With the times changing, people have moved from investing only in stocks, bonds, and real estate. Cryptocurrency is now becoming a way to explore brand-new investment classes. For the benefit of those who are new to the world of digital currencies, here is a quick tutorial.
Cryptocurrency is a term used to describe digital currency such as bitcoin. There are thousands of digital currencies as of 2021 but the most prominent are bitcoin and ether, among others.
A meteoric rise in bitcoin’s price happened recently. However, its value has fluctuated, reaching nearly $65,000 in April 2021 but by May almost half of that value was lost. Investments in bitcoin are much more volatile because its value can fluctuate quite a bit. However, bitcoin has shown it can increase in value over the long term.
As it stands, It is recommended that investors should not put more than a small percentage of money on risky assets like bitcoin. Only invest what can be afforded to lose. For the benefit of those that are aspiring to be crypto investors, here is a rundown of how to invest in bitcoin.
What You Will Need Before Buying Bitcoin
Buying bitcoin can be complicated and risky.
Option 1: Use a cryptocurrency trading platform
For the most part, the requirements for buying bitcoin are similar to what’s needed to become a customer of a bank.
- A secured connection to the internet
- If you are using a KYC (Know Your Customer) platform you will need personal identification documents
- A payment method
- Debit card
- Credit cards
- Bank account.
Note: Security is a crucial issue for any bitcoin investor. Keep private keys and passwords secret as transactions can be authorized by anyone who has access to private keys. The private key is all that is needed to transfer bitcoin to another public address. Transfers are irreversible and permanent.
Option 2: Invest in CypherPunk Holdings (CSE: HODL)
- An investment account or an account with a broker
Step-by-step Guide On How To Buy Bitcoin
1. Invest in HODL Stock.
CypherPunk Holdings has a top-20 holding in bitcoin for a publicly-traded company.
- Log into your bank’s investment account (or call your investment advisor).
- Search for “HODL”.
- Select how much you would like to invest.
2. Purchase bitcoin directly
Choose a cryptocurrency exchange
To buy, sell, and hold crypto, sign up with a cryptocurrency exchange that best suits you. Crypto exchanges are meeting points or trading platforms where buyers and sellers exchange dollars for bitcoin and other digital currencies. There are several online platforms where you can trade crypto but the well-known ones are Gemini, Coinbase, and Kraken.
It is advisable to use exchanges that allow you to make withdrawals into personal online wallets but it may not be a feature to look out for if you are just looking to trade bitcoin.
Before signing up on any crypto exchange, research the following:
Exchange fees should be something to pay attention to when choosing a crypto exchange. Fees vary from platform to platform, charges may be based on a flat rate or some relevant factors such as a percentage of total purchased.
If there is high security and better protection of crypto holdings it is more likely worth the higher fees. Exchange fees will likely drop across the board as risk decreases and competition rises.
Check if your exchange has comprehensive wallet security features. Moreover, for large amounts of crypto, an external wallet for additional security should be considered.
The lack of clear government regulations has made crypto a little dicey for some people. Established platforms have paid serious attention to keeping financial and personal information safe, which means a better chance that crypto holdings are safe as well.
For example, ensure that an exchange has strict protection features such as two-factor authentication (2FA) and cold storage capabilities (an offline wallet).
Note: when creating an exchange account, use safe internet practices such as unique and strong passwords (incorporate numbers, special characters, lowercase and uppercase letters).
Available coin options
Although bitcoin and ether are well-known and readily available on most exchanges, many exchanges may have more niche “altcoins”.
Fund your account with a chosen payment option
The next thing to do after choosing an exchange is to fund the account with a payment option. And information is collected to establish legitimacy and identity.
For most exchanges, it’s possible to connect a credit or debit card as well as choose to connect directly to a bank account. And for every payment option, there are fees associated with them. For instance, exchanges like Coinbase have a 3.99% fee for credit and debit cards and attach a fee of 1.49% for bank accounts. Gemini on the other hand only allows funding directly from a bank account, with no credit or debit card.
Not all countries recognize cryptocurrency as a legal tender, which makes direct bank funding impossible. Countries like the United States have some of their banks still question deposits to crypto exchanges.
Note: Do not confuse funding with purchasing crypto. Funding literally means pushing money into the account. The money transferred through credit or debit card, or from your bank account would be later exchanged for bitcoin.
Place an order
Over the last decade, cryptocurrency has recorded tremendous growth in liquidity, and exchanges are gradually becoming more acceptable. Though it was once perceived as an illegitimate practice, in recent years there appears to be a flip in the narrative as it has attracted the traditional financial industry. Today, over $50 billion is being executed by exchanges daily in trade.
Nowadays, crypto exchanges offer several orders, and ways to invest differ across exchange platforms. Crypto exchanges orders include limit orders, market orders, and some offer stop-loss orders. Coinbase for instance offers market-order, limit-order, and stop-order while Kraken offers ranges from the market, limit, take-profit, stop-loss, stop-limit to take-profit limit orders.
Understand your order
- When placing a market order, it executes immediately at the available market price.
- A limit order allows setting a minimum price for the order to execute. Hence, it will only execute at that set price.
- A stop order restricts the price at which the order should execute. Hence, this order in most cases triggers selling.
Also, the ways to invest vary across crypto platforms. For example, Coinbase allows users to select recurring purchases for every day, week, or even month.
Choose a Safe Storage
Most crypto exchanges have built-in wallets to safely hold bitcoin. A wallet is a place to store and secure digital currency or assets. Not all people feel secure leaving their investment online, and they can gain more control by storing crypto in personal wallets outside of exchanges.
Whether you choose to store assets on online or offline wallets, it’s important to remember there is a fee associated with moving crypto from an exchange. And while some wallets allow storage for bitcoin only, others can hold other cryptocurrencies.
When choosing a bitcoin wallet, it is good to have a better understanding of hot wallets and cold wallets.
Hot wallets are online wallets that run on devices connected to the Internet, such as phones, tablets, and computers. This option of storage is vulnerable to theft and hacking as the user’s private key to bitcoin on these devices is stored in the wallet itself. Though convenient, funds can be stolen easily. Basically, these wallets are best for small amounts of coins.
Cold wallets are off-exchange wallets, sometimes referred to as hardware or offline wallets. It is the most secure wallet, highly recommended for long-term investment and those with huge amounts of coins.
Note: A standard way to set up your wallets is to have an exchange account (for crypto trading), a hot wallet (to hold small and medium amounts of crypto to trade or spend with), and a cold wallet (to store larger holdings and long-term investment).
Cautions for Crypto Investors
- Don’t share any private keys
- Don’t brag about large holdings online
- Use a secure password
- Use two-factor authentication
- Use a cold wallet