The popularity of cryptocurrency has skyrocketed over the last few years. But even though it’s become more mainstream, the crypto buying process is still unknown to some. Many people may not know how to buy crypto because it rarely can be purchased directly through traditional investment accounts.
Luckily, there are many ways for investors to get crypto exposure, directly and indirectly. It’s a good idea for potential crypto investors to explore their options for where to buy cryptocurrency to decide what investment route is best for them.
What is Cryptocurrency?
Cryptocurrency started when Bitcoin (CRYPTO: BTC) was created in 2008 and launched in 2009. It began with the idea of creating a decentralized currency that was not regulated by any governing body, giving people financial freedom. Since then, cryptocurrency has grown to include many other coins, such as Ethereum (CRYPTO: ETH) and Dogecoin (CRYPTO: DOGE), and non-fungible tokens (NFTs).
How Does Buying Cryptocurrency Work?
Cryptocurrency is data stored on a network known as a blockchain and is not backed by any government. Its value is determined by supply and demand, like other assets such as stocks and exchange-traded funds (ETFs). The transaction is recorded on a blockchain when a trader buys or sells crypto. The lack of regulation contributes to cryptocurrencies’ volatility, which is also the reason behind the attractive returns.
One of the main differences between cryptocurrencies and traditional investments is how they are bought and sold. With conventional assets, investors buy straight from the market, exchanging fiat currency for a company share. With crypto, you can purchase coins from the market and partake in trades with other crypto investors.
Two Places You Can Buy Crypto
There are two places to get started if you’re looking to buy cryptocurrency. Crypto exchanges and brokers provide traders access to the crypto market, allowing investors to build their crypto portfolios.
Crypto exchanges are platforms that connect traders. If a trader is looking to buy, sell or trade an asset, they can connect with another user on the platform willing to take on the other side of the transaction. On a cryptocurrency exchange, users can trade autonomously without help from the platform. However, centralized exchanges must identify a buyer or seller to ensure they work with a legitimate user to avoid fraudulent transactions and malicious activity. Given their independent nature, crypto exchanges are typically best for experienced traders.
- Fewer fees, such as transaction fees
- Autonomy to make own trades
- Quicker registration
- Exchanges take custody of your assets for security
- Increased risk of fraud and scammers
- Not always intuitive for beginner traders
- Traders may need to use multiple exchanges to find a buyer/seller
Like an exchange, a crypto broker is a platform for traders to buy, sell and trade crypto. A crypto broker acts as an intermediary in transactions. Some brokers provide guidance and education to help investors of all expertise execute successful trades. Brokers can also offer traders more trading options and security through a thorough user vetting process.
Cryptocurrency brokers are typically popular options for beginner crypto traders and traders with larger portfolios. New traders can take advantage of a broker’s education and guidance and do not have to go in alone. In addition, because of the broker’s rigorous vetting process and secure platform, traders with large portfolios can feel more comfortable buying and selling.
- Protection for users on both ends of the transaction
- Resources for new users to learn more about crypto and navigate trading
- Secure asset custody
- Access to more complicated trading options
- Easier ways to deposit, withdraw and convert fiat
- Transaction fees
- Not able to trade directly with other users without third party
Other Ways to Gain Exposure to Crypto
Not every investor wants to navigate the crypto trading market. However, there are ways for investors to invest in crypto without partaking in direct trading. Many of these investment vehicles can be included in a traditional investment portfolio.
There are many cryptocurrency ETFs. These ETFs can have everything from direct exposure to coins or holdings in blockchain technology companies. They are designed to expose investors to crypto and blockchain technology in their traditional investment portfolios while hedging against some of crypto’s volatility.
ETFs are an investment basket that holds shares in numerous companies, so investors gain small holdings in multiple companies by purchasing one share of an ETF. As a result, investors gain exposure to many companies, easily, while mitigating risk in case one company does poorly. In addition, the Securities and Exchange Commission (SEC) backs ETFs, adding additional regulations for investor protection. Cryptocurrency ETFs are great for investors who want broader exposure and less volatility in their portfolios.
Grayscale Bitcoin Trust creates investment products that, like crypto ETFs, give investors a traditional style investment vehicle that provides investors with exposure to the crypto’s price indirectly. By investing in Grayscale Bitcoin Trust, investors’ shares in the trust which tracks the value of Bitcoin and other cryptocurrencies without direct exposure.
Companies with Exposure to Crypto
Some companies have such large investments in crypto that their value is innately tied to the value of crypto. For example, companies like Tesla Inc. (NASDAQ: TSLA), MicroStrategy Inc. (NASDAQ: MSTR) and Block Inc. (NYSE: SQ) have large amounts of money in cryptocurrency, so when the value of crypto fluctuates, so can the value of these companies. By holding stocks in these companies, investors track the value of crypto through the value of these companies.
Future of Finance
Many people believe that cryptocurrency is the future of the financial and investing world. Whether you simply want to hold assets in crypto, try crypto trading or gain indirect exposure, crypto can diversify a portfolio and give investors a chance at financial gain. The crypto world may seem mystifying, but the right broker can simplify trading.
Frequently Asked Questions
How much does it cost to buy into cryptocurrency?
The price of cryptocurrency changes constantly, and different cryptos cost different amounts.
Can cryptocurrency be converted to cash?
Many crypto exchanges and brokers allow users to convert crypto to fiat or government-backed currency.
Is cryptocurrency a good investment?
Every investor has different risk tolerances, and crypto can be a volatile investment. However, the world of crypto is growing, and investors can take advantage of that by investing in crypto.