In May 2016, you could buy 1 BTC for around 500 USD, but at the beginning of May this year, a single Bitcoin was worth around 30,000 USD. That is a growth of almost 6000%.
However, there are two sides to the success story of every cryptocurrency, and Bitcoin is no different. Alongside impressive gains, BTC has also experienced devastating declines, especially recently. Bitcoin fell below $20,000 as recently as June 2022, up from heady highs of nearly $69,000 in late 2021. That represents a 37% drop in the month of June alone.
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- Crypto assets are unregulated and highly speculative. No consumer protection. Capital at risk.
Bitcoin therefore remains a highly volatile asset. If you want to buy the coin, many experts recommend that you invest no more than a small percentage of your net worth in the cryptocurrency.
How to buy Bitcoin (BTC) in 4 steps
1. Choose a crypto exchange
To buy Bitcoin (BTC), or any cryptocurrency, you need a crypto exchange where buyers and sellers meet to exchange dollars for coins.
There are hundreds of exchanges out there, including several Australian-based exchanges, but as a beginner you’ll want to choose one that balances ease of use with low fees and high security.
Be sure to check if your exchange has a Bitcoin wallet built into the platform; if not, you’ll have to find one of your own. You can also choose to buy crypto on a platform like Paypal, but buying crypto this way often means you can’t withdraw your coins and move them to another platform. If you want to keep your crypto in another wallet, you have to sell your holdings and then buy them again on another exchange.
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2. Decide on a payment method
After choosing an exchange, you need to fund your account before you can start investing in Bitcoin. Depending on the exchange, you can fund your account through bank transfers from a checking or savings account, PayPal, wire transfers, a cryptocurrency wallet, or even a credit or debit card.
If you use your credit card to buy crypto, be aware of any fees that may be added to the cost of the transaction.
Because fees reduce the amount of money you can invest (and therefore also the amount of money you have to grow and compound), it tends to make sense to use wire transfers from a bank account rather than other methods. Additionally, if you use a credit card to buy cryptocurrency, it will usually count as a cash advance and be subject to a higher interest rate than you pay on regular fees. Remember that taking on debt to buy volatile investments is extremely risky.
3. Place an order
Once your account is funded, you can place your first order to buy Bitcoin. Depending on the platform you use, you may be able to buy it at the push of a button, or you may need to enter Bitcoin’s ticker symbol (BTC). You must then enter the amount you want to invest.
Once the transaction is complete, you will own one share of a Bitcoin. That’s because it requires a large upfront investment to buy a single Bitcoin now. If Bitcoin’s current price was $30,000, for example, you would need to invest that much to buy one Bitcoin. If you invested less, say $1000, you would get a percentage, in this case 3.33%, of a single Bitcoin.
4. Select a secure storage option
Many crypto exchanges have an integrated Bitcoin wallet, or at least a preferred partner where you can safely hold your Bitcoin. However, some people don’t feel comfortable leaving the crypto connected to the internet, where it can be more easily stolen by hackers.
Most major exchanges have private insurance to reimburse clients if this happens, and increasingly they also store the majority of clients’ assets offline in so-called “cold storage”.
If you want ultimate security, you can store your Bitcoin in an online or offline Bitcoin wallet of your choice. But keep in mind that if you move crypto from an exchange, you may have to pay a small withdrawal fee. Additionally, if you use a third-party crypto wallet manager, you may also be permanently unable to access your coins if you lose the private key that acts as your wallet password.
Selling Bitcoin
When you decide you’re ready to sell your Bitcoin, you can place a sell order through your exchange, much like you did when you originally bought it. Most exchanges offer several order types, so you can decide to sell only when Bitcoin reaches a certain price, or you can place an order that goes through immediately.
You can choose to sell your entire holding of Bitcoin or just a specified amount. When the sale goes through, you can transfer the money to your bank account. However, your exchange may have a holding period before you can transfer back to your bank account. This is not cause for concern; it simply takes some time to make sure the transactions are ready.
When you sell your Bitcoin, you can make a profit and therefore you could be on the hook for Capital Gains Tax with the Australian Tax Office (ATO), so make sure you keep track of your profits.
Should You Buy Bitcoin?
When Bitcoin’s price soars, it can be tempting to invest in the popular cryptocurrency. A number of Australian crypto exchanges have insisted that the recent price drop is cyclical and that newer investors had to ride out the downturn to reap gains. But while crypto clearly has the potential to be a lucrative investment, you should be extremely careful.
Even if you decide to go ahead, the volatility has led many experts to advise against allocating a large percentage of your funds to buying it.
In other words, treat it as a high-risk venture and consider your own financial position, and what is best for you, before deciding whether or not to invest.
This article is not an endorsement of any particular cryptocurrency, broker or exchange, nor does it constitute a recommendation of cryptocurrency as an investment class.
Related: How to buy Bitcoin in 5 minutes
