If you are new to the cryptocurrency world, it can be confusing at first to figure out how to buy Bitcoin, Dogecoin, Ethereum and other cryptocurrencies. Fortunately, learning the ropes is quite easy, even if you are a beginner.
It is important to remember that this highly volatile asset class is prone to fluctuations and not to delicate souls. As an example, Bitcoin traded close to $ 70,000 at the end of 2021, and in June 2022 it still traded below $ 18,000 before recovering to hover around $ 20,000 the following month. Overall, Bitcoin has fallen 70% in value since November.
Still, if you are aware of the risk but are still interested in investing in cryptocurrency, follow these five steps:
1. Choose a broker or crypto exchange
To buy cryptocurrency, you must first choose a broker or a reputable cryptocurrency exchange. While both ways allow you to buy crypto, there are important 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. Stock exchanges often have relatively low fees, but they tend to have more complex interfaces with multiple trading types and advanced performance charts, all of which can make them intimidating to new crypto investors.
Some of the most well-known cryptocurrency exchanges are Coinbase, Gemini, Binance and eToro. While these companies’ standard trading interfaces can overwhelm beginners, especially those without a background who trade stocks, they also offer easy-to-use easy buying options.
A number of Australian-based exchanges, such as CoinSpot, Swyftx and BTC Markets, allow users to buy a range of AUD cryptocurrencies, including through bank transfers, in some cases, or via BPAY. Make sure you research trading and transaction fees, and research the Australian-based exchange. Is it secure and does it include support? Does it offer a wide range of coins for trading? What are the terms and conditions?
Australian crypto exchanges must be registered with AUSTRAC, and comply with anti-money laundering and anti-terrorism legislation (AML / CTF).
However, the convenience of exchanges has a cost, since the beginner-friendly options require significantly more than it would cost to buy the same crypto via each platform’s standard trading interface. To save on costs, you can aim to learn enough to use standard trading platforms before making your first cryptocurrency purchase – or not long after.
What is a cryptocurrency broker?
Cryptocurrency brokers take the complexity out of buying crypto, and offer user-friendly interfaces that interact with exchanges on your behalf. Some charge higher fees than exchange. 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 performing your trade at the best possible market price.
Although undeniably convenient, you need to be careful with brokers because you may face restrictions on moving your cryptocurrency holdings from the platform. For example, with some you will not be able to transfer your crypto inventory from your account.
This may not seem like a big deal, but experienced crypto investors prefer to keep their coins in crypto wallets for added security. Some even opt for hardware crypto wallets that are not connected to the internet for even more security.
2. Create and verify your account
Once you have decided on a cryptocurrency broker or exchange, you can register to open an account. Depending on the platform and the amount you plan to purchase, you may need to verify your identity. This is an important step to prevent fraud and meet regulatory requirements.
You may not be able to buy or sell cryptocurrencies until you have completed 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 that your appearance matches the documents you submit.
Deposit money to invest
To buy crypto, you need to make sure you have money in your account. You can deposit money into your crypto account by connecting to your bank account or making a payment with a debit or credit card (watch out for high costs from your card provider with the credit card option – see below).
Depending on the stock exchange or broker and your financing method, you may have to wait a few days before you can use the money you deposit to buy cryptocurrency.
Here’s a great buyer’s caution: while some exchanges or brokers allow you to deposit money from a credit card, it’s extremely risky – and expensive. Credit card companies treat the purchase of cryptocurrency with credit cards as a cash advance. This means that they are subject to higher interest rates than regular purchases, and you also have to pay extra cash advance fees.
For example, you may have to pay 5% of the transaction amount when making a cash advance. This comes on top of any fees that your crypto exchange or brokerage house may charge, and these can run up to 5% yourself, which means you could lose 10% of your crypto purchase for fees.
4. Place your cryptocurrency order
Once there is money in your account, you are 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 cryptocurrencies like Theta Fuel or Holo.
When deciding which cryptocurrency to buy, you can enter the ticker symbol – Bitcoin is for example BTC – and how many coins you want to buy. With most exchanges and brokers, you can buy fractions of cryptocurrency, so you can buy some of the expensive tokens like Bitcoin or Ethereum that otherwise cost thousands of Australian dollars to own.
5. Select a storage method
Cryptocurrency exchanges are not regulated in Australia, and some potential investors have even fallen victim to theft or hacking. You may even lose your investment if you forget or lose the codes to gain access to your account. That’s why it’s so important to have a secure storage space for your cryptocurrencies.
As mentioned above, if you buy cryptocurrency through a broker, you may have little or no choice in how your cryptocurrency is stored. If you buy cryptocurrency through an exchange, you have several options that may or may not suit you:
- Leave the crypto on the stock exchange. When you buy cryptocurrency, it is usually stored in a so-called cryptocurrency wallet linked to the stock exchange. If you do not like the supplier your exchange works with, or you want to move it to a safer place, you can transfer it from 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 so.
- Warm 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 is a higher risk of theft since they are still connected to the internet.
- Cold wallets. Cold crypto wallets are not connected to the internet, making them the safest option for keeping cryptocurrencies. They are in the form of external devices, such as a USB drive or a hard drive. However, you need to be careful with cold wallets: if you lose the key code associated with them or the device breaks or fails, you may never be able to get your cryptocurrency back. While the same can happen with certain hot wallets, some are run by custodians who can help you get back into your account if you are banned.
Alternative ways to buy cryptocurrency
Although buying cryptocurrencies is a big trend right now, it is a volatile and risky investment choice. If investing in crypto on a stock exchange or through a broker does not feel like the right choice for you, here are some options for indirectly investing in Bitcoin and other cryptocurrencies:
1. Wait for Crypto Exchange-Traded Funds (ETFs)
Exchange traded funds are popular investments that allow you to buy exposure to hundreds of individual holdings in one go. This means that they provide immediate diversification and can be less risky than choosing individual investments.
There has long been an appetite for cryptocurrency ETFs, which allow you to invest in many cryptocurrencies at once. The first cryptocurrency ETFs for private investors roll out in the Asia-Pacific: recently Sydney-based ETFs and Switzerland’s 21Shares joined forces to trade Bitcoin on the Cboe Australia Stock Exchange. Cosmos Asset Management’s bitcoin feeder ETF has also launched in Sydney.
2. Invest in companies related to cryptocurrency
If you would rather invest in companies with specific products or services and which are subject to regulatory supervision – but still want exposure to the cryptocurrency market – you can buy shares in companies that use or own cryptocurrencies and the blockchain that operates them. You need an online broker account to buy shares in listed companies such as:
- Nvidia (NVDA) This technology company designs and sells graphics processing units, which are the core of the systems used to extract cryptocurrency.
- PayPal (PYPL) Already a popular choice for people who buy goods online or transfer money to family and friends, this payment platform has recently expanded to allow customers to buy and sell selected cryptocurrencies with their PayPal and Venmo accounts.
- Square (SQ) This small business payment service provider has been buying Bitcoin worth millions of dollars since October 2020. In February 2021, the company revealed that Bitcoin accounted for around 5% of the cash on the balance sheet. In addition, the Squares Cash App allows people to buy, sell and store cryptocurrencies.
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 large stake in it. Cryptocurrency can be extremely volatile – a single tweet can cause prices to fall – and it’s still a very speculative investment. This means that you should invest with caution.
Also be aware of bad actors infiltrating the crypto space. As the Australian Government’s Australian Competition and Consumer Commission (ACCC) points out, Australians lost over $ 205 million in fraud between January 1 and May 1, 2022, with $ 113 million of those losses related to crypto.
This article is not an endorsement of any particular cryptocurrency, broker or stock exchange, nor does it constitute a recommendation of cryptocurrency as an investment class.
