How to Buy Cryptocurrency | Ultimate Guide To Buy Cryptocurrencies
Cryptocurrencies are a classic case of the extent to which technology – when put to good use – can change the course of history. Before cryptocurrencies came into existence more than a decade ago, capitalism was on the verge of collapse, and one can now argue that digital currencies have reinvigorated global finance.
But the resurrection of global finance is not all that cryptocurrency has achieved so far. People who got into the digital currency world early have seen the value of their tokens make them millionaires. We believe you may also want to own cryptocurrencies, and this guide is packed with information on how you can buy cryptocurrency and where you can buy it.
5 Steps to Buy Cryptocurrencies with eToro Now
Buying any cryptocurrency with eToro is easy, simply follow the steps below:
1Sign up for free with eToro, entering your details in the required fields.
2Fill out the questionnaire, this is both educational for you and eToro.
3Click 'Deposit', you'll then be asked how you want to fund your account.
4Choose your required payment method, follow the simple steps to link your payment.
5Enter the amount you want to deposit and you're good to go!
Our Recommended Platform to Buy Cryptocurrency
Over the past decade, cryptocurrencies have generated immense wealth, which has attracted many people into the crypto space. At the same time, various platforms have come forth to facilitate the buying and selling of these digital assets. If you belong to the category of our readers who want to be pointed in the right direction concerning where to buy cryptocurrency, then here are some of our top recommendations:
Where to Buy Cryptocurrency in 2022
When Bitcoin, Ethereum, Ripple, and other major digital currencies started to look like serious assets, enthusiasts stumbled on a major dilemma. On the one hand, cryptocurrencies are a great store of value. Ripple (XRP), for example, has an ROI of 8,685.37% since it started trading, and this ROI is trivial if compared to Bitcoin's (BTC), which at the time of writing was 39,041.41%!
So, should crypto enthusiasts simply buy and hold to beat inflation? On the other hand, cryptocurrency prices are highly volatile, meaning trading digital currencies via CFDs could be a serious wealth generator over shorter periods.
While buying and holding cryptocurrency looks like the best decision, you might want to consider certain issues you will have to deal with while at it. First, buying cryptocurrency to hold demands that you acquire and set up a cryptocurrency wallet. Cryptocurrency wallets are a sensitive matter, especially if you are not technologically inclined. For example, you might need to set up encryption and store the encryption keys safely. Also, you will have to do extensive research to understand the various types of crypto wallets in existence and choose the best.
Also, buying and owning cryptocurrency could impact your tax status in some jurisdictions. In others, you might get into trouble because cryptocurrency-related activity is not legal in every jurisdiction in the world.
What about trading the price movements of crypto? Well, CFD trading takes away the hassle associated with owning digital assets. CFDs are simply contracts, meaning you need not own the actual asset. For example, a Bitcoin CFD will allow you to buy or sell Bitcoin without handling the actual coins. But this is not the only reason you might want to choose crypto CFDs trading instead of buying and owning. Trading CFDs is safe because you do not face the threat of a wallet hack. If a hack happens, you will not have actual tokens to lose.
Having clarity concerning whether to buy and own cryptocurrency or simply trade their price movements is the first step towards knowing where to buy cryptocurrency. If you settle for buying and owning, you can purchase cryptocurrency from cryptocurrency exchanges such as Coinbase, Binance, and many others. Alternatively, you can trade crypto CFDs via brokers such as Forex.com, eToro, and more.
How to Buy Cryptocurrency with a Broker
If you are reading this far, we presume that you are serious about digital currencies. Let's say you have reviewed the wisdom we have so far dispensed, and you have reached the conclusion that trading the movement of cryptocurrency prices is the best thing for you. Now, you need to know how to buy CFDs from preferred cryptocurrency brokers. Here, the most important decision you need to make is what broker to select and what to look out for. For instance, a great broker has affordable fees and has robust security protocols in place. Also, a great broker has all the required licenses. Read on for a more detailed understanding of the whole process that goes into buying cryptocurrency in this way.
1. Register with the Broker
Every broker has a specific section on their platform that lets you create an account with them. Let us say that most brokers offer a great experience during account registration. The process is usually smooth, simple, and fast. Typically, the signup process begins with you specifying the account type you want. If you are opening an account with Forex.com, for example, you need to choose among three account types – a Standard Account, a Commission Account, and a Direct Market Access Account.
On the other hand, potential eToro users start by providing identification details. So, Step 1 for eToro in the signup process is like Step 2 for Forex.com. eToro also allows new users to signup via authentication services such as Facebook and Google, as shown below.
2. Verify your Identity (KYC Process)
Most brokers must verify your identity before activating your account. In fact, this is a critical indicator that the broker takes its business seriously, hence it is safe for you. Identity verification happens via a process called know-your-customer, or KYC for short. The KYC process ensures that a broker is signing up an actual person or entity and not a fraudulent character who might pose a threat to other users on the platform.
Most importantly, KYC protects users like you against swindlers purporting to be cryptocurrency brokers. No fraudulent broker will bother to verify your identity because the process is burdensome, and encumbrances are the last thing a fraud wants.
3. Deposit Funds with your Preferred Payment Method
Having passed the KYC phase, you now have an active account. But this account cannot make any trades before you fund it. Most brokers support payment methods that facilitate smooth and fast transactions. Crucially, the best payment methods charge lower fees or none at all. You should appraise the supported payment methods, especially for security, fees, and transaction speeds.
Additionally, you should make sure to take the necessary measures to ensure the security of transactions from your end. For instance, make sure a reputable antivirus suite adequately protects your computer. Lastly, it may be best to speak to the broker's customer support team to help you select the best payment provider in your region because these vary from one region to another.
4. Open a Position to Long/Short Cryptocurrency
In CFD trading, you can either hold a long or short position. A long position is when you buy a certain cryptocurrency and hope that the price will go up in the future, at which point you can sell at a profit. Contrariwise, a short position is the antithesis of going long. Here, you sell a cryptocurrency hoping that the price will fall in the future. When the price has fallen enough, you buy the coin back and then take the difference as profit.
Many brokers offer leveraged trades. This entails traders making orders that are several times larger than their stake. When opening a position – whether long or short – there are certain mechanisms you can use to hedge against risk. They include stop-loss, limit order, trailing stop loss, and take profit orders. Such mechanisms are handy, especially when handling leveraged orders, which can maximise losses as well as profits.
5. Close your Position
Closing a position is a critical, if not the most important, stage of your trading routine. The timing of the closing determines your profitability or losses. Remember the risk-managing mechanisms we mentioned in point 4? Let us say you are trading in a fast-moving market, one in which relying only on your dexterity is not enough to capture the most profit. In this case, use the take profit order. This is an order that gives specific instructions to your broker to close your position when the price reaches a certain level. This can help you avoid making emotional decisions in the heat of the moment.
The closure should happen automatically without your input. However, sometimes you might feel that your position has raked in enough gains, so you decide to exit the market early. This is okay and certainly doable. A stop-loss order works just like the take profit order, only that this happens on the opposite side – when you are losing. This prevents excessive losses when a trade doesn’t go your way.
How to Buy Cryptocurrency with an Exchange
Maybe, however, you are not into CFD trading, and you would rather buy a cryptocurrency and actually hold it. You may recall that we said buying cryptocurrency for holding mostly happens over cryptocurrency exchanges, but what is the right crypto exchange for you? A great exchange has robust encryption protocols in place to protect your transaction details and personal information.
The best exchanges permit you to buy and sell a wide range of your preferred coins without unnecessary restrictions. Different exchanges charge different fees, and those whose fees are most affordable are the best. This is particularly crucial if you seek to maximize your profits. You should also consider the regulatory status of the entity. A regulated crypto exchange offers the best security for your personal information and funds.
1. Set up a Cryptocurrency Wallet
Because you are buying to hold, you need somewhere to store the digital currency. As digital currency technology evolved, so did the technology to keep the tokens safe. A keen follower of the industry's developments will know that there are two main wallet types – hardware and software wallets.
Software wallets are pieces of software supported by either desktop computers or mobile phones, or even websites. Users can access software wallets over the internet (‘hot’ wallets), or offline (‘cold’ wallets).
Hardware wallets are physical devices that store your private keys. While most of the hardware wallets fall into the ‘cold storage’ category, others are hot wallets, and remain connected to the internet at all times. Cold wallets can be plugged into an internet-enabled device, where you can type in a password to access your coins.
2. Choose and Join an Exchange that sells cryptocurrency
Various crypto exchanges are available which you can join to start buying and selling cryptocurrency. Different exchanges take new users through different procedures during signup. A typical exchange will ask for verifiable personal details, such as email, phone number, and more. Regulated exchanges will demand additional information such as area of residence and tax-related information for KYC. A few exchanges have already emerged as leaders in the market, especially because of robust security mechanisms in place and their verifiable legal status. They include Coinbase, Poloniex, Binance, and Coinmama, among many others.
3. Choose Your Payment Methods to Buy cryptocurrency
Different exchanges support different payment methods, especially when their regions of focus differ. Nonetheless, these crypto exchanges tend to support major providers whose services are reliable and accessible in most parts of the world. However, whatever payment provider you choose must be able to satisfy certain conditions, such as the time between transaction initiation and settlement and the fees charged.
Bank transfers often offer the lowest fees, without compromising too much on convenience and security. Credit cards often incur higher fees, but offer the greatest protection against scams and fraud. You can even use third-party payment processors like Paypal or Klarna in some instances, however these will often charge further fees in return for the convenience offered.
4. Place an Order to Buy cryptocurrency
To purchase cryptocurrency, go to the ‘Buy/Sell’ button on your preferred exchange. For example, if you are using the Binance app, a window such as the screenshot shown below will open, from which you will perform the purchasing activity.
Let us say you wish to buy bitcoin (BTC). First, you must specify the amount in USD or any other preferred fiat currency supported by Binance. Next, you will select the payment method that you wish to use. When this is all done, click the ‘Buy BTC’ button and wait for the transaction to complete.
5. Safely Storing Your Cryptocurrency in a Wallet
Major cryptocurrency exchanges such as Coinbase offer crypto custody services, where they store the coins for you. In such a case, and if you prefer, there is no need for a private wallet. If, however, you feel that a private wallet is where you want your coins to lie, then you can request the exchange to move them. In this case, go to the ‘Send’ or ‘WIthdraw’ button on the exchange and provide the wallet address. After specifying the amount, you will be required to enter a code for two-step verification before confirming the transaction.
However, holding the coins in your private wallet is only ideal if your investment strategy is more long-term. If not, the coins are better off in the exchange’s wallet for faster access. Decide on your strategy here based on your investment needs.
Should you Buy or Trade Cryptocurrency?
Let us start by saying this: there is no right or wrong answer to this question. We would also like to say that buying and holding, or ‘hodling’ in crypto parlance, has been the most common investment decision among cryptocurrency enthusiasts for a long time. This happened, especially in the formative years of the industry, because the market was not yet established, and monetary gains were seen as a distant possibility. Few opportunities were available for trading the coins. Additionally, many buyers were unwilling to sell because the coins’ prices had a habit of shooting up, and enthusiasts wanted to exploit the maximum possible profit opportunity.
Trading is now a widely tenable strategy, however. Traders can exploit short-to-medium-term price volatility by cashing out over short timeframes, such as during the upward trending market of 2020 and 2021. Your decision to either buy or trade cryptocurrencies will come down to your investment needs: do you want a more stable long term investment (in which case, buy), or do you want to try and profit from a riskier, more short-term endeavour (in which case, trade)?
What’s the Difference Between a Cryptocurrency Exchange and a Broker?
A cryptocurrency exchange, such as Binance, is just what the name suggests, a platform where a user exchanges an asset for another asset from another user or from the exchange itself. In another sense, an exchange is a middle party that injects trust in a crypto trade between two users. The exchange keeps an order book and uses an exchange protocol to match and settle orders. Currently, there are centralized and decentralized cryptocurrency exchanges. Other iterations are non-custodial and custodial.
Conversely, a cryptocurrency broker links users with the market. For example, a broker such as eToro connects its clients with the cryptocurrency market. Unlike an exchange, a broker exposes its clients to the prices of the crypto assets on offer in return for collateral. When you make an order on Forex.com, you will be wagering that the underlying asset's price either goes up or down. The difference between the value of the contract at the point of making the order and the value at the point of exiting the market amounts to your profit or loss. At no point do you actually own the underlying cryptocurrency.
In short, an exchange lets you own and trade the actual asset while a broker simply exposes you to the price of the asset.
Cryptocurrency: Long Vs. Short Term Investment
A long-term crypto investment entails buying an asset to hold it for as long as possible for its value to increase. For example, you could buy Bitcoin today and wait for three years before selling. The idea here is that the price of the coin would have increased in value over this period.
Short-term investment is the antithesis of the long-term strategy. Short-term investors are seldom interested in the asset's value, rather the price fluctuation of the asset. You are likely to go into CFD trading if you are a short-term investor because price action is highly volatile.
3 Tips to Buy cryptocurrency
When you decide to buy cryptocurrency, we have a few things you pay close attention to:
1. Choose the Right Time and Do Your Research on Cryptocurrency
Cryptocurrencies are a hot asset right now, and as you would expect, there is plenty of information on various online platforms purporting to offer a panacea for all crypto risks. Such information could be misleading, which is why we advise you to do your research. Your research will give you a better understanding of the nuts and bolts of the market, as well as what makes it tick. The information obtained should help you to choose the right time to enter or exit the market.
2. Comparing Costs to Buy Cryptocurrency
Recall we mentioned earlier that different exchanges levy different charges, which affects your net profit. An exchange that offers a wider range of services is likely to charge higher for its services, while another could bump up its costs to cover riskier crypto-related products. You should make sure that you do exhaustive due diligence when it comes to costs such that you can select the most affordable one while not compromising on security.
3. Safety and Security when Buying Cryptocurrency
The cryptocurrency market is still maturing, and is the target of many fraudsters. For this reason, security and safety are paramount. A secure crypto trading platform has necessary security protocols in place, such as SSL encryption. Also, secure platforms offer two-factor authentication (2FA) for extra protection.
What is the Best Payment Method for Buying Cryptocurrency?
- Buy Cryptocurrency with Cash
This is possible when buying from another peer. You could arrange a meet and make the exchange.
- Buy Cryptocurrency with Credit Card
Most exchanges and brokers support credit cards. This is one of the safest and fastest means of buying cryptocurrency.
- Buy Cryptocurrency with Bank Transfer
Bank transfers in crypto trading are common but not possible in some jurisdictions. However, this is also a secure way for buying crypto, but it could be slow in some regions.
- Buy cryptocurrency with Bitcoin
Various exchanges and brokers support bitcoin as a medium of a transaction when buying other cryptocurrencies. However, this is sometimes only possible in jurisdictions where the coin is recognized as a currency.
- Buy Cryptocurrency with PayPal
Several exchanges and brokers support PayPal as payment methods in crypto transactions. This is a safe method because PayPal has robust security measures in place.
Other Ways to Buy Cryptocurrency
All the methods mentioned above are the official channels for buying cryptocurrency. Additionally, you can acquire the coins via means such as mining and ATMs. Bitcoin is the only coin you are able to buy via an ATM in many places worldwide. Also, you can acquire the coin via mining because of the consensus protocol on the Bitcoin blockchain network called Proof of Work (PoW). Other coins that you can acquire via mining include Litecoin.
Proof-of-Stake (PoS) currencies, such as Cardano (ADA), allow you to receive coins by participating in the network, sometimes called ‘staking’. Ethereum, the second biggest crypto behind Bitcoin, will be transitioning to PoS in the coming years.
Regardless of the cryptocurrency you choose, there are multiple ways you can get your hands on some coins. Be it buying from an exchange, using a broker to speculate, or procuring new coins through mining or staking, you should be able to start your cryptocurrency investment journey today, with help from this guide.
Frequently Asked Questions
The most appropriate time for you to buy cryptocurrency depends on the insights you obtain from your research. Always make sure you gather as much information as possible to enable the best decision. Buying during ‘dips’ in the market is often a prudent strategy.
You can buy cryptocurrency through either a crypto exchange or a broker. Whether you want the real asset or just exposure to its price will determine the platform you choose. Some recommended exchanges include Coinbase, Binance, CEX, Poloniex, and Coinmama.
The answer to this question is contingent on certain factors like the costs associated with transactions on the exchange, platform security, supported payment methods, and the platform’s regulatory status. Any exchange that ticks all of these boxes is great.
Cryptocurrency investment appears differently to different investors depending on their risk profile. Huge risk-takers and those people who have huge amounts of money at their disposal view CFDs trading as child’s play. On the other hand, novices and investors with a generally low-risk profile might want to try more conservative methods such as buying and holding cryptocurrencies.
Firstly, cryptocurrencies are highly volatile assets whose price fluctuations can sometimes be unforgiving. Secondly, we do not know many things, given that the market is still maturing. Thirdly, cryptocurrencies are prime targets for swindlers because many people do not have a clear understanding of what they and what they represent. The bottom line is that you should educate yourself thoroughly before investing.