Purchasing Bitcoin: the guide to adding this popular cryptocurrency to your portfolio

WHAT IS BITCOIN?

Bitcoin is a cryptocurrency used to pay for virtual goods and services. After its launch thirteen years ago, this payment method took the world by storm, and 2017 was the year in which this currency gained the most recognition in the mainstream spotlight. Special computers process and organize bitcoins and legitimize any transaction involving this currency. This process is referred to as mining.

Bitcoin operates under a decentralized network of computers that controls everything related to this cryptocurrency. Every Bitcoin transaction, integrity, and ownership is tracked and monitored by a distributed ledger called a blockchain.

FIVE WAYS TO BUY BITCOINS

Because of their popularity, Bitcoins are in high demand, and as such, several platforms make trading this currency very easy.

As the buyer, you do not have to create individual accounts because major brokers can sell them to you quickly.
Look at some of the top brokers for trading cryptocurrency by clicking on the blue link.
Other payment platforms such as PayPal and Cash App now allow U.S. residents to purchase, sell and save Bitcoin.
Below is a list of outlets that offer Bitcoin at varying prices, with different levels of security, advantages, and disadvantages.

Financial Apps

PayPal and Venmo are two of the most popular financial apps used worldwide that now allow customers to trade cryptocurrency.

With PayPal, traders can buy or sell bitcoins hassle-free utilizing the app. Transactions valued at $5 or less cost $0.49, and changing more considerable sums will have different fees attached, e.g., trading $200 – $1,000 costs 1.8 percent, and $1,000 will cost 1.5 percent. However, there are no fees to be paid for holding Bitcoins in your account, and you can trade tiny amounts frequently. In addition to Bitcoins, PayPal and Venmo allow users to exchange other cryptocurrencies like Ethereum, Litecoin, and Bitcoin Cash.

Crypto Exchanges

Crypto Exchanges are some of the best places to purchase Bitcoin. The advantages of buying Bitcoin from exchanges are low all-in trading costs, no hidden fees/spread mark-ups, and free wallets to store your cryptocurrency securely.

Customers can select from many Exchanges to find the most suitable service, price, and choice because the fees differ from Exchange to Exchange. A few examples of Exchanges are Coinbase, Binance, Crypto.com and Kraken.

Trading Apps

Trading apps are unique because there are no direct commissions to pay; however, you need to watch out for spread markups.

Important: Robinhood uses the best trick in the book; they add the commissions to the spread markup. Customers can buy Bitcoin directly from Robinhood and other currencies they cannot find anywhere else. Investing in stocks and ETFs is also possible on this financial platform.

Webull users can exchange more than 25 cryptocurrencies, including Bitcoin while paying a spread markup of 1 percent on each transaction. It is also possible to access stocks, ETFs, and more using this app. For more information on Webull, click the following link; Webull.

Traditional Brokers

Several familiar traditional brokers have expanded their business to include cryptocurrencies, like Interactive Brokers and TradeStation.

Interactive Brokers allow you to buy futures contracts on Bitcoin and trade the coin directly from them. The broker fee is $10.02 per futures contract, which gives you access to five bitcoins. Trading Bitcoin will cost a competitive commission of 0.12-0.18 percent of your trade value. Ethereum, Bitcoin Cash, Litecoin, and tradable securities are also made available by the Interactive Brokers.

Bitcoin Atms

Bitcoin ATMs are available everywhere and are another venue for purchasing this digital currency. However, there is a considerable disadvantage which is high commissions. Bitcoin ATMs allow you to buy and sell your digital money using cash or debit card. You may need a Bitcoin wallet when carrying out crypto transactions with cash or credit card. As stated earlier, commissions charged by ATMs are exuberant, the least being 7 percent per transaction, and this amount can go way up into the teens.

WHAT TO LOOK FOR WHEN BUYING BITCOIN

If you are considering Bitcoin as an investment, you must evaluate several factors that will ultimately influence your choice of where to buy or whether to avoid purchasing this cryptocurrency altogether.

• Ownership. Do you want to have complete control of this asset? With Bitcoin, you can be the owner of this digital commodity or the holder of a derivative such as a futures contract. The latter will allow you to gain a return on the currency’s exchange.
• Upside/downside. The potential gain is directly related to ownership and futures contracts. The owner of Bitcoin will profit every time that currency’s value increases. On the other hand, futures will allow you to gain much more quickly without investing much capital. However, as this asset’s direct owner, you will have a limited downside, whereas losing more money with futures is possible.
• Cost. Commissions can be costly depending on where you make your purchase. However, when investing in Futures contracts, you pay less and, at the same time, earn more. Some may say that A small percentage is not much, but with consistent trading, the tiny percentages will add up to more than the profit you gain.
• Security. The safety of your asset is a critical factor to consider when making such investments because hackers can steal everything, especially if it is worth millions of dollars. Traditional brokers may be able to offer better security because of their years of experience working in the crypto industry.
• IRS. It is unimportant to note that even cryptocurrency trading has to be reported to the IRS, and it does not matter how you obtain your funds.

INFORMATION NEEDED TO MAKE A BITCOIN PURCHASE.

The first step to buying bitcoin is to create an account with the entity where you will make your purchase. To create this account, you must supply basic information such as your name, Social Security Number, address, phone number, and bank account number. Depending on the institution, you may also have to state your trading experience and how comfortable you are with trading.

This vital information allows the firm to identify and verify its customers and is extremely important when filing taxes. The broker or exchange will prepare documents on their customers’ behalf to illustrate any gains or losses because these reports are needed to file their taxes accurately.

IS BITCOIN AN EFFECTIVE HEDGE AGAINST INFLATION?

Bitcoin is believed by many to be an effective way to protect oneself from inflation, aka inflation hedge. A hedge is an investment that will partially or entirely offset the decline of another asset. Therefore an inflation hedge is meant to protect you from inflation in one way or another.

Nevertheless, according to experts, there is very little evidence to support the claim that Bitcoin acts as an inflation hedge simply because it has not existed long enough to be tried and tested during a significant inflationary period.

In addition, Bitcoin is not an effective hedge against the stock market’s volatility. Cryptocurrency experts claim that Bitcoin’s value rises and falls in concordance with stocks. Hedges do not work in this way.

THE BEST PLACES TO STORE BITCOINS

Storing crypto assets depends on the coins’ purpose and the frequency of trading. If your goal is to trade them, keeping them with the crypto exchange or broker where you do your trading may be the best option, especially if you intend to trade frequently or shortly.

Opting for a crypto wallet would suit those who plan to spend the cryptocurrency or lock it away for safekeeping. We must warn that keeping a crypto wallet is your responsibility and puts you at risk of being robbed by hackers.

However, for those who choose to use crypto wallets, there are options for hot and cold wallets.

Hot wallets

If you intend on using your crypto funds, the hot wallet is best because you can easily and quickly manipulate your money. This storage method utilizes software technology for security instead of hardware but is still connected to the internet, making it less secure than cold wallets.

Hot wallet options are:

Desktop wallets: This downloadable wallet software can be stored on your computer, allowing you to manage your crypto holdings from your computer. After transactions, you can disconnect your computer from the internet as a security measure.
Web wallets: This browser requires internet access to connect to the blockchain and make transactions quickly, but this action can compromise the security of assets.
Mobile wallets: This mobile device software is utilized to carry out any crypto transaction.
Hot wallet providers have multiple hardware wallets, enabling users to operate one software on various devices.

Cold wallets

A cold wallet uses a hardware/physical device similar to a USB thumb drive to provide a secure space to store digital assets. This storage method is almost impenetrable unless your device gets stolen and your passcode is breached. The great thing about this way of keeping funds is that you only need to connect your device to the internet in rare instances when a transaction needs to be made.

BOTTOM LINE

To maximize the benefits of crypto investments, you need to keep costs at a minimum. Remember that Brokers will often try to gain the highest commissions while you pay zero fees for trading on the stock market. Whenever and wherever costs come into play when trading, always seek out the lowest ones available; otherwise, all your profit will go back into paying for the services.

Bitcoin’s value has increased over the past few years; however, as with any type of investment, there are risks when investing in Bitcoin. Building a Cryptocurrency Investment portfolio is not for everyone; therefore, those who cannot afford to lose money should consider alternate conservative investments.