Intro
Bitcoin (BTC) has witnessed remarkable growth over recent years, leading to its increasing popularity. In January 2016, a single bitcoin was valued at around $350. By January 2019, its price had risen to $3,200, and by January 2023 it had soared to $16,600. At each of these milestones, the price seemed high, making many hesitant to invest in bitcoin. However, looking back, each of these instances was a golden opportunity to purchase, especially when considering its current significant value.
This appreciation isn’t merely coincidental; it’s a product of intentional design. Bitcoin’s built-in scarcity, along with its halving mechanism that cuts the new supply issued by 50% every four years, provides a strong case for its sustained value increase. While past prices undoubtedly presented ideal buying opportunities, today’s market offers a similarly promising potential (provided one adopts a long-term perspective, which is a constant in Bitcoin’s history).
Before taking the plunge, it’s advisable to learn what Bitcoin is, become familiar with bitcoin’s price history and take the time to understand what you’re doing first, so that you can purchase and safely secure your bitcoin.
Why Buy Bitcoin?
Beyond being recognized by many as the best money ever created, bitcoin boasts numerous features and advantages that set it apart from everything else. Here are a few such advantages that people find valuable.
- Wealth Preservation: Bitcoin’s maximum supply is capped at 21 million coins, which positions it as a market-leading instrument for storing value. It’s mostly uncorrelated with traditional markets and can provide a safeguard against excessive money printing by central banks and rising inflation.
- Wealth Accumulation: Given its historical performance of ~120% CAGR, coupled with its increasing adoption around the world, bitcoin is the ultimate means to grow purchasing power and relative wealth over a long enough time period (+10 years). It’s becoming particularly appealing as a complement to or replacement of a pension.
- Trading: Despite bitcoin’s impressive CAGR, many people are drawn by the allure of short-term profits and the thrill of making fast gains. While some traders possess the skills, strategies, and experience to capitalize on bitcoin’s volatility, the majority do not and their decisions are most likely driven by FOMO, speculation and greed.
- Financial Sovereignty: Bitcoin is the quintessential anti-CBDC technology. It is often seen as a beacon of hope in a world where governments are becoming increasingly dictatorial, as their source of power — fiat money — is increasingly losing its grip.
- Decentralization: Unlike traditional currencies and every other cryptocurrency, bitcoin operates on a truly decentralized network, meaning no central authority or institution has control over its supply or policies. This paves the path for full financial sovereignty. Bitcoin is perhaps the only property in the world that cannot be taken by force.
How to Buy Bitcoin
You can directly buy bitcoin on an exchange, as many do. This approach works for most people. However, diving in without preparation may result in decisions you might later regret. We’ve developed a series of steps to guide you to the right path.
1. Understand Your Purpose and Stay Focused
The first step you should take when buying bitcoin is to clarify your investment horizon: Are you driven by the immediate allure of potential short-term gains or are you leaning towards a long-term vision of wealth preservation and growth? Knowing whether you have a high time preference (short-term horizon) or a low time preference (long-term horizon) will guide your buying strategy, risk management and expectations.
Exchanges are the most popular method for buying and selling bitcoin. Their primary motivation is profit, typically at your expense. They will try to tempt you into buying vastly inferior alt-coins, and they will do their best to convince you that you are capable of trading these coins against the house, so to speak.
Even if you avoid these pitfalls and stick to your initial intent of buying bitcoin, there’s a chance you’ll be persuaded to keep your bitcoin on the exchange. Worse still, they might entice you to use their loan or staking services to earn some sort of a return on your bitcoin. Since bitcoin doesn’t yield returns on its own, an exchange can only offer such services if they are taking risks with your bitcoin. Remember, exchanges are not banks, and loss of your bitcoin is not insured.
At Bitcoin Magazine, we see Bitcoin as more than an investment: It’s a once-in-a-lifetime opportunity to return to sound money and make the world a better place. So regardless of the time horizon you may have, it’s worth always keeping your bitcoin safe and thinking long term. So our advice would be to buy bitcoin and save your private keys securely in your own offline wallet.
2. Choose A Bitcoin Wallet
It’s crucial to recognize the importance of a bitcoin wallet before purchasing bitcoin. Wallets enable you to own your bitcoin by facilitating the storage of your private keys.
The more bitcoin you possess, the more vital it becomes to maintain full custody, given the heightened risks of loss and the substantial benefits gained. We’re not suggesting that you abstain from buying bitcoin if you don’t already have a wallet. Instead, we advise against storing bitcoin on exchanges for extended periods.
For interim solutions (e.g., before acquiring a hardware wallet) or if you’re actively trading bitcoin, consider using a hot wallet — a wallet continuously connected to the internet.
- Software Wallets are applications installed on your smartphone or desktop, to manage Bitcoin transactions. While they offer easy accessibility for regular transactions, they’re susceptible to online threats like hacks and malware, given their internet connectivity.
The recommended solution to keep your bitcoin safe for the long term is to secure your private keys in a hardware wallet or via a multisignature setup.
- Hardware Wallets are physical devices designed exclusively to store Bitcoin private keys securely. These offline tools safeguard against online hacks by keeping keys isolated from the internet, making them a preferred choice for long-term bitcoin storage.
- Multisig Wallets (multiple signatures) improve Bitcoin security by necessitating multiple private keys to authorize a transaction. They are ideal for businesses or individuals seeking enhanced protection; these wallets ensure that even if one key is compromised, the bitcoin remains inaccessible without the other necessary keys also signing a transaction.
3. Where To Buy Bitcoin
Having gone through the basics of how you can secure your bitcoin, let’s talk about the best place to buy bitcoin, as there are many options to choose from.
- Bitcoin Exchanges: Starting with exchanges, they are mainly used for buying and selling digital assets only. There are three types of exchanges: Bitcoin-only, peer-to-peer and lastly cryptocurrency exchanges such as Binance, Kraken or Coinbase. While the latter are more popular, we strongly recommend the former two options.
- Payment Apps such as Robinhood, PayPal, Revolut and Venmo offer a seamless means of purchasing bitcoin. Although they may expedite the purchasing process for beginners, it’s critical to understand that these types of apps often do not provide an option for full custodial ownership of your bitcoin. CashApp and Peach are notable exceptions.
- Bitcoin ATMs have become an easy, fast and efficient way to buy bitcoin with a credit/debit card and cash. There are over 39,000 Bitcoin ATMs worldwide; they don’t store users’ KYC information, bank details or private keys, making ATMs a good choice for those who want to preserve their privacy.
- Bitcoin Wallets: Purchasing bitcoin directly from within a wallet streamlines the acquisition and storage process. A hardware wallet minimizes the risks associated with online exchanges by reducing exposure to potential cyber threats. However, there’s a tradeoff as you surrender the anonymity of your wallets.
4. How To Buy Bitcoin on an Exchange
Considering exchanges are the most common method of purchasing bitcoin, we have itemized the basic steps required to start making your first purchase. They may differ in terms of offerings and services, but the registration and purchasing processes are very similar across the board.
How to buy bitcoin on an exchange:
- Register. You will be required to register and open an account with the service provider. Name, surname, email address and date of birth will usually be enough to gain access to the exchange. You will undergo a different verification process depending on the services you want to use.
For example, stricter KYC is demanded in case of higher tiers intended for more significant purchases. In that case, a selfie with your credit card or passport displayed next to you will likely be requested by the exchange. Many exchanges in the U.S. also require this type of ID verification for withdrawing your bitcoin into self-custody. A lot also depends on the jurisdiction in which the exchange operates, as some countries require very little/no KYC at all.
- Pre-purchase money transfer. Once you’re verified, you’re ready to go and buy bitcoin. You can transfer money to the exchange using your credit/debit card for fast execution; however, this option will charge you very high fees.
If you are not in a rush to buy bitcoin, you will incur lower fees if you transfer money via a bank, even if the operation might take a few days to complete.
- Buy bitcoin. Every exchange will offer you different options to buy bitcoin. You can set up any of the following types of orders:
- Instant order: An instant order to buy or sell at the requested price; if unavailable, a requote will occur.
- Market order: An immediate order to “buy” or “sell” at the current price in the market.
- Limit order: An order to buy or sell at a specific price or higher at any time in the future. It is an order visible to the market through the order book.
- Stop order: An order to buy or sell when a stop price is met. Unlike the limit order, it is not visible to the market until the price is matched; only then does it become a visible market order.
5. Secure Your Bitcoin
Bitcoin is a type of money different from traditional coins; when you own it, you actually hold a private key that gives you access to the asset. It allows you to store it securely and use it, send or receive it. By controlling the private key, you’re the only owner of bitcoin, and nobody else can access it. Keeping your asset on online platforms effectively equals having an “I owe you” (IOU) — not the bitcoin itself. Should an exchange collapse, like FTX and Mt. Gox did, or should they freeze your account, you lose access to your bitcoin.
Therefore, after purchasing bitcoin, you have three options:
- Leave it on the exchange and risk losing it.
- Secure it temporarily in a hot wallet, such as a phone or desktop app.
- Secure it permanently in a hardware wallet or multisig wallet.
There’s a famous Bitcoin community mantra saying, “not your keys, not your coins.” Don’t become someone who once had bitcoin and then lost it.
6. Monitor and Manage
Regular monitoring ensures you stay updated on the value of your bitcoin, remain aware of any market anomalies, and can make informed decisions should you wish to trade or transact. This shouldn’t be much of an issue if you are holding for the long term, but it’s still worth keeping abreast of the latest price action from time to time.
Furthermore, actively managing your wallet, such as updating software and diversifying storage if your holdings grow significantly, reinforces your security measures. In essence, while a hardware wallet provides a robust defense against digital threats, proactive monitoring and management ensure that your bitcoin remains safe and secure.
Key Considerations
Volatility
Bitcoin is still a relatively young asset with a history of just over a decade. Like every new asset, it is subject to volatility. Ardent Bitcoiners would say you should hodl bitcoin for over two cycles (typically over eight years) because volatility still points to the upside over the long term. You could still generate attractive returns in between cycles if you embrace it.
Privacy
Bitcoin’s transactions are pseudonymous, so no name, address, email or sign-in forms are necessary to use BTC; however, most exchanges, brokers and apps request personal information which is then used to associate the bitcoin you purchase with you, the person. This can be avoided by using Bitcoin ATMs, peer-to-peer exchanges and certain apps. We’ve written a guide on how to buy bitcoin anonymously, should you be interested.
Personal responsibility
One of Bitcoin’s main features is personal responsibility, which is challenging but rewarding. It’s challenging because you must use strict practical precautions to keep it safe at all times. If you don’t, you may lose your money and nobody can give it back to you.
It’s essential to learn how to manage bitcoin independently. This requires creating robust passwords that aren’t stored on your computer, in cloud services or visible to anyone but yourself. While hardware wallets grant you complete control over your bitcoin, what if they’re lost or damaged? In these scenarios, backing up your seed phrases is crucial. Numerous metal seed plates are designed for this very purpose. Using such a seed plate ensures your private keys are safeguarded against two prevalent threats: water and fire.
Taxes
Bitcoin is not exempt from taxation. So before you go ahead and buy it, you should consider checking the tax implications in your country, which may differ from another jurisdiction.
Generally, if you hodl bitcoin long-term, no income or capital gains tax is involved but you might incur a tax event when you sell or use it to purchase goods.
Frequently Asked Questions
How Much Bitcoin Should I Buy?
The best advice is to err on the side of caution. Typically, the more time you spend learning about what bitcoin is — and what it isn’t — the more confidence you will gain and the more you can be willing to invest.
It’s certainly worth getting off zero, as having none leaves you vulnerable to the declining purchasing power of your (fiat) money. Most people would advise investing 5% to 10% of your investible money and that’s probably a good place to start.
Read more >> How Much Of My Portfolio Should I Allocate To Bitcoin?
Can I buy 1 Bitcoin?
Yes! Don’t be put off by the price of bitcoin, as you can buy any amount — even as little as $1, since bitcoin is pretty much infinitely divisible: One satoshi is equivalent to one-hundred-millionth of a bitcoin. Instead of trying to buy a large amount of bitcoin in one purchase, you can dollar-cost average (DCA) smaller amounts on a monthly basis.
What’s the Safest Way to Buy Bitcoin?
The most popular exchanges like Coinbase are usually considered safe places to buy bitcoin. However, no matter where you buy it, remember to secure it immediately after purchase and take it into your own custody by removing it from exchanges.
