This article will explain how to buy bitcoin stock, which is different from buying bitcoin. Bitcoin stock is a contract issued to an investor by the exchange issuing the bitcoin stock.
Owning bitcoin stock is not the same thing as owning bitcoin. The phrase "no keys, no crypto" reflects the idea that when investors buy cryptocurrencies on one of these exchanges, they don't possess the cryptocurrencies.
Before we explain how to buy bitcoin stock (it's straightforward!), we'll explain what bitcoin is, how to purchase and sell it, and why it may or may not be the right choice for your portfolio.
What is Bitcoin?
The simplest definition of bitcoin is that it is a digital currency that exists independently from any government, state or financial institution. One of the appealing aspects of bitcoin is that it is decentralized. You can transfer it between two parties (peer-to-peer) without needing an intermediary. Every transaction stays on a public transaction ledger called a blockchain.
For many individuals, the appeal of bitcoin comes from the fact that it is a currency that the creators have said will never be altered. There are only 21 million bitcoins in existence. Once mined, there will be no more bitcoin created. In theory, this will make the price of each available bitcoin much more valuable.
3 Methods to Buy Bitcoin
Bitcoin is one type of cryptocurrency. Remember, all bitcoin is a cryptocurrency, but not all cryptocurrencies are bitcoin. Nevertheless, the answer to the questions "how do I buy bitcoin?" and "how do I buy cryptocurrencies?" is essentially the same.
If you're specifically looking to buy bitcoin, you can query "how do buy bitcoin" to find a website that will allow you to use your credit card to buy bitcoin.
Buy Bitcoin with a Credit/Debit Card
Are you looking for how to get bitcoins fast and don't want to store them yourself? Use a credit/debit card. Many websites (e.g., Coinbase) allow you to purchase with a credit card. Once you're on the site, follow a few simple steps:
- Set up an account
- Go through the process to verify your identity (this will take a few minutes)
- Use your credit/debit card to fund your account.
- Once you fund your account, navigate the site to buy bitcoin. Most sites allow you to purchase fractional bitcoin in amounts as low as $5.
Buy Bitcoin from an Exchange
As we noted above, consider buying bitcoin from an exchange. It's another way to buy bitcoin without taking custody of your coins. This method is nearly identical to purchasing with a credit/debit card, except you'll have to deposit funds from a bank account.
Buy from a Bitcoin ATM
Yes, Bitcoin ATMs do exist. The process of using a bitcoin ATM can differ depending on the type of machine and your country. Learn from this helpful tutorial if you want to know how to get bitcoins from an ATM.
How to Buy Bitcoin
Buying bitcoin is a relatively straightforward process. But how you buy depends a little on how you plan to store it. Here's a brief overview of the steps necessary to ensure you'll be able to make a successful bitcoin purchase.
Step 1: Research bitcoin.
You're off to a great start if you're reading this article. Still, if this is your first time owning bitcoin, you'll want to conduct your independent research to decide if owning bitcoin is suitable for your investment style and objectives. Cryptocurrency may be new to you, but so were cannabis stocks in 2018. At that time, you could go online and query, "what should you know about marijuana stocks?"
Consider becoming a MarketBeat All-Access member. You have access to world-class research that can answer basic questions like "what are blue-chip stocks," and it can also help you dive into emerging sectors. Many resources can help you learn more about cannabis and marijuana stocks.
Also, you must distinguish bitcoin from other forms of cryptocurrencies. There are over 4,000 different coins or tokens in the cryptocurrency sector.
MarketBeat has resources to learn about "what are cryptocurrencies?" and "how to dive into cryptocurrency stocks."
Step 2: Choose your exchange or brokerage.
Sometimes, you can buy and sell bitcoin from the same brokerage you use to buy and sell stocks. That may be an option if you are content with allowing a third party to hold your bitcoin. The exchange or brokerage owns the bitcoin, but you can access it.
To ensure you own your crypto, you should find a dedicated crypto exchange that will allow you to deposit bitcoin directly into your digital wallet. You'll want to answer several questions like whether the site is secure, what fees it charges, whether your assets are insured against fraud or theft, and whether the exchange operates in your state or country.
Step 3: Choose a method for storing your bitcoin.
First, set up a digital wallet, either a hot wallet or cold wallet. Go to the section "How to Store Bitcoin" for more information on the difference between these two wallets to decide which fits your needs best.
Step 4: Verify your identity.
Have you heard of Know Your Customer (KYC)? Although many individuals like the relative anonymity of their cryptocurrency transactions, many exchanges will want to have some way to verify that you are who you say you are. It protects the exchange from money laundering and fraud.
Step 5: Deposit funds and buy bitcoin.
Once you’ve chosen how to store your bitcoin and have verified your identity, you’re ready to buy. This is the easy part because the process is the same as you would use when buying other equities. You have to provide a payment source (usually your bank account) that the exchange will access to fund your trading account. After you fund your account, you simply buy bitcoin just like you would a stock.
Note: Since the price of one Bitcoin is several thousand dollars (it’s over $16,000 as of this writing), you may have to purchase a fraction of Bitcoin.
Alternative Ways to Buy Bitcoin
One of the most common ways to invest in bitcoin without owning the digital currency is through a mutual fund or exchange-traded fund (ETF) tied to bitcoin's price. There are also several stocks for companies associated with blockchain technology. For example, you can buy stock in Coinbase Global Inc. (NASDAQ: COIN), a popular cryptocurrency exchange. This is an indirect way to buy bitcoin, but it may appeal to less risk-tolerant investors.
It's also possible for investors to buy bitcoin from a peer-to-peer payment site. PayPal Holdings Inc. (NASDAQ: PYPL) allows individuals to purchase bitcoin along with Ethereum, Litecoin or bitcoin cash.
How to Store Bitcoin
How you buy bitcoin will depend in part on how you plan to store the bitcoin you own. Because bitcoin doesn't exist physically, there is nothing to "hold" in a physical form.
So how do investors store bitcoin? Remember that bitcoin is, at its core, a piece of code. Furthermore, it's a piece of code protected by encryption. That means bitcoin transactions require both a public key and a private key. These keys serve as your unique identifiers and allow bitcoin transactions to be decentralized.
- Public key: A public key encrypts a transaction before it occurs and signs it after it is verified. You cannot add a transaction to the blockchain until it is verified with the public key. Anyone can see your public key, and sharing it does not make your bitcoin vulnerable. Public keys are similar to a mailbox at the post office. It's an address to which individuals or organizations can send you bitcoin.
- Private key: A private key is your unique "password" to sign a bitcoin transaction digitally. A private key generally is a code with a lot of characters. It's essential that you don't share your private key with anyone and that you back up the storage of your private key. This is your mailbox key. Simply put, nobody can access your bitcoin without those keys. Unfortunately, this also means you can't access your bitcoin without these keys. Many bitcoin investors cannot access their bitcoin for just that reason.
So, where do you store your key? If you buy bitcoin stock, an exchange holds it.
However, as we've said, owning bitcoin stock differs from owning bitcoin. As investors have seen with the collapse of some large cryptocurrency exchanges, holding bitcoin on an exchange can limit your access to your bitcoin when you want to sell.
For most crypto owners, the answer is a digital wallet. These take two forms that we'll discuss below.
Hot Wallets vs. Cold Wallets
Private keys can be stored and password protected in a digital wallet. The two main types of crypto wallets are hot wallets and cold wallets.
- Hot wallets: Hot wallets connect to the internet, which makes them useful for quickly trading or spending bitcoin. Hot wallets can take many forms, including web wallets, mobile wallets or desktop wallets.
- Cold wallets: Cold wallets are physical devices similar to USB devices that generally cost between $50 and $150. Cold wallets do not connect to the internet. It's a better option for holding larger amounts of bitcoin to build wealth. Cold wallets are an extremely secure way to store your private keys. Even if the device is stolen or misplaced, nobody can access your bitcoin without knowing your private key. Cold wallets can take the form of hardware wallets or paper wallets.
How to Sell Bitcoin
If you're investing in bitcoin through a cryptocurrency exchange or brokerage, selling is as simple as buying. In most cases, you can sell your bitcoin in a few simple steps. In many cases, you can get the funds immediately. You can also sell bitcoin using a bitcoin ATM or debit card.
Remember that you'll incur fees when selling from an exchange or platform. However, for many investors, the convenience of buying and selling their bitcoin quickly and easily offsets the nominal fees.
Should You Buy Bitcoin?
Although it's been in existence since 2009, bitcoin is still in its infancy. And like any new asset class, there are polarizing opinions on both sides. For some investors, bitcoin represents the future of money, and they are making a massive investment in bitcoin and cryptocurrencies.
On the other hand, some investors view bitcoin as a collectible at best and a fad that will eventually be worthless at worst. These investors acknowledge the benefits of blockchain technology but don't see bitcoin as a viable asset class.
Still others fall somewhere in between. The good news is that you can gain exposure to bitcoin without investing a fortune. Whether you're a true believer or just someone curious enough to invest a small amount in bitcoin, you can start with baby steps.