How to Buy Bitcoins

A growing number of investors want to know how to buy bitcoins so they can take advantage of one of the financial world's brightest rising stars.

How to buy bitcoinsOver the past two years, Bitcoin has evolved from a curiosity to a compelling investment option.

Bitcoin has outgained virtually every investment class since the rocky period that followed the unfortunate Mt. Gox bankruptcy in 2014. The Bitcoin price increased 35% in 2015 and a stunning 123% in 2016.

Along the way, Bitcoin has shown it can survive a variety of disasters - including an unsavory association with illegal drug buying as well as the bankruptcy of what was its biggest exchange.

Having demonstrated its resilience, Bitcoin has only just begun to realize its vast potential. Some Bitcoin price predictions foresee a rise to $10,000, $100,000, or even $1 million over the next decade.

Such increases could turn even a modest investment of $500 or $1,000 into the payoff of your lifetime.

That isn't to say investors should dump what they own to load up on Bitcoin. Its role in a portfolio is to serve as a hedge against unforeseeable losses in stocks, bonds, and other conventional investments. So Bitcoin is best thought of as a companion to gold and other precious metals.

And despite its tremendous gains so far, the Bitcoin revolution is still in its infancy. There's still plenty of time to buy Bitcoin for your portfolio.

All you need to know is how to buy bitcoins.

Here are your options...

How to Buy Bitcoins: The Choices for Investors

The most straightforward way to invest in this digital currency is to buy Bitcoin directly through a Bitcoin exchange.

Bitcoin Investing Questions

For more detailed answers to your questions about Bitcoin investing, take a look at these stories:

What Kind of Annual Returns Has Bitcoin Delivered?

Should I Open a Bitcoin IRA?

When Will We See the First Bitcoin IPO?

Buying from a Bitcoin exchange may make some investors nervous, given the negative news stories of the past few years. In the Mt. Gox bankruptcy, 750,000 customer bitcoins were lost. And in numerous hacks of smaller exchanges since then, thousands of bitcoins have been stolen.

But the survivors have learned from these mistakes. Today, Bitcoin exchanges are much safer and more reliable.

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Bitcoin exchanges do charge fees, and most require some form of customer verification (that's a good thing, as it shows a concern for security). Here are the top four:

  • Coinbase: Technically speaking, San Francisco-based 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 smartphone. (The Coinbase app is available for Android phones as well as the iPhone.) Coinbase also lets you add funds via credit card. As one of the longest-functioning Bitcoin companies - it was founded in 2012 - Coinbase also has built a reputation for reliability. Its one drawback is sometimes spotty customer service.
  • Gemini: Operated by the Winklevoss twins, New York-based Gemini launched in 2015. As with all of their Bitcoin-related activities, the twins have gone to great lengths to ensure their exchange is fully compliant with all banking laws and financial regulations. Any U.S. dollars in your Gemini account are even FDIC insured. Gemini also has insurance to cover the Bitcoin in customer accounts. Unlike other exchanges, which often trade other cryptocurrencies as well, Gemini only trades Bitcoin. You need to do a bank transfer to get funds into your account, which can take several days to clear.
  • CEX.IO: This exchange, founded in 2013, is based in London but accepts multiple currencies, including British pounds, euros, and U.S. dollars. CEX.IO not only allows customers to deposit funds with credit cards, it allows for withdrawals via credit card. This exchange has established a solid reputation, although the verification process can be laborious. CEX.IO's main advantage is its focus on smooth integration with fiat systems.
  • Kraken: Founded in 2011, Kraken is based in San Francisco. Kraken got a major boost to its reputation when the trustees of the bankrupt Mt. Gox exchange selected it to assist in the processing of customer claims. Kraken accepts euros, U.S. dollars, Japanese yen, South Korean won, Canadian dollars, and British pounds. It's one of the largest Bitcoin exchanges in the world. Customers deposit funds at Kraken with a bank transfer. Customers like its low transaction fees, but the site can be confusing for beginners. One caveat: Kraken is available in most, but not all, U.S. states.

If you're not comfortable buying Bitcoin from an exchange, you may prefer one of these alternatives...

How to Buy Bitcoins Without Using an Exchange

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  • Bitcoin ATMs: You're still buying bitcoins directly, but a Bitcoin ATM eliminates the customer verification hassles. All you need is cash and a smartphone app. Rare just three years ago, U.S. Bitcoin ATMs now number in the hundreds, although they tend to be concentrated in urban areas (see com for a searchable map). Although the exact process varies by machine manufacturer, in most cases you scan a QR code with your smartphone, insert your cash, and click send. The Bitcoin ATM then transmits your bitcoins to your smartphone wallet.

You can also buy bitcoins through these more traditional investing vehicles:

  •  Bitcoin ETF: Retail investors looking for the easiest way to buy and hold Bitcoin would best be served by a Bitcoin ETF (exchange-traded fund). Unfortunately, no Bitcoin ETFs are trading yet. It is expected that at least one eventually will be approved, however. The Securities and Exchange Commission (SEC) denied a rule change that would have allowed the Winklevoss Bitcoin Trust (BATS: COIN) to trade, but the Trust is likely to re-apply. Two other Bitcoin ETFs seeking SEC approval: include the SolidX Bitcoin Trust and the Bitcoin Investment Trust (OTCMKTS: GBTC), which is currently trading but is open only to accredited investors. All of these Bitcoin ETFs propose to offer shares backed by Bitcoin, following the model of other commodity-backed ETFs such as the SPDR Gold Trust ETF (NYSE Arca: GLD).
  • A Bitcoin IRA: Those who want to add Bitcoin to their retirement portfolio can do so with a Bitcoin IRA. This became possible in 2014, when the IRS ruled that Bitcoin is a property for tax purposes (and thus eligible to be included in an IRA). The only catch here is that most big brokerages don't offer Bitcoin as an IRA option. But several dozen custodians do offer "self-directed" IRAs, to which an investor can add Bitcoin. One company, BitcoinIRA, specializes in them. You can set these accounts up as either traditional or Roth IRAs.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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