In May 2016, you could buy 1 BTC for about $US500, but by early May of this year, a single Bitcoin was worth around $US30,000. That’s growth of nearly 6000%.
However, there are two sides to every crypto coin’s success story, and Bitcoin is no different. Alongside impressive gains, BTC has also experienced devastating declines, especially of late. Bitcoin fell below $US20,000 as recently as June 2022, up from heady highs of nearly $US69,000 in late 2021. That represents a drop of 37% in the month of June alone.
Bitcoin, therefore, remains a highly volatile asset. If you want to buy the coin, many experts recommend that you invest no more than a small percentage of your net worth in the cryptocurrency.
How to buy Bitcoin (BTC) in 4 steps
1. Choose a crypto exchange
To buy Bitcoin (BTC), or any cryptocurrency, you’ll need a crypto exchange where buyers and sellers meet to exchange dollars for coins.
There are hundreds of exchanges out there, including multiple Australian-based exchanges, but as a beginner, you’ll want to opt for one that balances ease of use with low fees and high security.
Make sure to check if your exchange has a Bitcoin wallet built into its platform; if not, you’ll need to find one of your own. You may also choose to buy your crypto on a platform like Paypal, though buying crypto this way often means you cannot withdraw your coins and move them to another platform. If you want to hold your crypto in a different wallet, you’ll need to sell your holdings and then re-buy them on a different exchange.
2. Decide on a payment option
After choosing an exchange, you have to fund your account before you can begin investing in Bitcoin. Depending on the exchange, you can fund your account through bank transfers from a current or savings account, PayPal, bank transfers, a cryptocurrency wallet, or even a credit or debit card.
If you are using your credit card to buy crypto, be beware of any fees that might be added to the cost of the transaction.
Because fees reduce how much money you can invest (and therefore also how much money you have to grow and compound), it tends to make sense to use electronic transfers from a bank account rather than other methods. In addition, if you use a credit card to buy cryptocurrency, it generally will count as a cash advance and be subject to a higher interest rate than you pay on regular charges. Remember that taking on debt to buy volatile investments is extremely risky.
3. Place an Order
Once your account is funded, you can place your first order to buy Bitcoin. Depending on the platform you’re using, you may be able to purchase it by tapping a button, or you may have to enter Bitcoin’s ticker symbol (BTC). You’ll then have to input the amount you want to invest.
When the transaction is complete, you will own a portion of a Bitcoin. That’s because it requires a large upfront investment to buy a single Bitcoin now. If Bitcoin’s current price was $US30,000, for example, you’d need to invest that much to buy a Bitcoin. If you invested less, say $US1000, you’d get a percentage, in this case 3.33%, of a single Bitcoin.
4. Select a safe storage option
Many crypto exchanges have an integrated Bitcoin wallet, or at least a preferred partner where you can safely hold your Bitcoin. Some people, however, do not feel comfortable leaving their crypto connected to the internet, where it may be more easily stolen by hackers.
Most major exchanges have private insurance to reimburse clients if this happens, and increasingly, they’re also storing the majority of customer assets offline in so-called ‘cold storage’.
If you want ultimate security, you can store your Bitcoin in an online or offline Bitcoin wallet of your own choosing. But keep in mind that if you move crypto from an exchange, you may have to pay a small withdrawal fee. In addition, if you use a third-party crypto wallet custodian, you may also be permanently unable to access your coins if you lose the private key that serves as your wallet password.
Selling Bitcoin
When you decide you’re ready to sell your Bitcoin, you can place a sell order through your exchange, much like you did when you originally purchased it. Most exchanges offer multiple order types, so you can decide to sell only when Bitcoin reaches a certain price, or you can place an order that goes through immediately.
You can choose to sell your entire holdings of Bitcoin or only a specified amount. Once the sale goes through, you can transfer the money to your bank account. Your exchange, however, may have a holding period before you can make a transfer back to your bank account. This isn’t cause for concern; it simply takes some time to make sure the transactions clear.
When you sell your Bitcoin, you may make a profit and you may therefore be on the hook for capital gains taxes with the Australian Tax Office (ATO) so make sure to keep track of your profits.
Should you buy Bitcoin?
When Bitcoin’s price is skyrocketing, investing in the popular cryptocurrency can be tempting. A number of Australian crypto exchanges have insisted the recent fall in prices is cyclical, and that newer investors needed to ride out the down-turn in order to reap rewards. But while crypto clearly has the potential to be a lucrative investment, you should be extremely cautious.
Even if you decide to go ahead, its volatility has led to many experts recommending that you do not allocate a large percentage of your funds to buying it.
Treat it, in other words, as a high-risk venture and consider your own financial position, and what is best for you, before deciding whether or not to invest.
This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.
