Investing in Cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in Cryptocurrency. Should you decide to invest in Cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
There are still many questions surrounding cryptocurrency. However, with its astronomical performance over the last year, investing in Bitcoin has become appealing again. Buying the market-leading crypto can be pretty complicated, so we’re here to make things as simple as possible and explain everything you need to know.
Investing in cryptocurrency
Although there are plenty of legitimate concerns around whether cryptocurrency is safe, it’s undeniably a growing field for alternative investments. The head of the cryptocurrency world is undoubtedly Bitcoin. Since its inception in 2009, the value has grown by over 1,000,000,000%. Of course, past performance is not an indication of future results.
That’s a pretty insane return on investment. So it’s no wonder people want to try and get a piece of the action.
A lot of this latest rally has been due to PayPal’s acceptance of the world’s number one crypto and increased institutional investment.
Where to buy Bitcoin
Buying Bitcoin can be pretty confusing for a number of reasons. The main one is that many companies say you can ‘buy’ the cryptocurrency on their platform, and this isn’t completely true.
An example of this is Revolut. They allow you to purchase Bitcoin, but you don’t actually end up owning the digital coin. They buy it and hold it on your behalf elsewhere. This severely limits what you can do with your investment.
The best option to truly buy and own Bitcoin is by purchasing it from a cryptocurrency exchange. These exchanges are the cryptocurrency equivalent of stock exchanges.
The best exchange for buying Bitcoin
The top global exchange for purchasing Bitcoin is Coinbase. They have a simple app that makes buying really straightforward. Their success as the market-leading crypto exchange has caused quite a stir over their impending IPO.
There are quite a few steps and hoops you have to jump through when signing to get your account completely verified. These procedures help to ensure security on the platform and make sure that the exchange complies with all UK crypto regulations.
After creating an account, how much you’re able to buy and sell will depend on your level of verification. Linking up your bank account rather than using a credit or debit card allows higher levels of deposits and withdrawals.
An alternative to Coinbase is Gemini. Gemini is a really popular exchange in the US. It’s owned and operated by the Winklevoss twins (arguably the real creators behind Facebook). Gemini only expanded into the UK towards the end of last year. Similar to Coinbase, they’ve got a really slick and easy-to-use interface.
Fees when buying Bitcoin
Fees can vary, but they’re usually relative to the amount you are purchasing. Before buying Bitcoin, your exchange should show you transparently what the added fees are.
Unfortunately, there are usually some extra costs. Most exchanges will have a ‘spread’ on their Bitcoin prices. This means that you’ll likely be purchasing the cryptocurrency at a price higher than the true market value and selling it lower than the true market value.
Because it’s a fast-moving market, this just helps the exchanges run and stay profitable.
Earning interest on a Bitcoin investment
As the popularity of cryptocurrencies continues to expand, so too does their utility as alternative investments.
One way to earn interest on your Bitcoin is by depositing your holdings with a company like BlockFi. They are essentially a cryptocurrency lending platform who pay you interest for keeping your digital assets with them.
It’s worth remembering that by sending your Bitcoin to them, you are basically giving them control over your digital assets. This is known as handing over your private keys. So although the interest may seem appealing, it’s important to be aware of the added risk involved in letting a third party manage your Bitcoin investment.
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