How to Buy Bitcoins – The Money Morning Guide

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Now that Bitcoin has shown it can survive a variety of disasters - including an unsavory association with illegal drug buying and the bankruptcy of its biggest exchange - more investors are going to want to jump into the digital currency.

But that means figuring out how to buy bitcoins.

How to buy BitcoinsInvesting in Bitcoin - at least for now - is not quite as simple as investing in stocks, bonds or commodities such as gold. But you don't need a degree in Information Technology, either.

It's actually getting easier to buy bitcoins every day, and as time goes on there are more ways to do it.

Now let's just say upfront that while Bitcoin has tremendous potential - some proponents believe the Bitcoin price could rise from its current $450 to $10,000, $100,000 or even $1 million over the next decade - it's still at a very early stage and remains risky.

"I recommend Bitcoin for the aggressive portion of an investor's portfolio, but don't bet the farm on it," said Money Morning Defense & Tech Specialist Michael A. Robinson. "The key is to invest only what you can afford to lose and to look for great entry points along the way."

If Bitcoin prices do rise as much as some expect, even a modest investment of $500 or $1,000 could turn into the payoff of your life. And if it doesn't, well, your losses will be minimal.

So let's look at some ways to buy Bitcoin.

For the ultra-conservative, two ways to invest in Bitcoin indirectly are due to appear by the end of the year - the Winklevoss Bitcoin Trust, a Bitcoin ETF (exchange-traded fund), and SecondMarket's Bitcoin Fund. Both instruments will be tied to the price of Bitcoin.

But many investors will want to own the real thing.

One way to buy bitcoins is with a Bitcoin ATM - if you're lucky enough to live close to one.

You simply put your cash fiat currency into the machine and it sends bitcoin to your digital wallet.

Right now you can only find Bitcoin ATMs in the United States in such places as Boston, San Francisco, Albuquerque, N.M., and Austin, Tex. Canada has Bitcoin ATMs in Montreal, Ottawa, Quebec City, Halifax, Toronto, Winnipeg, Edmonton, and Vancouver.

But more are being installed all the time. You can check to monitor the addition of new Bitcoin ATMs.

The most common way to buy bitcoins, however, is through some type of exchange. That landscape can be treacherous, so Money Morning has put together a guide on which Bitcoin exchanges are best.

How to Buy Bitcoins: Sorting Out the Exchanges

Following the Mt. Gox bankruptcy, in which 750,000 customer bitcoins were lost, some may be nervous about buying from any Bitcoin exchange.

But Mt. Gox, once the world's dominant Bitcoin exchange, was mismanaged by a leader - Chief Executive Officer Mark Karpeles - who was in over his head. There are safer places to buy bitcoins now, though some of the older exchanges remain questionable.

In fact, there are dozens of Bitcoin exchanges around the world, but only a small group is of concern to U.S. investors:

  • Bitstamp: Founded in 2011 in Slovenia as a European alternative to Mt. Gox, Bitstamp transferred its operations to the U.K. in April of 2013. Earlier this year hedge fund Pantera Capital Management LP, which is based in San Francisco, invested $10 million in Bitstamp. Today it is the world's largest Bitcoin exchange by volume. The only catch here for U.S. investors is that getting dollars in and out must be done by international bank transfer, which is rather unwieldy (EU customers can use the more convenient SEPA system).
  • BTC-e: This Bitcoin exchange enjoyed a surge in popularity following the Mt. Gox bankruptcy, making it second in volume to Bitstamp. But BTC-e has a somewhat shady pedigree. Founded by a pair of anonymous Russian programmers, BTC-e is based in Slovenia and uses third-party banking services to elude being named in official records. It does offer the flexibility of using Visa and MasterCard, but has enough question marks that it should probably be avoided.
  • CampBX: Based in Alpharetta, Ga., CampBX is one of the older Bitcoin exchanges. But despite an attractive website and many promises of reliability, the site has been plagued by problems, and customer complaints have been high. There are better options for buying bitcoins.
  • Kraken: One of the newer Bitcoin exchanges, having launched last September, Kraken is based in San Francisco. Its operators have been careful to comply with what regulations do exist to avoid future problems. And Kraken earned some major credibility when in March it successfully raised $5 million in Series A venture capital funding from Europe-based Hummingbird Ventures as well as SecondMarket founder Barry Silbert. And just this week, the Kraken Bitcoin price was one of two Bloomberg selected to include on its proprietary terminals of financial data. However, Kraken recently was in the process of seeking a new partner U.S. bank, which has hampered its ability to accept deposits and withdrawals in dollars. Still, it's a promising operation.
  • CoinBase: Technically speaking, CoinBase is not a Bitcoin exchange; you can't use it for trading as you can the other sites on this list. But if all you want to do is buy and hold a few bitcoins, CoinBase is ideal. Instead of going through a bank partner, CoinBase lets customers link their own personal bank account to their CoinBase account. So when you buy bitcoins, money is withdrawn directly from your bank account; when you sell bitcoins, the proceeds are credited back. And CoinBase is also a Bitcoin wallet, so you can store your bitcoins there if you don't want to download wallet software to your PC or Android smartphone (Apple Inc. [Nasdaq: AAPL] has refused to allow any Bitcoin wallet software for the iPhone). Plus, venture capital firm Horowitz Andreessen led a $25 million funding round for CoinBase last December. For most Bitcoin investors, CoinBase should be the first place they go to buy bitcoins.

To learn even more about how to buy bitcoins, Money Map Press has prepared a detailed presentation with Michael A. Robinson. This presentation includes instructions on how to receive Michael's "Blueprint for the Bitcoin Revolution 2.0," his three-DVD interactive course on the digital currency, and more. To get started, click here.