers because you
may face restrictions on moving your cryptocurrency holdings off the platform.
At Robinhood and SoFi, for instance, you cannot transfer your crypto holdings
out of your account. This may not seem like a huge deal, but advanced crypto
investors prefer to hold their coins in crypto wallets for extra security. Some
even choose hardware crypto wallets that are not connected to the internet for
even more security.
2.
Create and Verify Your Account
Once
you decide on a cryptocurrency broker or exchange, you can sign up to open an
account. Depending on the platform and the amount you plan to buy, you may have
to verify your identity. This is an essential step to prevent fraud and meet
federal regulatory requirements.
You
may not be able to buy or sell cryptocurrency until you complete the
verification process. The platform may ask you to submit a copy of your
driver’s license or passport, and you may even be asked to upload a selfie to
prove your appearance matches the documents you submit.
3.
Deposit Cash to Invest
To buy crypto, you’ll need to make sure you have funds in your
account. You might deposit money into your crypto account by linking your bank
account, authorizing a wire transfer or even making a payment with a
debit or credit card. Depending on the exchange or broker and your funding
method, you may have to wait a few days before you can use the money you
deposit to buy cryptocurrency.
Here’s one big buyer beware: While some exchanges or brokers
allow you to deposit money from a credit card, doing so is extremely risky—and
expensive. Credit card companies process cryptocurrency purchases with
credit cards as cash advances. This means they’re subject to higher
interest rates than regular purchases, and you’ll also have to pay additional cash
advance fees. For example, you may have to pay 5% of the transaction
amount when you make a cash advance. This is on top of any fees that your
crypto exchange or brokerage may charge; these can run up to 5% themselves,
meaning you might lose 10% of your crypto purchase to fees.
4.
Place Your Cryptocurrency Order
Once there is money in your account, you’re ready to place your
first cryptocurrency order. There are hundreds of cryptocurrencies to choose
from, ranging from well-known names like Bitcoin and Ethereum to
more obscure cryptos like Theta Fuel or Holo.
When you decide on which cryptocurrency to purchase, you can
enter its ticker symbol—Bitcoin, for instance is BTC—and how many coins you’d
like to purchase. With most exchanges and brokers, you can purchase fractional
shares of cryptocurrency, allowing you to buy a sliver of high-priced
tokens like Bitcoin or Ethereum that otherwise take thousands to own.
The symbols for the 10 biggest cryptocurrencies based
on market capitalization* are as follows:
1. Bitcoin
(BTC)
2. Ethereum
(ETH)
3. Tether
(USDT)
4. Binance Coin
(BNB)
5. Cardana
(ADA)
6. Dogecoin (DOGE)
7. XRP (XRP)
8. USD Coin
(USDC)
9. Polkadot
(DOT)
10.Uniswap
(UNI)
*Based on
market capitalization as of June 28, 2021
5.
Select a Storage Method
Cryptocurrency exchanges are not backed by protections like the
Federal Deposit Insurance Corp. (FDIC), and they’re at risk of theft or
hacking. You could even lose your investment if you forget or lose the codes to
access your account, as millions of dollars of Bitcoin already has
been. That’s why it’s so important to have a secure storage place for your
cryptocurrencies.
As
noted above, if you’re buying cryptocurrency via a broker, you may have little
to no choice in how your cryptocurrency is stored. If you purchase
cryptocurrency through an exchange, you have more options:
·
Leave the crypto on the exchange. When
you buy cryptocurrency, it’s typically stored in a so-called crypto wallet attached
to the exchange. If you don’t like the provider your exchange partners with or
you want to move it to a more secure location, you might transfer it off of the
exchange to a separate hot or cold wallet. Depending on the exchange and the
size of your transfer, you may have to pay a small fee to do this.
·
Hot wallets. These are crypto
wallets that are stored online and run on internet-connected devices, such as
tablets, computers or phones. Hot wallets are convenient, but there’s a higher
risk of theft since they’re still connected to the internet.
·
Cold wallets. Cold crypto wallets
aren’t connected to the internet, making them your most secure option for
holding cryptocurrency. They take the form of external devices, like a USB
drive or a hard drive. You have to be careful with cold wallets, though—if you
lose the keycode associated with them or the device breaks or fails, you may never
be able to get your cryptocurrency back. While the same could happen with
certain hot wallets, some are run by custodians who can help you get back into
your account if you get locked out.
Alternatives
Ways to Buy Cryptocurrency
While buying cryptocurrency is a major trend right now, it’s a
volatile and risky investment choice. If investing in crypto on an exchange or
via a broker doesn’t feel like the right choice for you, here’s are a few
options to indirectly invest in Bitcoin and other cryptocurrencies:
1.
Wait for Crypto Exchange-Traded Funds (ETFs)
ETFs are extremely popular investment tools that let you
buy exposure to hundreds of individual investments in one fell swoop. This
means they provide immediate diversification and are less risky than
investing in individual investments.
There
is a huge appetite for cryptocurrency ETFs, which would allow you to invest in
many cryptocurrencies at once. No cryptocurrency ETFs are available for
everyday investors quite yet, but there may be some soon. As of June 2021, the
U.S. Securities and Exchange Commission (SEC) is reviewing three cryptocurrency
ETF applications from Kryptcoin, VanEck and WisdomTree.
2.
Invest in Companies Connected to Cryptocurrency
If you’d rather invest in companies with tangible products or
services and that are subject to regulatory oversight—but still want exposure
to the cryptocurrency market—you can buy stocks of companies that use
or own cryptocurrencies and the blockchain that powers them. You’ll need an online
brokerage account to buy shares of public companies like:
·
Nvidia (NVDA). This technology company
designs and sells graphics processing units, which are at the heart of the
systems used to mine cryptocurrency.
·
PayPal (PYPL). Already a popular
choice for people buying items online or transferring money to family and
friends, this payments platform recently expanded to allow customers to buy and
sell select cryptocurrencies with their PayPal and Venmo accounts.
·
Square (SQ). This payment services
provider for small businesses has purchased over $220 million in Bitcoin since
October 2020. In February 2021, the firm disclosed that Bitcoin made
up around 5% of the cash on its balance sheet. In addition, Square’s Cash App
allows people to buy, sell and store cryptocurrency.
As
with any investment, make sure you consider your investment goals and current
financial situation before investing in cryptocurrency or individual companies
that have a heavy stake in it. Cryptocurrency can be extremely volatile—a
single tweet can make its price plummet—and it’s still a very speculative
investment. This means you should invest carefully and with caution.
