How to Buy Bitcoin: 7 Ways to Diversify Your Investment Portfolio

Bitcoin (BTC) was the first cryptocurrency to be created. It remains the king of crypto today, with a market capitalization of $1.15 trillion (as of Aug 12, 2024). When it comes to buying crypto, investors often select Bitcoin above all the available alternatives, thanks to its popularity.

However, those who are making their first steps in the world of cryptocurrencies may initially find it difficult to buy Bitcoin since the process of purchasing crypto may be an alien concept to them. Fear not, as this guide will provide a comprehensive explanation of different methods for buying Bitcoin.

Key Takeaways:

• There are seven main ways to purchase Bitcoin: Crypto exchanges, P2P trading, Bitcoin ATMs, trusts or ETFs, brokers, cash payment apps and trading apps.

• Each method has advantages and disadvantages and appeals to different types of investors.

• It’s imperative to learn how to store your purchased bitcoins safely, and to understand which type of wallet is better suited for you: cold wallet or hot wallet.

7 Ways to Buy Bitcoin (BTC)

There are many valid methods of buying Bitcoin available to any potential purchaser. The two most popular are through crypto exchanges and P2P platforms. Other ways to buy Bitcoin include Bitcoin ATMs, trusts or exchange-traded funds (ETFs), brokers and various apps. Let’s view each of them in detail.

1. Crypto Exchanges

There are two types of cryptocurrency exchanges: centralized and decentralized. 

Centralized Exchange (CEX)

Centralized exchanges (CEXs) are typically deemed the best choice for beginners for their security, convenience and user-friendly platforms. Many offer various options of payment. For instance, investors can choose to buy bitcoins either with fiat currency or with other cryptos. The possibility of buying crypto for fiat is especially handy for newbies, as it facilitates the onboarding process.

Fiat-to-crypto CEXs offer a chance to buy crypto using various traditional payment methods, such as bank and wire transfers or a debit/credit card. You can make your initial purchase on such reputable platforms as Bybit.

Each CEX provides different anti-money laundering (AML) policies and requires different levels of Know Your Customer (KYC). What they have in common is a user-friendly interface and a simple onboarding process for newbies.

Let’s review the basic steps you need to take in order to buy Bitcoin, using the Bybit exchange as an example. On Bybit, users can buy Bitcoin (as well as Ether and USDT) with major fiat currencies (40+) via its fiat gateway. Basically, the process is as follows:

1. Log in to your verified account and click on One-Click Buy to make a purchase.

2. Select the preferred fiat currency from the drop-down menu, and enter the sum you’re going to spend or the amount of BTC you’re going to buy.

3. Select a payment method. Electronic fund transfers, Visa/Mastercard credit and debit cards, and cash deposits can each be used as a payment method on Bybit.

4. Finalize the transaction and wait until your cryptocurrency arrives in your account. The process usually takes from 2 to 30 minutes.

As you can see, the process is really simple and doesn’t require any technical skills. From this perspective, Bybit offers a service that perfectly fits newbies as well as seasoned traders and investors. Bybit even offers investors bullish on Bitcoin the option to buy Bitcoin regularly via its Auto-Invest feature.

Decentralized Exchange (DEX)

Meanwhile, crypto natives typically prefer using decentralized exchanges (DEXs), such as Uniswap and SushiSwap, to purchase Bitcoin and other crypto through token swaps. This inclination often stems from the desire to maintain anonymity, as DEXs lack the KYC procedures mandatory in CEXs. Additionally, users have complete control of their funds in DEXs, unlike in CEXs, where they have to relinquish control to the CEX. Since there’s no third party in the management of funds and transactions, users can make Bitcoin transactions at a lower cost.

However, the complexities of using a DEX and the absence of customer support make this choice unsuitable for most beginners looking to buy Bitcoin.

2. P2P (Peer-to-Peer) Platforms

Generally, crypto newcomers start their journey with a traditional centralized exchange that acts as a middleman. However, it’s also possible to buy Bitcoin directly from other Bitcoin owners on various platforms such as Paxful and Remitano. Bybit also offers P2P trading at zero fees, with hundreds of payment methods and support for multiple fiat currencies. The key difference here is that you buy cryptocurrency not from a platform, but from another person, and the platforms mentioned above serve to connect buyers and senders.

The first step on P2P platforms is the same as on centralized crypto exchanges, as it involves creating and verifying your account. Users then need to browse different offers and find a trading partner who provides the best price and most convenient payment method available. If a suitable option is found, you can simply open a trade with the selected Bitcoin seller. 

Once the trade is initiated, the seller sends Bitcoin to the escrow account and a buyer sends the relevant sum of fiat money. After that, the Bitcoin is unlocked and sent to the buyer. If, however, there’s no appropriate offer on the platform, you can always publish a request yourself.

There is no middleman in such sales, and both parties have to deal only with a program that transfers assets from the seller’s deposit to the buyer’s wallet. Such a method has some advantages:

• The buyer doesn’t pay the platform for the deposit, exchange and withdrawal of assets. Instead, the buyer sends money directly to the seller’s account and receives crypto in their wallet.

• The seller only pays a trading fee.

• Many P2P exchanges have systems in place that track successfully implemented trades and help you select from reputable traders.

Nevertheless, some risks are associated with this method, especially if you conduct your own P2P selling. The seller may ask for additional information from the buyer, or for additional commission. If you’re selling Bitcoin, fraudulent buyers may ask you to release the coins straightaway before the payment is completed, or insist they’ve made the transaction when they haven’t. 

That’s why it’s always best, if participating in this method, to do so only on legitimate platforms like the ones mentioned above. For the most part, they have escrow in place, as well as security measures such as identity checks.

3. Bitcoin ATM

Another way to obtain Bitcoin is provided by special ATMs called Bitcoin ATMs. Such machines look like ordinary ATMs but allow you to physically purchase Bitcoin for fiat money. Some Bitcoin ATMs possess bidirectional functionality, allowing you to both buy and sell Bitcoin for cash. This method is especially useful for those who find it difficult to adapt to technological innovations and prefer more traditional methods of payment. Another advantage of ATMs is their quick transaction speed. They eliminate the risk of fraud because no third parties are involved in the deal.

There are about 30 such types of such machines available. Specific algorithms of actions may vary, but the basic principle remains the same. Here’s a general step-by-step guide for how to buy BTC via ATMs:

1. Select the language and press the Start button.

2. Select BTC from the list of coins offered.

3. Enter the amount of BTC you’re going to buy.

4. Some machines will request phone number verification. In this case, enter your mobile number, and then the code that you receive via SMS.

5. Enter your Bitcoin address if the ATM you use doesn’t provide one. This part is tricky, as alphanumeric crypto wallet addresses are usually long and complex. Be careful to double- and even triple-check the address you enter in order not to make a mistake, and ensure you receive your funds at the end.

6. Insert cash into the machine and purchase BTC, which will immediately be transferred to your wallet.

If you want to find the closest Bitcoin ATM near you, make use of the Coin ATM Radar service, which can help you locate Bitcoin ATM machines in your home area.

4. Trusts or Exchange-Traded Funds

Bitcoin exchange-traded funds (ETFs) let you gain exposure to Bitcoin without actually owning it. While they aim to reflect Bitcoin price fluctuations, their value may not necessarily be a true reflection of Bitcoin’s price, due to other holdings in their portfolios. There are two types of Bitcoin ETFs: futures-based and spot-based. 

Previously, you could only purchase Bitcoin futures ETFs such as ProShares Bitcoin Strategy ETF (BITO), which invests in Bitcoin futures. This allows you to track Bitcoin’s market performance without owning the coin itself. 

The U.S. Securities and Exchange Commission's (SEC’s)approval of Bitcoin Spot ETFson Jan 10, 2024 has made Bitcoin even easier to purchase for mainstream traders and investors. Bitcoin Spot ETFs such as Franklin Bitcoin ETF give you more direct exposure to Bitcoin, as they hold actual bitcoins as their underlying asset and track the current price of Bitcoin.

You can also buy Bitcoin via trusts such as the Grayscale Bitcoin Trust. However, unlike Spot Bitcoin ETFs, which allow you to redeem shares, you won’t be able to redeem a trust’s shares for the underlying Bitcoin, which can cause a trust’s price to deviate even further from Bitcoin’s actual value.

5. Traditional Brokers

As crypto exchanges are largely unregulated, they pose financial instability risks for users entrusting their funds to these platforms. Unlike traditional stock brokerages, which are covered by the Securities Investor Protection Corporation (SIPC), investments in Bitcoin and other cryptocurrencies on these exchanges lack such protection. This absence of SIPC coverage means that in the event of an exchange's insolvency (as witnessed with FTX in late 2022), customers may face losses without the guarantee of asset recovery. 

This contrasts with the safety net that SIPC provides for traditional stock brokerage customers, making brokers a more secure choice for risk-averse investors interested in cryptocurrency exposure. Examples of brokers who offer Bitcoin and other major cryptos for investment are Interactive Brokers® and Fidelity Investments. Stockbrokers allow you to purchase Bitcoin and other crypto through direct trading or ETFs.

6. Cash Transfer Apps

Cash transfer apps such as PayPal and Venmo not only let you send and receive fiat money, but also support cryptocurrency transfers. These financial apps allow you to buy and sell Bitcoin and other supported cryptocurrencies. You can also transfer crypto between PayPal and Venmo, as well as between supported exchanges and wallets. 

Note that, just as with CEXs, these apps require you to undergo KYC verification. Moreover, their fees can be exorbitant as compared to those of cryptocurrency exchanges. And at the end of the day, despite all that hassle and cost, you don’t actually own any crypto that you’re investing in on these apps.

7. Trading Apps

Stock trading apps like Robinhood and eToro offer advanced trading features not typically found at traditional stock brokerages. These include fractional price trading, which enables you to invest in amounts as low as a dollar. While a few brokers, such as the abovementioned, offer direct access to crypto, most traditional brokers do not. 

Meanwhile, trading apps generally allow direct buying and selling of Bitcoin and other cryptocurrencies. Additionally, trading apps often deliver a more streamlined user experience than the apps offered by brokerages. The sheer simplicity of using a trading app may make it a superior option for newbie traders, compared to traditional brokers.

How to Store Your Bitcoin

Once your bitcoins reside in your wallet, make a decision about what you’re going to do with them. Traders may make use of BTC immediately and return to exchanges to switch their bitcoins to different altcoins. However, if you prefer to store your Bitcoin long-term to make profits later when its price increases, then consider withdrawing it to your own wallet.

A cryptocurrency wallet is a program intended for storing public and private keys that enable access to your funds, allow you to send and receive cryptocurrencies, track your balances and interact with various blockchains. Bitcoin is the most popular cryptocurrency, and is supported by almost all popular wallets. That’s why finding a suitable option shouldn’t be a problem.

There are two types of crypto wallets: hot and cold. Both types have their own advantages and disadvantages, and can be used for different purposes.

Cold Wallets

A cold wallet is a physical, electronic device that isn’t connected to the internet and allows you to store assets offline. Hardware wallets and paper wallets fall under this category. 

Hardware wallets typically are USB drive devices designed for storing private keys in the offline environment. You can receive bitcoins to your hardware wallet at any time, but when it comes to spending them, the device must be connected to a PC or a laptop. 

Such wallets are invulnerable to online hacking and unaffected by computer viruses. The only way to hack them is to physically steal the device. But even in this case, the perpetrator won’t receive access to your coins, as they can be protected with a PIN. 

The average price of such a device varies between $60 and $200. Popular hardware wallets, including Ledger and Trezor, have proved their worth from a technical safety point of view and gained a good reputation among crypto users.

Another secure option for storing crypto long-term is to send it to a paper wallet. There are numerous online services designed to generate such wallets. All you need to do is print the results they provide on paper. However, since this isn’t a durable material, don’t forget to take additional precautions. Make several copies, laminate some of them and put the others in a metal box, or give them to your friends for safekeeping.

Hot Wallets

A crucial feature of hot wallets that distinguishes them from their cold alternatives is that they need to be connected to the internet. In other words, these are online wallets. Any exchange will provide its users with a free hot wallet that automatically stores their traded BTC.

The risk associated with storing crypto on such wallets derives from the fact that, in most cases, they’re custodial. This means that their owners don’t hold the private keys to the cryptocurrency in their wallets. In contrast, fully non-custodial wallets are much safer, so in most cases, assets that aren’t traded are transferred to a wallet from a provider other than an exchange. Other types of hot wallets include web, desktop, and browser wallets. Some of the most popular providers are MetaMask, Trust Wallet, and Exodus.

Regardless of the type of hot wallet you select, it will be connected to the internet, which makes your funds vulnerable to hacks. In order to protect your cryptocurrency and reduce this risk, follow these best practices:

• Never boast on public platforms of large Bitcoin amounts in your wallet. You don’t want to attract the undesired attention of thieves.

• Don’t neglect measures that can reduce the probability of unauthorized access to your account. Strong passwords, two-factor authentication (2FA) and safe internet browsing may seem trivial, but they still work.

• Be aware of phishing sites, and always check to see that the address you’re accessing is correct.

Hot wallet providers, for their part, constantly develop and enhance security measures to protect their users.

Hot Wallet vs. Cold Wallet

If you’re a newbie to the crypto world, you may wonder which type of wallet will suit you best, hot or cold. To find the correct answer for you, first decide what you’re going to do with the bitcoins you’ve purchased.

Hot wallets are preferable if you frequently trade Bitcoin. They provide easier access to your funds, and are more convenient (as well as free) to operate. But it’s not a good idea to keep large amounts of Bitcoin in them for extended periods, as their main disadvantage is lack of security.

Cold wallets are safer, and are perfect for long-term storage of significant amounts of BTC. At the same time, they can be challenging for newcomers to understand — and they’re not free to use. 

The Bottom Line

Learning how to buy bitcoins and finding a secure place to store them may be tricky unless you know where to start. The options described in this article should provide you with insight into which is better suited for you, depending upon your risk appetite and knowledge of cryptocurrency. Additionally, being aware of the associated costs of buying Bitcoin on these various platforms is crucial, as some may charge exorbitant fees that could impact your overall profits. 

#Bybit #TheCryptoArk