HOW TO BUY CRYPTO

What Exactly Does It Mean To “Buy” Crypto 🤓 

Buying stocks is a familiar process: find a broker, deposit funds, and purchase the stock. Similarly, buying crypto involves using a crypto exchange instead of a broker.

Here are some simplified steps for buying cryptocurrency:

1. Choose a cryptocurrency: There are many cryptocurrencies available, but you can start with Bitcoin or Ethereum, which are the most popular ones.

2. Decide where to buy: Most people start with a centralized exchange like Coinbase, as it is easy to convert cash to crypto. We will explain centralized and decentralized exchanges later.

3. Decide how to pay: You can link your bank account or debit card to most exchanges. Some exchanges also allow linking a PayPal account. Credit card purchases are usually not available due to fraud concerns.

4. Choose where to store: After buying crypto, you need to store it somewhere. You can either keep it on the exchange where you bought it (like an online stock brokerage) or in a crypto wallet that you control. Storing it in your own wallet is safer, but you need to protect the recovery phrase for your wallet.

What Are The Pros And Cons Of Buying Crypto?

PROS

  • Crypto and blockchain are used in projects such as insurance, payment services, web browsers and search engines.

  • Crypto can be anonymous because transactions are associated with a wallet address rather than a name.

  • Buying crypto helps diversify your portfolio as a dynamic asset class.

  • Dramatic returns are possible (not guaranteed)

CONS

  • Current tax laws in the US treat crypto as property, subject to capital gains tax (like stocks).

  • If someone gets your wallet keys or gains access to your exchange account, your crypto is now their crypto.

  • Crypto values can be volatile, both to the upside and downside, but it’s likely some cryptocurrencies are headed for zero. It’s risky business.

  • It’s more difficult to know how to value a cryptocurrency compared to traditional investments.

Who Should Buy Crypto? 🤔 

Cryptocurrency is seen as a "risk asset" due to its volatile price movements. However, it can be incorporated into various investment strategies, including those for:

  • People who are concerned about inflation. Crypto prices have been very unpredictable. However, if we look at the bigger picture, cryptocurrencies like Bitcoin have done really well over time when compared to regular currencies like the dollar. From 2018 to 2021, Bitcoin had a return on investment of over 1,000% when measured in dollars.

  • Tech-savvy people. Just like you! Crypto exchanges and wallets are now easier for beginners, but buying and storing crypto isn't as simple as using a debit card. It also helps to have a tech-savvy mindset to understand how each crypto works and choose the right ones for your portfolio.

  • Freedom-minded investors. Crypto is a new technology that is changing industries like banking and money transfers, allowing people to have control over their money.

  • Future-minded investors. Many investors think that crypto will change many industries, so it's important to include it in a portfolio for the future.

How To Buy Crypto In 5 Steps ✋ 

Buying crypto is now easy and can be done with a credit card or bank transaction. We'll guide you through the basics.

Step 1: Choose A Cryptocurrency And Purchase Amount.

Wait! Don't rush into buying random cryptos! Research first. Many start with Bitcoin—it's the top token—but exchanges offer many more choices!

Today's crypto market has over 21,000 cryptocurrencies, but the majority of activity is focused on the top coins like Bitcoin and Ethereum. Bitcoin alone represents 40% of the market, while Ethereum accounts for 20%. The remaining cryptocurrencies make up less than 40% of the market. It's important not to feel overwhelmed by the choices, as lesser-known cryptos often trade on specialty exchanges and may not be the safest options for beginners.

Top cryptocurrencies are generally considered safer for beginners because they are widely traded, allowing for easy selling if necessary. While not exactly like blue chip stocks, many of these top cryptocurrencies, such as Bitcoin and Ethereum, are well-known. Ultimately, the right choice depends on individual preferences. Some investors own multiple types of crypto, while others focus on just one.

For new investors, starting with the top twenty crypto projects by market cap is a good idea. These projects are generally considered low risk compared to others in the crypto world. However, this list is just an example and you can choose a different path. Each person's crypto journey is unique. If you want to know the cost of buying different types of crypto, you can check the live prices linked at the top of the article.

Step 2: Pick A Crypto Exchange.

A crypto exchange is similar to a stock brokerage, allowing users to buy crypto with traditional currencies. Most investors start with a centralized exchange like Coinbase, which makes it easy to buy crypto with fiat money. Centralized exchanges are run by institutions and have user-friendly interfaces. They are the best option for buying crypto with fiat dollars. On the other hand, decentralized exchanges (DEX) are better suited for those who already own cryptocurrency and want to swap it for a different asset. DEXs operate using complex computer code and algorithms to govern swaps and prices.

When choosing an exchange, you might want to keep a few things in mind like:

  • Whether the exchange offers proof of reserves. This tool checks if the exchange has the claimed money. Confidence in their ability to cover customer liabilities is important. However, it's unclear if the exchange owes a significant amount to others.

  • Where the exchange is licensed and located. FTX, the exchange that collapsed in 2022, was incorporated in Antigua and Barbuda, with operations in various countries. This raises jurisdictional concerns and questions about financial protection for users from other countries. For US residents, it is safer to opt for a US-based exchange. Additionally, note that each state has its own financial regulations, limiting availability of certain exchanges based on your location.

  • Whether the exchange carries insurance. In the US, FDIC insures bank deposits up to $250,000 per account. However, crypto lacks this government insurance. While some exchanges offer FDIC insurance on cash balances, the crypto you buy is not insured. Nevertheless, centralized crypto exchanges often have insurance against hacks and breaches, but insolvency remains a significant uninsured risk.

  • Whether the exchange has a good reputation for customer support. A benefit of centralized exchanges is their customer support with real people. They provide answers to your questions, usually. Coinbase, for instance, offers chat support (type "agent" for a live person) or email replies through support tickets. It's important to check others' feedback on the exchange's customer service.

  • How much trading fees cost. Trading fees can impact returns and losses. The choice of cryptocurrencies and using advanced/pro trading options can affect fees. Coinbase One membership offers no-fee trades, while other exchanges provide lower fees for advanced/pro trading.

Step 3: Verify Your Identity.

To open a crypto exchange account, verify your identity through the Know Your Customer (KYC) process, which is common for financial institutions. Send a copy of your license or passport.

Step 4: Connect Your Funding Source To The Exchange.

For your first crypto purchase, you'll need cash to buy. Most exchanges allow you to connect your bank account or debit card. Some, like Coinbase and Gemini, also accept PayPal. However, only a few exchanges support credit card purchases due to fraud risk. For instance, Kraken supports credit cards (outside the US), but there may be withdrawal restrictions. Many exchanges also accept wire transfers from your bank account, allowing larger amounts than ACH transfers. Keep in mind that both the exchange and your bank may charge fees. Follow the instructions provided by your chosen exchange.

  • Bank Account (ACH transfer): Common

  • Debit Card: Common

  • PayPal: Rare

  • Credit Card: Rare

  • Wire Transfer: Common

Step 5: Transfer Your Crypto To A Self-Custody Wallet.

Before purchasing crypto, consider how you plan to store your coins or tokens. While some opt to keep their crypto on the exchange, it may not always be the safest option. What if the exchange halts withdrawals, gets hacked, or collapses?

Here are a few storage options to consider:

  • Exchange: This option is called “custodial storage,” meaning the exchange provides a wallet and keeps custody of your crypto.

  • Software Wallet: A software wallet is an app or browser extension that allows you to move and use your crypto outside of the exchange. It creates and stores private keys on an internet-connected device, making it commonly known as a "hot wallet."

  • Hardware Wallet: A hardware wallet, also known as "cold storage," stores wallet's private keys externally. It can be purchased on Amazon. You can pair a hot wallet with a cold wallet to access more apps through the former while securing your crypto with the latter. Win/win!

Final Thoughts 💭 

Buying crypto doesn’t have to be intimidating. There are options that can make it a lot easier for new or less experienced people to buy coins (the ones used as money) or tokens (the ones that do more) on an exchange. What are your goals? How much crypto experience do you have? Those answers will guide you to the option that works best for you.