- Cryptocurrencies are digital assets that can be transferred without third-party interference.
- There are generally three ways to buy crypto assets: crypto exchanges, brokerages, or payment services.
- Order types greatly influence how much you’ll pay for different cryptocurrencies.
Cryptocurrencies are digital assets that trade on a 24/7 global market. If you’re thinking about adding cryptocurrencies like bitcoin, ether, or dogecoin to your investment portfolio, you have several options for doing so.
“Cryptocurrency is a unit of measure. It is a digital token that can be transferred from one party to another, but not duplicated,” explains Charles Allen, chief executive officer of BTCS, Inc.
Unlike physical fiat currencies (e.g., the US Dollar), cryptocurrencies are decentralized, virtual currencies that are typically used to purchase goods or services. These assets utilize blockchain technology to ensure that transactions between each party are secure.
“If I own a bitcoin, I don’t really own anything physical. I just own a key that allows me to move a record or a unit of measure from one person to another, without a trusted third party. And that’s really all the cryptocurrency is. So if I own two bitcoins, I can move it from myself to someone else without a trusted third party in the middle. And that transaction would be verified by this decentralized network of computers from nodes and minors.”
Here’s how to buy cryptocurrency – along with an outline of where you can buy it and the different types of investment vehicles you can use for exposure to it.
1. Choose a broker or cryptocurrency exchange
If you’re interested in buying and selling cryptocurrency, the first step is choosing a platform to do so. Generally, you can choose from a traditional broker or dedicated cryptocurrency exchange.
- Traditional brokers: There are a few online brokers that offer ways to buy and sell cryptocurrency, in addition to other assets like stocks, bonds, and ETFs. These platforms tend to offer lower trading costs but fewer crypto features.
- Cryptocurrency exchanges: You’ll have many cryptocurrency exchanges to choose from, each with varying offerings of cryptocurrencies, wallet storage, interest-bearing account options, and more. Many exchanges charge asset-based fees.
As you’re comparing different platforms, it’s wise to consider things like supported cryptocurrencies, security features, fees, storage and withdrawal options, and educational resources.
A crypto exchange is a platform dedicated to buying and selling cryptocurrency. Each exchange has their own rules when it comes to the buying, selling, and trading of cryptocurrency.
The best exchange for you depends on your needs, but beginners should look for exchanges that offer simple web and mobile interfaces, educational resources, and readily available customer support.
Depending on the crypto exchange, you can trade one cryptocurrency for another, or exchange fiat money (like the US Dollar) for cryptocurrency, or vice versa. Prices are based on daily market rates.
Quick tip: With crypto also comes stablecoins and non-fungible tokens (NFTs). Stablecoins are backed by fiat currencies like the US Dollar to stabilize their value (if it’s backed by dollars, you can usually redeem one stablecoin for $1). NFTs, however, are unique, art-or-collectible-associated tokens that can’t be exchanged for other tokens.
It should be noted that not every exchange offers every cryptocurrency. But here are several exchanges and brokerages that do:
|Kraken||Global support, 50+ cryptocurrencies, margin and futures trading, staking, and institutional services|
|eToro USA||15+ crypto assets, wallet storage, Copy Portfolios, video tutorials, and educational resources|
|Binance.US||More than 50 cryptocurrencies, staking rewards, over-the-counter trading, and institutional services|
|SoFi||Commission-free stock and ETF trading, automated accounts, IRAs, and 20+ crypto assets|
Traditional online brokerages that offer cryptocurrencies are few, but more options are becoming available for crypto-oriented traders.
Online brokerages usually don’t offer as many cryptocurrencies as crypto exchanges (nor do they provide interest-earning account perks like staking). If you’re looking for a wider range of assets and account options, crypto exchanges might be a more beneficial option to consider.
So why should you choose a broker?
You should choose a broker if you’re looking to trade a variety of asset types under the same roof. TradeStation offers cryptocurrencies in addition to its selection of stocks, ETFs, options, bonds, and mutual funds.
Robinhood – another online brokerage – has a smaller investment selection, but you can trade cryptocurrencies commission-free. TradeStation, however, charges up to 0.30% for trades.
As mentioned above, more online brokerages are offering cryptocurrencies. Online brokerages are investment platforms that let you buy assets like stocks, bonds, ETFs, options, and mutual funds. Brokerages also offer accounts like IRAs, 529 college savings plans, and trusts.
2. Fund your account
After you’ve chosen a crypto exchange or online broker, you’ll need to fund your account to begin trading. “Although it differs by platform, most crypto exchanges allow users to purchase crypto using fiat currencies such as the US Dollar or the Euro using their debit or credit cards,” says Marie Tatibouet, chief marketing officer at Gate.io.
Tatibouet adds that you can usually either use Visa or Mastercard bank cards to make purchases.
However, crypto purchases with credit cards are especially risky and some exchanges, such as Coinbase, don’t support them. Some credit card companies don’t allow crypto transactions either. Cryptocurrencies are highly volatile assets, and it may not be the best idea to risk going into debt – or potentially paying high credit card transaction fees – for certain assets.
Another option platforms typically accept is ACH transfers and wire transfers, but the accepted payment methods and time it takes for deposits or withdrawals differs per platform (and not all exchanges accept credit cards).
Plus, the time it takes for deposits to settle varies for different payment methods. For instance, ACH transfers at Coinbase take three-to-five business days. However, debit card transfers are instant, but wire transfers can take one-to-three days.
Another thing to look out for is fees. You may run into deposit/withdrawal transaction fees in addition to trading fees. And the fees you pay for funding or withdrawing from your account typically depend on your payment method.
For instance, Coinbase charges a 3.99% fee for debit card transactions, and it charges $10 for wire transfers. ACH transfers, however, are free.
These fees vary per exchange, so you’ll want to pay close attention to each platform’s prices before you get started.
3. Place an order
You can usually place an order with the click of a button on your broker’s or exchange’s web or mobile platform. If you’re planning to buy cryptocurrencies, you can do so by selecting “buy,” choosing the order type, entering the amount of cryptocurrencies you’d like to purchase, and confirming the order. The same process applies to “sell” orders.
But when it comes to transactions, the type of order you select affects the price at which your order is executed. There are generally three types of orders: market orders, limit orders, and stop orders.
In general, you’ll basically have all the order options available if you were buying any other asset.
“The three most popular order types used by global exchanges are spot, margin, and futures trading,” says Tatibouet. Spot trading is when users place “buy” or “sell” orders on the open market to be filled as soon as the price hits their specific target.
“Margin trading is where users are able to trade in larger quantities than they can afford to by ‘borrowing’ funds from others, with many exchanges allowing a multiple of up to 20 times the trader’s capital,” says Tatibouet. “Finally, futures trading is when two parties agree on a specified price at a specified future date on any supported cryptocurrency.”
4. Select a storage method for your assets
After you’ve purchased your cryptocurrency, you’ll need to store it in a safe place to protect it from hacks or theft.
This is where cryptocurrency wallets come in. A crypto wallet is a physical device or online software used to securely store the private keys to your cryptocurrencies. Some exchanges offer built-in wallet services, making it easy for you to store directly though the platform. But all exchanges or brokers don’t automatically provide wallet services for you.
Quick tip: If your exchange doesn’t offer a wallet, you may need to set up one with a personal wallet service. If your exchange doesn’t offer a wallet, you may need to set up one with a personal wallet service. There are several different types of providers and may charge fees depending on if it’s a hot or cold wallet. For example, cold wallets always generally charge fees, while hot wallets generally don’t.
There are quite a few wallet providers to choose from, where you’ll have the choice between two custody options:
- Hot wallet storage: The phrase “hot wallet” describes a form of crypto storage that utilizes online software to protect the private keys to your assets.
- Cold wallet storage: Unlike hot wallets, cold wallets (also known as hardware wallets) rely on offline electronic devices to securely store your private keys.
Other ways to invest in crypto
You’ll also have multiple other options to choose from when it comes to buying crypto. In the past year, payment services like PayPal, Cash App, and Venmo all expanded their accepted payment options, allowing you to buy, sell, or hold cryptocurrencies like bitcoin.
In addition, you can throw your hat in the crypto ring by utilizing the following vehicles:
- Bitcoin trusts: You can buy shares of bitcoin trusts with a regular brokerage account. These vehicles essentially give retail investors crypto access through the stock market.
- Bitcoin mutual funds: Though bitcoin ETFs are still under SEC speculation, two bitcoin mutual funds have launched: The Bitcoin Strategy ProFund (BTCFX) and the Cboe Vest Bitcoin Strategy Managed Volatility Fund (BTCVX).
- Blockchain stocks or ETFs: You can also indirectly invest in crypto through blockchain companies that specialize in the technology component of crypto and crypto transactions. Another option is to buy stocks or ETFs of companies that utilize blockchain technology.
Overall, you’ll have so many options for exposing your portfolio to crypto assets. The best option for you, however, depends on your goals and risk tolerance.
Is crypto a good investment?
Cryptocurrencies have many advantages. For one, you can buy them 24/7, so you won’t be limited to trading during set hours like regular stock exchanges that open from 9:30 a.m. to 4 p.m. ET. Prices also regularly fluctuate by large percentages, opening the door for big returns if that price swing falls in your favor.
But this volatility is also what makes cryptocurrencies a speculative investment. In fact, even more passive crypto tactics like staking aren’t completely immune to loss, nor are virtual assets absolutely invulnerable to cybersecurity threats.
Finally, many exchanges have geographic restrictions, meaning they don’t serve residents in certain states because of regulatory reasons. Before you get started, you’ll want to make sure your exchange is available in your region.
The financial takeaway
You’ll have a number of options – such as crypto exchanges, online brokerages, and even payment services – when it comes to buying and selling cryptocurrencies. And in most cases, you can fund your account with credit or debit card deposits, ACH transfers, or wire transfers (though many exchanges also accept crypto deposits).
But it’s important to choose the right place to buy your crypto. From online brokerages – like Robinhood, TradeStation, and Webull – to crypto exchanges like Coinbase or Gemini, you’ll have an array of avenues to utilize when purchasing crypto for the first time.
After you’ve set up and funded your crypto account, be sure to familiarize yourself with the different types of trading orders as these can influence the final price you’ll pay for different assets. And although storage for crypto assets isn’t mandatory, it can be useful in securing your holdings against cyber attacks or other threats.
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