Many investors are looking to buy and sell Bitcoin. But where to start?
First, investors to decide where they are going to buy. Will a cryptocurrency exchange, online brokerage, or Bitcoin ATM best serve their needs? (Let’s set aside the question of Bitcoin derivatives, such as Bitcoin futures contracts or exchange-traded products.)
Cryptocurrency exchanges are a popular – and, depending on the exchange – secure way to begin investing in Bitcoin. Many exchanges charge a percentage of the purchase price, however, so it is important to for investors to do their research.
For example, Coinbase is a popular, and reputable, U.S. bitcoin exchange which allows investors to easily link the exchange to their bank account. It charges about 0.5% of the purchase price plus a variable fee based on region and payment type.
Other popular exchanges include Gemini Exchange, Bitstamp, Kraken, and itBit.
Most exchanges will accept bank transfers or credit cards (although credit cards are not an advisable way to make any investment).
Some online brokerages also offer customers the ability to buy and sell Bitcoin. The largest of these is is Robinhood, although many online brokers have announced plans to incorporate crypto trading on their platforms as well.
Then there’s Bitcoin ATMs. Bitcoin ATMs work just like normal ATMs, but allow investors to buy and sell Bitcoin. Coin ATM Radar can help investors locate nearby Bitcoin ATMs.
Bitcoin can also be bought and sold directly peer-to-peer on platforms like Bitquick and LocalBitcoins.com, however this is a riskier method of exchange, with fewer safeguards and investor protections.
Now, for how to store Bitcoin; should investors use a “hot wallet” or “cold storage”?
Hot wallets allow for faster transactions. A hot wallet is a digital wallet hosted by an exchange or provider that can be accessed through an app or an internet browser. Crypto exchanges generally offer investors a free Bitcoin wallet when they join, where the user can automatically store purchases.
Some users prefer to store Bitcoin in a hot wallet with a third-party provider as an extra-security measure against security breaches. However, while some hot wallet providers offer insurance for large-scale hacks, there is often little protection for individual accounts.
Cold storage (or cold wallets) are the more secure storage system, but make transactions significantly slower. Cold wallets are encrypted portable devices, similar to a USB drive, which allow investors to download and carry their Bitcoin offline, protecting it from hackers. Many companies offer cold wallets ranging from about $60 to $170.
Many Bitcoin traders often chose to keep the majority of their assets in cold storage, while keeping some in a hot wallet for everyday use.
For what it’s worth, selling Bitcoin requires essentially the same set-up as buying. Almost every method of buying bitcoin will also have options to sell Bitcoin. The exceptions are Bitcoin ATMs, not all of which allow investors to exchange Bitcoin for cash on the spot.
One important consideration to remember when buying and selling Bitcoin is that each purchase and sale could still have a tax impact, even though the IRS classifies the asset as property, not currency.
For more news, information, and strategy, visit the Crypto Channel.