The 2017 bitcoin price spike has resulted in a large influx of new investors interested in acquiring bitcoin and other cryptocurrencies. Ever increasing media and internet coverage adds fuel to the bitcoin fire, but barriers to entry into bitcoin investing persist. Perhaps the biggest question for most potential new buyers is where can I safely buy bitcoin? While bitcoin skeptics often dismiss the currency as just a tool for cybercrime or even label it as a scam, there are actually several safe and easy ways to buy bitcoin for investment. Read on to learn more.
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Open a bitcoin exchange account
We’ve covered this topic in our guide to Coinbase. It remains the most popular way for new investors to buy, sell and store bitcoin, boasting over 12 million accounts in November 2017. Both the web and app interfaces are easy to use. Although rapid growth in new accounts has caused major delays in customer service for problem resolution, the vast majority of users have no difficulties using their Coinbase accounts. Be sure to match names on accounts with the corresponding payment methods (credit, debit or bank account) to avoid problems. Include middle initials when appropriate. New account holders will have purchase limits that can be increased once linked credit card and bank accounts are confirmed and ID is verified. Limits automatically increase based on prior successful transactions and method of payment selected.
Coinbase bitcoin buys execute at 0.25-1.0% higher than current trading price on Coinbase Pro, their underlying exchange. An additional 1.49% fee is charged. Purchases with cash balances held in your account result in immediate deposit of bitcoin to your wallet. When using a linked bank account to buy bitcoin, you will also be charged the 1.49% fee, but the coins will not be credited to your account until 7-10 days after the purchase. The price and amount of bitcoin purchased are locked in at the time of the buy, but the coins cannot be sold, transferred or used for any purchases during the waiting period. The delay is due to both the standard Automated Clearing House transfer time of 4-5 days plus a few days for Coinbase to register and complete the purchase. Basically this is a fraud prevention tool to limit exposure to transaction reversals. Fees can be limited by transferring money from your linked bank account in advance and then buying once the money is credited to your account. Funds are fully FDIC insured for US investors.
Account holders on Coinbase can open a free Coinbase Pro trading account and link their wallets. Coinbase Pro replaced the former GDAX trading platform. There are many benefits to switching, including limit orders with fees as low as 0.15% or Post Only orders with no fee.
The new interface is relatively straightforward, but new investors need to familiarize themselves with order types and execution methods (our older GDAX article) before trading to avoid making costly mistakes. CB Pro accounts must be funded before trades can be entered. Approved investors can also buy bitcoin on margin. This is reserved for advanced investors only. It is not recommended for anyone new to trading or cryptocurrency.
Gemini and Kraken also allow bitcoin purchases using USD. Their trading fees are similar to CB Pro and much lower than Coinbase. Their user interfaces are a little more intimidating for new investors and assume a greater level of knowledge regarding orders types and execution rules.
Exchanges such as US-based Bittrex and Malta’s newest crypto business Binance may be set to launch bitcoin-fiat purchases soon, as well. Bittrex has take steps towards fiat trades by securing banking support. Binance’s plans have not yet been fully sorted out, but the exchange certainly is moving towards US dollar crypto purchasing according to CoinTelegraph.
Crypto regulations and anti-money laundering laws
In order to remain approved and licensed for business in the US and many other countries, exchanges must collect, verify and store user identification information. They must comply with Know Your Customer (KYC) background check regulations to prevent money laundering and funding of illegal activities.
This is a completely normal process, but some new bitcoin buyers become apprehensive when asked to supply this information. Keep in mind this is the same information needed to open accounts with banks, brokerages, investment firms, and credit card companies. It isn’t any riskier than any of these other services.
Buy bitcoin using Localbitcoins
Localbitcoins is a buyer and seller peer-to-peer matching service where sellers can offer bitcoins for purchase with more flexible payment options including cash, PayPal, credit cards, bank transfers, and mobile payments. There can also be a greater level of anonymity than with traditional exchanges. However, pricing for bitcoin is usually 5-10% above prices available on exchanges. Risks for both buyer and seller can be somewhat controlled by paying close attention to user ratings on the site.
Be sure to use their escrow to hold funds until both buyer and seller have met conditions of a transaction. To get started, create a free account on their site. Buyers can search For Sale listings sorted by several criteria including geographic location, price, payment method, and desired purchase amounts. Once a seller has been identified and a transaction initiated, be sure to practice safe buying habits. Never allow a seller to transact all or a portion of the sale outside of the escrow process. Be extremely wary of any seller (or buyer) in a hurry to close the deal or who offers conditional sales different from the agreed upon transaction details. Walk away if anything seems wrong. There are plenty of other sellers to contact.
When using any service that allows for buying in person, be sure to take precautions and focus on safety first. One of our forums members posted this guide to safely meeting and buying bitcoin in person.
Buy bitcoin at an ATM
Bitcoin ATM’s are a rapidly growing way to purchase bitcoin worldwide. An up to date list of ATM statistics can be found at CoinATMRadar. There are over 1800 bitcoin ATM’s worldwide as of November 2017. Fees again are higher than exchange purchases, with the average fee just under 9% at this time. Using an ATM to buy is a little more complicated than the typical ATM transaction. After choosing the desired amount of bitcoin in dollars (or pounds, euros, etc) the buyer will need to proceed with the transaction by entering a mobile phone number to receive a verification code and scanning an ID. Some bitcoin ATM’s require the buyer to set up a bitcoin wallet with an address and QR code in advance, while others will generate a paper wallet address at the time of the purchase.
Once the required information has been supplied, the buyer inserts cash into the ATM receiving slot one bill at a time until the purchase cost has been met. Purchases are subject to limits depending on ATM owner, some allow up to $3,000. That’s a lot of cash to feed in manually. Upon completion of the transaction, bitcoin will be received at the supplied wallet address within 10-60 minutes of the purchase. This delay can be greater at times of peak bitcoin network usage. For more on bitcoin ATMs, check out info in 99bitcoins guide.
Buying bitcoin investment funds
The Grayscale Bitcoin Investment Trust (GBTC) has been in the news quite a bit over the last 18 months. The shares are traded on the OTC market pink sheets. It is possible for some to buy and hold shares in tax-deferred accounts. Check with your account administrator or investment company to determine availability and details. Shares can also be purchased in traditional brokerage accounts. However, shares of GBTC often trade at a premium to the value of the underlying bitcoin. This premium has exceeded 100% as recently as early 2017, and continues to range from 25-60%. With barriers to entry for new bitcoin investors dropping almost daily, it is my opinion that GBTC probably only makes sense if purchased within an IRA or 401k.
Bitcoin buying gets easier all the time
Hopefully one or more of these methods is of value to the reader. There are several easy ways to buy bitcoin, whether you choose to use an exchange like Coinbase, GDAX, Kraken or Gemini, or prefer an ATM or a local bitcoin seller. Retirement funds or brokerage accounts may be eligible to buy and hold Grayscale Bitcoin Investment Trust shares, but pay close attention to its trading premiums versus directly buying and holding bitcoin in a private wallet. Buyers should consider the pros and cons of each method and compare fees before choosing how to buy their new bitcoin. Some buyers may even wish to use more than one method. Expect bitcoin buying to become even easier now that it seems the market has reached a critical mass of investors to spur development of new exchanges, apps and wallets.