Bitcoin, the pioneer of decentralized currencies, boasts a limited supply and is renowned for its price volatility, making it a unique and polarizing financial asset since its 2009 inception. Despite its unpredictable nature, Bitcoin ownership in the U.S. has steadily risen, with a December 2021 Grayscale Investment report revealing a 3% increase in the number of American households owning Bitcoin compared to the previous year.
Bitcoin operates as a virtual currency, designed to exist beyond the control of central entities like banks and governments. Unlike fiat currencies, such as the U.S. dollar or the British pound, which are created by government orders, Bitcoin offers a peer-to-peer form of money without intermediaries. Its decentralized nature, a key selling point for many, means it is not governed or issued by central banks or authorities. The creation of Bitcoin is facilitated through cryptographic computer technology known as blockchain, developed by the mysterious figure or group under the pseudonym Satoshi Nakamoto.
The blockchain, acting as a distributed ledger, records all Bitcoin transactions. This ledger is continuously updated by volunteers known as miners and is accessible to everyone on the internet. Notably, Bitcoin distinguishes itself from traditional money with a hard supply cap of 21 million coins. The supply increases on a predictable schedule until all 21 million bitcoins are in circulation, at which point the supply remains fixed—a contrast to fiat currencies subject to monetary policies.
Buying Bitcoin through a Crypto Exchange: For those looking to purchase Bitcoin, numerous companies offer trading services, each varying in terms of actual ownership or exposure. Popular options include trading apps like eToro or crypto exchanges such as Coinbase and Gemini. It's essential to consider trading fees and other factors like storage.
Choosing a Crypto Trading Platform:
Individuals can buy Bitcoin through crypto exchanges like Kraken or Binance.US.
Online stockbrokers like SoFi and Robinhood also provide access to Bitcoin and other cryptocurrencies.
Consider storing Bitcoin in a secure wallet, with cold wallets (offline) being a more secure option.
Setting Up an Account:
Authentication of identity and registration of a payment method are common requirements.
Most exchanges, following Know Your Customer (KYC) standards, necessitate government-issued ID, social security number, ID photos, and proof-of-address documents.
Placing an Order:
Crypto exchanges facilitate market orders, limit orders, and stop-limit orders.
Storing Your Crypto:
Bitcoin can be stored in hot wallets (online) or cold wallets (offline).
Hot wallets, while convenient, may be vulnerable to online hackers.
Alternative Ways to Buy Bitcoin:
Robinhood and eToro offer users the ability to purchase Bitcoin.
Financial and banking apps like PayPal and Revolut also provide this option.
ATMs offer an unconventional method of buying virtual currency.
Note that a Bitcoin or crypto wallet is commonly required, and commissions can be high.
Some traditional brokers have entered the Bitcoin space, offering derivative products.
Commissions and fees vary between companies.
Instead of direct purchase, exposure to Bitcoin can be gained through instruments like Bitcoin mining stocks.
Funds like the Grayscale Bitcoin Trust (GBTC) hold cryptocurrency, offering exposure to Bitcoin.
Considerations Before Buying Bitcoin: Before diving into Bitcoin, it's crucial to evaluate the risk profile of this highly volatile asset. While it has seen substantial gains, pullbacks of more than 50% are not uncommon. Investors must recognize Bitcoin's propensity to oscillate in price aggressively and consider it as part of a diversified portfolio aligned with their risk tolerance.
Questions to Ask Before Buying Bitcoin:
How much am I willing to invest?
Where do I buy it from?
Where would I store it?
What are my long-term goals?
Being mindful of these questions helps guide decisions and assess risk tolerance. It's advised to consider investment objectives, level of experience, and seek advice from a financial advisor.
Selling Bitcoin mirrors the avenues used for buying—exchanges, trading apps, brokers, and ATMs. Consideration of fees, taxes, and the asset being sold (directly into stablecoin or fiat) is crucial. Capital gains tax may apply if the sale is profitable, depending on the investor's jurisdiction.
FAQ: How to Buy Bitcoin on Cash App: Cash App, a financial app offering Bitcoin, provides a straightforward buying process. Navigate to the home screen, tap "Buy BTC," enter the desired amount, input your PIN to complete the transaction, and review fees before confirming the trade. This allows users to compare purchasing methods available to them.