As Bitcoin begins to be more widely discussed in the news, on social media, and entertainment outlets the question of how do I invest in Bitcoin? is a popular one. The cryptocurrency market is actually the most user-friendly in that anyone can get started with a small amount of investment capital. Unlike the traditional stock market, there is no PDT (Pattern Day Trader) rule in the crypto market. Investors can start with as little as $5 and turn it into $5000 if they acquire the knowledge and skills to trade. Of course, they can also trade so easy with little to no skills by copying the trades of experts using the TradeSoEz™ platform.
Traditional vs. Crypto Market
The PDT rule in the stock market requires that traders must have over $25,000 in their trading account to close more than 3 positions with the Monday-Friday market week. This rule essentially allows those people with more money to make more money, leaving little possibility for those with only a little money to get started.
The crypto market is decentralized – meaning there are no responsibilities to comply with institutional rules as in the stock market. A trader can have any amount of funds and is free to open and close any number of positions during any given day. There are no strict age requirements, lengthy verifications processes, or funding regulations in a market that is open 24/7 worldwide. Okay, so how do I invest in Bitcoin, you ask?
Bitcoin Investor Checklist
Every investment asset comes with risk, especially one that is simultaneously a new, emerging technology. The rule of thumb is to never invest more than you can afford to lose, right? The best way to avoid loss is to educate yourself and take advantage of those blazing the path before you.
Step #1: Choose Bitcoin Investment Source
In order to buy bitcoin, you have to decide whether you want to use an exchange, a bitcoin ATM, or buy from another person (P2P). There are options to trade on bitcoin futures, which is not for amateurs, and through an investment trust, like GBTC. This option is typically for those willing to pay more to buy bitcoin through a traditional exchange without worrying about secure storage or wallets. You can also use traditional stockbrokers like Robinhood, the first mainstream investment broker to offer bitcoin. What source you choose will depend on your own personal preferences.
Things to Know Before You Invest in Bitcoin
The most important thing for new bitcoin investors to understand is that 100% responsibility lies solely in your court. While the opportunity to make significant gains trading and investing in crypto exists, it is still mostly unregulated and highly volatile – hence in part why such potential exists in the first place. So when asking yourself ‘how do I invest in bitcoin’, be sure to take an eyes-wide-open approach.
- Don’t charge your purchase on a credit card. While some exchanges do allow this, financing a buy using a high-interest credit card is the right answer to how do I invest in bitcoin.
- Gather your KYC information. Most exchanges require “Know Your Customer” documentation to verify your identity. This is required by regulated exchanges and similar to banks, you’ll need a photo ID and sometimes proof of address such as a utility or cable bill. Some exchanges also require a Social Security number for USA citizens.
- Use a private online connection to make your purchases, never the free wi-fi at a hotel, coffee shop, or other public location.
- There is little recourse since bitcoin and other crypto investments are not insured by the SIPC like brokerage firms, similar to FDIC protection for bank failures. While Coinbase, for example, does provide private insurance – rest assured it will not protect your assets if your password is stolen and used to drain your account.
Step #2: Choose a Secure Wallet to Store Bitcoin Investment
You never actually possess Bitcoins – you hold the private keys which gives you the power to spend or transfer your bitcoins. There are no physical “coins” that exist, your bitcoins are entries on a virtual ledger stored on the Bitcoin blockchain. How you store your private keys is critical to securing your bitcoins.
When your bitcoin is stored on an exchange or other online provider accessed using a mobile app or computer browser connected to the Internet – they are stored in what is called a “hot wallet.” You do not hold the private keys, they do. If there is a security breach and the exchange is hacked, you will lose your bitcoin investment. While the blockchain technology behind Bitcoin is more secure than even traditional electronic money transfers – exchanges are a huge target for hackers. Some do offer insurance for large-scale hacker attacks, others do not. Read the terms and conditions to understand the liability.
A small, encrypted portable hardware device on which you download and possess your private keys is known as a “cold wallet.” They vary in price and features, but offer a much higher level of security than any hot wallet. There are two brands widely agreed to be the most secure: Trezor and Ledger Nano. It is advised to follow all best practices to secure a cold wallet and review all setup instructions when initializing a hardware device.
Once you have created either a hot or cold wallet, you can click “receive” to generate a bitcoin address. Your bitcoin address will be a long series of numbers and characters that is safe to share, somewhat like your email address is safe to share. It is extremely important that you copy and paste this address EXACTLY and FULLY. Wallets will generate as many bitcoin addresses as you want, and it is advised to generate a new address for each transaction, although this is not required.
Step #3: Buy Some Bitcoin
First, understand that you can buy any amount of bitcoin you want. It is a common misunderstanding that one must buy one whole bitcoin. Bitcoin is divisible to 8 decimal points and you can literally buy $10 worth if you want. It is a best practice to create a hot wallet on an exchange, such as Coinbase, where you will buy your first bitcoin. Then create a cold wallet on a hardware device where you will store your bitcoin investment after the buy.
If you’re new to the process, buy a small amount first to see how things work and get confident with the process. After you transact with bitcoin a couple of times, it will be easy and a lot less stressful. Once your transaction is confirmed, which can take as little as 15 minutes, or as long as an hour or more – make the larger buy. The reason the time varies depends on how many transactions are in the bitcoin mempool to be verified.
When the Bitcoin network traffic is high, transactions are queued in the mempool. There is no reason to be alarmed, just know that block sizes are limited and miners include transactions that pay the most first. The exchange you are using typically sets the transaction fee, and transactions are added to the mempool constantly. Your transaction will confirm, and if it doesn’t – a rarity on major exchanges – it can be sent again. You will not lose your funds.
Understand that no one “controls” the confirmation times on the Bitcoin network.
Step #4: Secure your Bitcoin Investment
When your transaction is confirmed, if you’ve used an exchange and your goal is to hodl for the future, it’s time to transfer your bitcoin. Open the cold wallet you’ve setup, and get a bitcoin address. Open your account in the exchange, click SEND and enter that address. Execute the transaction and your bitcoin transaction will soon be visible in your Trezor or Ledger Nano wallet.
Congrats! You are now a bitcoin investor!
Help others who ask how do I invest in bitcoin and feel refer them to the TradeSoEz™ platform.