5 Ways To Buy Bitcoin

Bitcoin has seen dramatic price swings since its 2009 debut that have created fortunes for some investors and great losses for others. If you’re considering investing in Bitcoin, you have options — including Bitcoin ETFs that make it possible to invest without actually owning the tokens themselves — and don’t need a specialized account unless that’s the route you prefer. Each method offers a different combination of cost, security and potential upside and downside.

1. Financial apps

• Best for: Casual or beginner investors who might already be using a financial app
• Average cost to buy: 2.2 percent for trades < $75; fees drop from there

Many financial apps such as PayPal and Venmo now allow you to trade cryptocurrency.

PayPal makes it tremendously easy to directly buy or sell bitcoins using the same app that you’ve come to trust with your online payments. You’ll pay a 2.2 percent fee for trades involving less than $75, and the fees fall from there. Trades involving $75 to $200 cost 2 percent, $200.01 to $1,000 cost 1.8 percent, while those above $1,000 come in at 1.5 percent.

There’s a spread markup on trades, but you won’t pay a fee for holding cryptocurrency in your account, and you can trade as little as $1 at a time. Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), Solana (SOL) and Chainlink (LINK) are also tradable here, as is a PayPal stablecoin (PYUSD).

Venmo charges the same fees, since it’s owned by PayPal.

2. Crypto exchanges

• Best for: Intermediate or active crypto investors who want more control over their assets or a wider coin selection
• Average cost to buy: Fees start at 0.40 percent

Crypto exchanges are another popular option for those looking to buy Bitcoin. Exchanges offer a few key advantages to traders. First, the best crypto exchanges offer among the lowest possible all-in costs for trading cryptocurrency. So they’re a good bet if cost is your key objective. Second, many exchanges don’t charge spread mark-ups, which are hidden fees built into the trading prices. Third, many exchanges offer wallets, allowing you to securely store your cryptocurrency.

The fees at various crypto exchanges can differ markedly, so it’s worthwhile looking around to find which offers the best combination of price, crypto choice and service. Popular options include Binance and Coinbase.

3. Trading apps

• Best for: Beginner or intermediate investors; passive traders who like a simple interface
• Average cost to buy: No direct commission, but traders pay spread markup

You can pick up Bitcoin with no direct commission by using a trading app such as Webull or Robinhood, though you’ll end up making up for it with a spread markup. These apps also allow you to purchase Bitcoin ETFs.

Robinhood takes its best trick — no commissions — and applies it to cryptocurrency, but it does charge a spread markup, the exact cost of which it does not reveal. You’ll be able to buy Bitcoin directly and will have access to other digital currencies, too. Of course, you’ll be able to buy stocks, ETFs and options while you’re on the easy-to-use platform, including Bitcoin ETFs.

Webull lets you trade a handful of cryptos, including Bitcoin. You’ll pay a spread markup of 1 percent on each transaction, however. You can also trade stocks, Bitcoin ETFs and options.

4. Traditional brokers

• Best for: Investors who are comfortable trading in Bitcoin futures rather than the cryptocurrency itself
• Average cost to buy: $0 or low fee + percentage of trade value

Some traditional brokers have also ventured into the cryptocurrency arena, including Interactive Brokers and Charles Schwab. And with the introduction of Bitcoin ETFs, major brokers offer funds that let you buy the crypto, too.

At Interactive Brokers, you’ll be able to buy futures contracts on Bitcoin as well as trade the coin directly. The broker charges $5 per futures contract, which gives you exposure to five bitcoins. If you want to trade Bitcoin directly, you’ll pay a competitive commission of 0.12 to 0.18 percent of your trade value, depending on your monthly volume. You’ll also have access to Ethereum, Solana, Dogecoin and others. Interactive Brokers provides a whole range of other tradable securities, giving you access to securities across the world.

5. Bitcoin ATMs

• Best for: Investors who prefer cash or convenience
• Average cost to buy: 6 percent to 20 percent

Another option is to buy bitcoins directly through a Bitcoin ATM, though you’re likely to pay much more in commissions than you would elsewhere. You’ll be able to buy bitcoins, and some ATMs will allow you to sell them, too, using cash or a debit card. But you need a Bitcoin wallet to make the transaction. Commissions can be pricey, with some ATMs charging around 20 percent per transaction.

Buying Bitcoin: Here’s what to watch for

As you’re considering how to buy Bitcoin, you’ll want to evaluate the following factors, since they should influence your choice of where to buy it or whether to ultimately avoid it altogether.

• Ownership: What do you want to own exactly? You can own Bitcoin directly or indirectly (say, through an ETF) or a derivative such as a futures contract, which offers a return on the currency’s movement.
• Upside/downside: Your potential gain is related directly to whether you own the currency directly or via futures contract. By owning Bitcoin directly, your profit increases by a dollar with every dollar increase in the currency. In contrast, with futures, you can gain much more quickly without having to front as much capital. However, your downside is more limited by owning directly, while you can lose more money with futures.
• Cost: Commissions can vary widely depending on how you purchase Bitcoin. Futures contracts get you a big piece of the action relatively cheaply, while some brokers may charge you several percent to buy directly. A few percent might not sound like a lot, but if you’re trading in and out of the market, it will quickly eat away at your profits. In contrast, a Bitcoin ETF gets you in the game quickly with no direct commission and a low annual expense ratio, and it’s simpler to trade that way, too.
• Security: One of the biggest concerns with any investment is making sure that it’s secure. Some newer cryptocurrency players have had serious problems with security. For example, hackers stole $1.5 billion in Ethereum from ByBit earlier this year. More traditional brokers may offer better security because they’ve been dealing with the issue for much longer. And with Bitcoin ETFs, the fund company manages security, making it an easy way to own the cryptocurrency.

You may also receive bitcoins as part of commercial transactions. Regardless of how you came by your coins, any crypto transaction is reportable to the IRS at tax time.

What do you need to buy Bitcoin?

When you open an account at a traditional brokerage or a crypto exchange, you’ll need to provide basic personal information.

• Your name, address, and phone number
• Your Social Security number
• Your bank account number
• You may also have to detail how much trading experience you have and how comfortable you are with trading, depending on the institution.

This information allows the firm to identify you and verify who you are. It’s also vital during tax time when the broker or exchange prepares documents on your gains and losses, reports that you’ll need to accurately file your taxes.

FAQs about buying Bitcoin

• How much does it cost to buy Bitcoin?
  

  Fees for buying Bitcoin vary depending on how you buy it. Crypto exchanges might charge 0.4 percent to 2 percent per trade; brokerages and trading apps may charge no fee but add a spread markup; Bitcoin ETFs cost around 0.15 percent to 1.5 percent annually.

• Can you cash out your money from Bitcoin?
  

  Yes. You can sell your Bitcoin for a fiat currency like U.S. dollars, transfer it to your bank account or linked card.

• What is the best way to store Bitcoin?
  

  Where you store your Bitcoin depends on what you want to do with it. Frequent traders might keep it on an exchange or with a broker, while long-term investors or spenders might opt for a crypto wallet. Note that a crypto wallet is entirely your responsibility. If you’re not careful about security, you could wind up losing your cryptocurrency.

  Two popular options include hot wallets and cold wallets.

  • Hot wallets: A hot wallet allows your cryptocurrency to be used or moved around easily. Because your coins are secured by software rather than hardware and are still connected to the internet, they are more accessible but less secure than in a cold wallet. Some options include MetaMask, Trust Wallet (owned by Binance) and Coinbase Wallet, which is separate from the exchange.
  • Cold wallets: A cold wallet relies on hardware — a physical device — to secure your holdings, and it looks like a USB thumb drive. This can be disconnected from the internet, making your holdings very secure. When you’re ready to transact, you can plug it in and conduct business. Some options include Ledger, Trezor and Coldcard.

Bottom line

If you’re looking to purchase Bitcoin or other digital currencies as an investment, it’s important to keep costs to a minimum. Given the novelty of the crypto market, many brokers would love to maximize their commissions (in contrast to the stock market, where trading fees have gone to zero). Those fees eat into your profits, so look for a way to minimize those frictional costs. But the introduction of Bitcoin ETFs provides a cheaper and more secure way for traders to gain exposure to the cryptocurrency.

While the price of Bitcoin has run high quickly, it still carries serious risks that make it not suitable for everyone. Those looking for conservative investments or who cannot afford to lose money should consider avoiding Bitcoin or trading only with an amount they are willing to lose.

— Kim Husband contributed to an update.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.