How to Invest in Bitcoin

Find out how you can invest in the most popular virtual currency today

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Bitcoin is one of the largest and most popular virtual currencies, also known as cryptocurrencies or simply cryptos. But unlike traditional currencies, like U.S. dollars, they are not issued or backed by central governments. Are you interested in finding out the best way to invest in bitcoin? Then read on.

What is Bitcoin?

Unlike stocks and bonds, they aren't issued by public corporations. Instead, it's a decentralized digital currency that can be sent electronically from one person to another anywhere in the world. It was developed with the expectation of becoming a truly international currency, unconnected to any government, bank, or corporation.

Bitcoin gathered attention when its price rocketed from about $1 when it was rolled out back in 2009 to nearly $20,000 at the end of 2017. It suffered a big drop thereafter but moved back above $10,000 in 2020. Most recently it's gained even more traction, reaching over $40,000 in June 2021. That kind of price movement generates investor interest.

What You Need to Start Investing in Bitcoin

What you need to invest in bitcoinUnfortunately, you can't invest in bitcoin through a traditional investment broker or bank. Specialized services offer trading in cryptocurrencies (crypto). These include cryptocurrency exchanges and certain limited investment apps.

You need to choose an exchange or app (TD Ameritrade, for example, is one great option) where you want to buy bitcoin. You also need to select a wallet where you'll hold them. (We discuss digital wallets as a separate topic next.) Once you have a bitcoin wallet and have chosen an exchange, give the exchange your bank account information. Then you can start trading.

Keep in mind that you may have to pay taxes on any bitcoin and other coins you hold.

Further reading: Tax Guide to Cryptocurrency Investments

Where to Buy Bitcoin

There are two ways to buy bitcoin. You can buy them through an exchange, or a marketplace where cryptos like bitcoin are traded. Or you can buy bitcoin through a broker. However there are only a small number of investment brokers — more accurately, investment apps — where you can invest in bitcoin on the same platform where you trade other investments.

Here is our list of the top recommended brokers and exchanges to buy bitcoin:

1. Coinbase

Coinbase may be the best known of all the exchanges. You can buy and sell various cryptocurrencies in addition to bitcoin. And like many crypto exchanges, it offers a hot wallet. It even allows you to trade between different cryptos.

They also offer a pro account, Coinbase Pro. The Pro version offers an intuitive interface with real-time orderbooks, charting tools, trade history, and a simple order process so you can trade from day one.

Learn more about Coinbase On their Website

2. Robinhood

Robinhood is an investment app and currently the only investment broker that allows you to trade bitcoin and other digital coins, in addition to stocks, exchange-traded funds (ETFs), and options. Robinhood offers Ethereum, Bitcoin Cash, Litecoin, and Dogecoin, in addition to bitcoin. In that way, it offers an opportunity to hold bitcoin and others on the same app where you hold other investments. Best of all, you can trade bitcoin commission-free on a 24/7 basis.

Learn more about Robinhood: On their Website | Our Review

Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and Investor Junkie, a third party not affiliated with Robinhood. All investments involve risk, and the past performance of a security or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. Investor Junkie is not a member of FINRA or SIPC.”

3. eToro

eToro may be the most advanced crypto investment platform. It operates globally, offering stocks, funds, and most traditional investments worldwide, but it currently allows crypto trading only in the U.S.

eToro also offers unique investment options. With its CopyTrader Technology, you can copy the more successful crypto traders' investment strategies on the platform. It also offers CopyPortfolios, which are something like crypto robo advisors, providing professional portfolio management. And to help you learn the ropes of investing in bitcoin, it offers virtual portfolios where you can trade up to $100,000 in a paper account without risking any of your own money.

Its fees are up to 5%, depending on the cryptocurrency. It's worth noting that eToro also offers its own crypto wallet.

Learn more about eToro in our review | Visit eToro here.

Disclaimer: eToro USA LLC; Investments are subject to market risk, including the possible loss of principal.

3. Webull

Webull works similarly to Robinhood in that it's an investing app where you can trade commission-free. That currently includes stocks, options, and ETFs. But the company allows you to sign up for its waitlist for bitcoin trading, which it expects to roll out soon. Webull offers traditional and Roth IRA accounts, while Robinhood is limited to taxable investment accounts.

Learn more about Webull in our review

4. Gemini

Besides trading cryptocurrencies, Gemini allows users to store crypto in a digital wallet. They also offer extensive crypto research and tools. And you can earn up to 7.4% APY interest on select cryptocurrencies just for holding them in your Gemini account. The exchange also offer third-party clearing service, a payment platform and a credit card. And it has its own stablecoin — the Gemini dollar (GUSD) — a cryptocurrency tied to the U.S. dollar.

Learn more about Gemini in our review

5. Unifimoney

With Unifimoney you can sell and buy 33 cryptocurrencies through their partnership with Gemini. But what really makes Unifimoney stands out is the ability to invest, spend, and manage your finances on one app. Plus right now you can get up to $5,000 in bitcoin when you sign up for an account.

Unifimoney was made with busy professionals in mind. You can invest in commission-free trading of U.S. stocks and ETFs, as well as trade cryptocurrencies and precious metals. And they even offer a robo advice service through their partner TenjinAI.

If you're tired of having a different app for every trading platform and banking service you use, then Unifimoney is worth looking into. However, they are only available on iOS.

Learn more about Unifimoney in our review | Visit Unifimoney here.

6. Biance.US

Biance.US is the American arm of parent company Biance. It has lower trading fees than most other exchanges. It doesn't offer as many trading pairs between different cryptocurrencies as it's parent company but it's still on par with other leading exchanges. And while you can use your bank to deposit money, they do have a ACH deposit limit of $5,000.

7. Bisq

Bisq is not designed for active trading, and its fees are a little bit higher than elsewhere. But it is one of the most well-known decentralized exchanges out there. And if you're trading only bitcoin, you can link a bank account without having to provide government-issued ID documentation.

8. Kraken

Kraken allows you to buy and sell bitcoins using U.S. dollars, euros, Canadian dollars, British pounds, and Japanese yen. It also allows you to trade between the various cryptos. And in an almost unique feature, it offers margin trading. However, only intermediate or pro verified users can fund their account with a credit or debit card.  This is another exchange designed primarily for more advanced investors.

How to Connect Your Bank Account With An Exchange

This is one of the easier aspects of bitcoin investing.  You link your bank account during the setup process with your new crypto exchange. You move money from your bank onto the exchange where you purchase your bitcoins. Then you transfer your bitcoins to your own wallet if you want.

One word of warning: When you use a software wallet, keep only a minimal amount of money in the wallet. Hacking of the account is possible. And be aware of your exchange holds your wallet. There is a third-party risk, as well.

How to Place Your Order

Bitcoin BrokerOnce you set up an account with an exchange and connect a digital wallet — whether that's software or hardware — you can begin placing orders.

You buy bitcoin on the exchange using your local currency. The process is generally instantaneous and not unlike that of purchasing investment securities like investing in stocks and bonds.

Your bitcoins will be stored in your exchange account or your digital wallet.

You can exchange your bitcoins for either your local currency or another crypto. Or make purchases with your bitcoins from merchants or other third parties. However, the number of merchants and vendors that accept bitcoin as a means of payment is fairly limited at the moment.

Once you buy bitcoin, it's a good idea to track it, especially as the price can fluctuate so much. You can generally track bitcoin the same way you would track other types of investments, either with spreadsheets or with software. With Personal Capital, for example, you can use their cryptocurrency BETA tracker to add bitcoin to your portfolio and track it alongside your other investments.

Further Reading: How to Sell Bitcoin and Cryptocurrency

How to Get a Bitcoin Wallet

Bitcoin WalletOnce you purchase bitcoins, you need a place to store them. Again, you can't simply hold it in a brokerage account or a bank account. You purchase coins on a platform that makes the crypto available (an exchange). But you hold them in what's known as a digital wallet.

There are two types of digital wallets: hardware (hot) wallets and software (cold) wallets.

  1. Software Wallets — Software wallets are sometimes referred to as hot wallets. You can access the wallet through your home computer or smartphone. Some exchanges offer their own version, but you can have one that does not depend on any third party.
  2. Hardware wallets — sometimes referred to as cold wallets — provide a physical storage device. You can download and store your cryptocurrency on the device, which is completely portable. Popular hardware wallets include Ledger and Trezor.

Each type of wallet — software or hardware — has advantages and disadvantages. For example, software wallets are free. Software wallets offer quicker transactions than is possible with a hardware wallet. Unfortunately, they also tend to be less secure than hardware wallets since hackers can target them.

Hardware wallets have the advantage of being more secure since they are not connected to the internet all the time. These wallets cost money, though it's often less than $100. And as a physical item, it is possible to lose a hardware wallet.

Mining for Bitcoin

Another way to make money from bitcoin is to mine it. When bitcoin was established, a limit of 21 million bitcoins was set. Though millions are currently in circulation, there are still millions more waiting to be created, or mined.

Mining is the discovery of new bitcoins and verifying bitcoin transactions. In effect, you're paid in bitcoins to act as something of a middleman in the bitcoin process. As you earn bitcoin, it enters production and is considered mined into existence.

This is not an activity for the average person using the average computer. The process is more complicated than it used to be as the number of bitcoins in existence steadily increases. It now requires powerful and expensive equipment to make it happen. Specifically, you need devices referred to as Application Specific Integrated Circuits. These perform the billions of “hashes” per second necessary to mine new bitcoins. These devices can cost thousands of dollars.

You receive 6.25 bitcoins for processing the right block of transactions. And this increases the number of bitcoins in circulation. As you can see, the entire bitcoin process — from mining of the crypto to the transactions — depends on the individuals' participation within the network. Participants manage the entire process; no banks are involved.

Various Bitcoin Investment Strategies

Just as there are various investment strategies involved in investing in stocks and other securities, there are also different strategies for investing in bitcoin.

For example, just as there are day traders and swing traders with stocks, there are also active traders in bitcoin. Since the value of the currency is so volatile, it may be possible to profit from short-term swings.

Like other securities, bitcoin often holds within certain price ranges for extended periods of time. Buy on the low end of the swing and sell on the high end, and you could make a series of short-term profits. But this is probably no more likely to succeed than day trading stocks.

There's also a buy-and-hold strategy, in which you purchase bitcoin in anticipation of the price rising to new highs. Just as you might purchase stock at $50 and plan to hold it until it reaches $500, you could buy bitcoin at $10,000 to hold until it reaches $50,000 or even $100,000.

How to Stay Safe Investing in Bitcoin

Bitcoin SafePromoters often bill crypto as completely safe, but there are risks involved, just like any other type of investment or financial activity. But by taking a few simple steps, you minimize the potential risks.

  • Keep the amount of money in your digital wallet to a minimum, particularly if it's a software wallet. The less money you have available, the less there will be to lose. Keep the rest in cold storage.
  • Be careful not to disclose how much crypto you have. Thieves and hackers naturally target larger accounts. You minimize the possibility of theft by not discussing in any public forums how much you have.
  • Keep your digital private key an absolute secret. If an unintended third party were to gain access to your private key, they would be able to authorize transactions. That includes partially or completely draining your digital wallet.
  • If you have a hardware wallet, store it as carefully as you would your pocket wallet. Also, be sure to keep any documentation pertaining to your crypto activities or your digital wallet a complete secret. Much like proper storage of your income tax returns and other important documents, they should be stored under lock and key and never left somewhere they can be easily accessed by an unintended third party.
  • Use a VPN like ExpressVPN to make sure your transactions are anonymous. With a VPN your connection is encrypted, which means no one can see your online transactions. Adding an extra layer of security through a VPN like NordVPN can help keep your Bitcoin secured.

Bottom Line

One more piece of advice: Remember that bitcoin is true speculation. It's been around for only about 11 years; there are no governments or financial institutions behind it and no FDIC insurance. Price swings can be wild in either direction. So never invest more than you can afford to lose. This is truly an investment that should never be engaged in with anything other than play money. We encourage you to read our article about “Should you Invest in Bitcoin right now?” before you put your money at risk.

Kevin Mercadante

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids.

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