Learning how to buy cryptocurrency is fairly straightforward once you understand what you need. You will need to select a crypto exchange or an investment app that supports cryptocurrencies and open an account.
After you open an account and deposit money, you can begin buying cryptocurrencies. As with many stock investment apps, you can even set up recurring purchases. Crypto exchanges and investment apps that support cryptocurrencies also enable you to sell your digital currencies and cash out your crypto holdings.
What is cryptocurrency?
A cryptocurrency is a form of digital currency. It’s a medium of exchange that doesn’t rely on a centralized authority, like a central bank, to verify its legitimacy. Instead, transactions are made using digital coins and are verified using cryptography. Cryptocurrencies are sent and received using a decentralized public network called a blockchain.
Cryptocurrencies are different from what we call fiat currencies, which are currencies backed by the government. For example, the U.S. dollar is a fiat currency backed by a centralized authority — the United States government. Cryptocurrencies exist digitally and don’t require a central source because they’re secured by networks of computers.
How to buy cryptocurrency in 5 steps
Learning how to invest money in cryptocurrency is one way to invest in new technologies and diversify your portfolio by holding several asset classes.
Buying cryptocurrencies used to be complicated. Today, crypto exchanges, certain investment apps, simple crypto wallets, and straightforward withdrawal methods allow you to buy, sell, and trade cryptocurrencies with ease.
1. Choose a crypto exchange or an investment app
A crypto exchange is a platform designed for buyers and sellers to exchange cryptocurrencies. For example, when you want to purchase bitcoin, you get matched with a person who wants to sell.
Some crypto exchanges, such as Coinbase, give you even more options. Coinbase enables you to trade one cryptocurrency for other cryptocurrencies. You can also use peer-to-peer trades to exchange assets directly with other private sellers.
Read our Coinbase review.
Crypto exchanges often have over 100 cryptocurrencies available. These exchanges may have a user-friendly crypto trading interface for beginner investors, as well as advanced trading interfaces for more experienced traders. Keep in mind that these advanced interfaces can be complex and require a learning curve.
In addition to Coinbase, other popular cryptocurrency exchanges include Kraken and Gemini.
An investment app often gives you access to several types of assets, such as stocks and exchange-traded funds (ETFs). Some investment apps, such as Public, also give you access to cryptocurrencies.
Learn more in our Public App review.
Investment apps that support cryptocurrencies allow you to buy and sell them. However, these apps usually don’t allow you to exchange one cryptocurrency for another. Additionally, investment apps may offer a small number of cryptocurrencies and may not offer advanced trading tools.
In addition to Public, other investment apps that support cryptocurrencies include Robinhood and Webull.
|Crypto exchanges||Investment apps|
2. Open a trading account
The next step to buying cryptocurrency is to open a trading account. You can open a trading account with a crypto exchange or an investment app that supports cryptocurrencies.
You can choose one of the best cryptocurrency exchanges by considering your experience level, desired crypto products, and exchange fees and features. For example, some exchanges may offer debit cards linked to your crypto assets that use the MasterCard or Visa networks and gives you access to ATM withdrawals. Some may also offer access to a marketplace with non-fungible tokens (NFTs), a form of digital art.
Fees are also an important consideration. Crypto exchanges often use a tiered maker/taker fee model. In this model, your trading volume over 30 days determines your tier, and your order type determines if you are a maker or a taker.
If you place an order for later fulfillment, you’re a maker. If you place an order for immediate fulfillment, you’re a taker. Generally, taker fees are higher than maker fees.
Here’s how two popular cryptocurrency exchanges compare in cryptocurrencies offered, general fee range, and main features.
|Visit Kraken||Visit Coinbase|
You may prefer to open an account with one of the best investment apps instead of a crypto exchange. With investment apps, you should also consider the assets you can access, the fees you pay, and the features you get.
Many investment apps that support cryptocurrencies allow commission-free trades. However, while you don’t need to worry about trading fees, it’s important to note that some apps make money on the difference between the crypto market price of a cryptocurrency and what you pay.
Some apps may also make money by receiving rebates from cryptocurrency market makers who offer the assets to the investment app for trade.
Consider these two investment apps that support cryptocurrencies and offer $0 fees.
|Visit Public||Visit Robinhood|
Whether you select a crypto exchange or an investment app, opening a trading account usually requires personal information as a part of the Know Your Customer (KYC) standard used by many platforms to confirm your identity. You may need your:
- Legal name
- Phone number
- Social Security number
- Driver’s license
- Email address
- Annual income
In some cases, you may also need to upload pictures of your driver’s license or other documents for a customer support representative to verify your information. Once your account is created, make sure to activate security features such as two-factor authentication to protect your account before you add funds to it.
3. Deposit money into your account
Once you open your crypto brokerage account, you need to deposit the funds you’ll use to trade crypto. Most crypto exchanges and investment apps allow you to connect a bank account and move your money using the Automated Clearing House network (ACH). This is the main network used in the United States to move money between financial institutions.
It often takes up to five business days for your money to become available for trading. However, a few exchanges or apps may give you immediate access to your deposited funds.
In addition to using a bank transfer, you may also be able to use credit card or debit card payments to fund your account or buy cryptocurrencies. Your money is usually available instantly when you make a credit card purchase. The same is typically true when you fund your account using your debit card details. However, using a card may come with fees. For example, Kraken charges a fee of 3.7% plus $0.25 for each crypto purchase made with a credit or debit card.
Some exchanges or investment apps even allow wire transfers or payment methods such as PayPal, Venmo, Apple Pay, or Google Pay. Each exchange or app may have its own fee schedule for different funding methods. For example, Public doesn’t charge for incoming wire transfers, while Coinbase charges $10.
Your most cost-effective option is often to use an ACH bank transfer to fund your account.
|ACH bank transfer||Credit or debit card|
4. Choose a cryptocurrency and buy it
Each cryptocurrency has what’s known as a ticker symbol. A ticker symbol is a shorthand way to identify tradable assets. The stock market uses ticker symbols, and cryptocurrencies adopted them as well.
When buying a cryptocurrency, you can search on the exchange or in the investment app to find the coin you want to buy. For example, you can search for the ticker symbol BTC to buy or trade bitcoin.
Some of the most popular cryptocurrencies and their ticker symbols are:
Some of these currencies, such as tether and USD coin, are known as stablecoins. Stablecoins are pegged to the value of a stable asset, such as the US dollar, gold, or a basket of currencies. They are designed to minimize volatility and maintain a stable value. However, that means they don't offer the return potential traditional cryptocurrencies do.
Instead, you may prefer to start with popular cryptocurrencies such as bitcoin or ether. Bitcoin was the first cryptocurrency, giving it the biggest name recognition.
Ether is the coin of the ethereum blockchain, a network that can provide additional services with its underlying technology aside from supporting ether as a currency. Ether is the second-largest and one of the best-known cryptocurrencies.
Get more details about how to buy bitcoin.
Keep in mind that while bitcoin and ether have the largest cryptocurrency trading volumes and have been around for several years, this doesn’t guarantee they will last or be successful.
Once you’ve determined which cryptocurrency you want to buy, it’s time to place an order. Most cryptocurrency and bitcoin exchanges allow you to execute the order instantly. Determine how much you want to buy, select your payment option, and submit your purchase order.
The good news is that you don’t have to buy an entire coin. You can usually buy a fraction of a coin. So, if one ether costs $1,500, but you only want to spend $750, you can buy 0.5 ether.
Learn more about how to buy and sell ether.
5. Store your cryptocurrencies
After you buy cryptocurrencies, you will need a place to store them. You have a number of options to choose from.
- Keep them on the exchange or investment app: The best crypto exchanges and investment apps often allow you to hold your cryptocurrencies on them. This is an easy way to store bitcoin, ether, or other coins with the trading service provider you use, but it comes with limited functionality and control over your coins.
- Easy access to your cryptocurrencies
- You may be able to earn interest on certain coins
- Simple login recovery if you forget your password
- The exchange or investment app controls your cryptocurrencies
- You may not have SIPC insurance to protect against exchange or app failure
- Send them to a hot wallet: A hot wallet is standalone cryptocurrency software that’s connected to the internet and allows you to store your cryptocurrencies. Hot wallets are generally easy to use and give you more control over your coins and private keys compared to an exchange or investment app.
Find out how to set up a crypto wallet.
- Easy to connect to exchanges and marketplaces
- Often have recovery options if you lose your access
- Fast and easy to use for transactions
- Might be susceptible to online hacks
- Depending on the wallet, you may not have full control over your crypto
- Keep them in cold storage: Cold storage is keeping your cryptocurrencies on a device that isn’t always connected to the internet. Many cold wallet options come in the form of a hardware wallet, such as a USB thumb drive. For example, if you store bitcoin on a thumb drive that isn't connected to the internet, you would reduce the risk of losing anything from this cold bitcoin wallet.
- The most secure form of crypto storage
- You often have full control of your cryptocurrencies
- Can be ideal for holding a large number of cryptocurrencies with less chance of being hacked
- The process of transferring your cryptocurrencies can be burdensome
- If you lose your cold storage device, you will lose your cryptocurrencies
Keep in mind that you can also use multiple methods of storage. For example, you may keep a relatively small amount of cryptocurrencies on an exchange or in a hot wallet to easily trade or complete other transactions. However, when it comes to the bulk of your digital assets, you may prefer using cold storage for better security.
Some platforms may even provide staking opportunities to earn passive returns on cryptocurrencies you hold. When you stake, you simply hold and lock up a certain amount of a specific cryptocurrency in order to support the operations of a blockchain network. In return for staking, you often earn cryptocurrency rewards.
Learn more about staking in crypto and how it works.
5 essential tips before buying cryptocurrency
Before you move forward with your cryptocurrency purchase, you need to learn a few basics.
1. Find out your country’s regulations
Realize that, first of all, you need to determine your country’s regulations regarding cryptocurrencies. Make sure to review your country’s main financial regulatory body to find out whether you’re allowed to buy, sell, and own cryptos.
Some countries, like Iran and Bolivia, have banned cryptocurrencies altogether. Other countries are specific in their bans, such as South Korea banning privacy coins like monero (XMR), which hides some of the specifics of transactions and can be used in money laundering.
2. Learn how to analyze fees
Various exchanges and brokerage services charge different trading fees. You may also pay other fees, such as deposit or withdrawal fees. Look at your platform’s fee schedules to get a sense of what you’ll pay.
For example, you may pay an initial small transaction fee before paying other fees on top of it. This can make a higher transaction fee that doesn't come with additional charges at another platform make more sense.
3. Don’t invest more than you can afford
Because cryptocurrencies are new and considered to be an alternative asset, they can also be subject to volatility. Some cryptocurrencies may also lack liquidity, meaning it may not be easy to convert them back to cash. So avoid investing more than you can afford to lose, and keep in mind that past performances don't guarantee future results.
Additionally, there are always new coins coming out, so it’s hard to tell which will catch on or which blockchain technology will end up becoming dominant. With so many questions, it’s a wise move to avoid putting everything in your bank account into crypto investing.
4. Make sure you understand order types
Pay attention to the type of order you’re executing. Understand whether you’re buying, selling, or exchanging. Additionally, find out if your order will be executed immediately or if it will take some time to go through. Depending on the coin and the network being used, you might end up waiting days for a transaction to settle. For more popular market orders on major exchanges, the transaction is almost instantaneous.
5. Protect yourself against theft and fraud
Pay attention to where you’re getting your information, as well as the exchanges you use. In the past, there has been fraud around cryptocurrencies, as well as theft. If someone gets access to your security keys, they can clean out your digital wallet, and you have no recourse. Additionally, watch out for investment scams promising big returns from special programs related to cryptos.
How to sell cryptocurrency
At some point, you may decide that it’s time to sell your coins or end your cryptocurrency investing. In many cases, the process is similar to buying it.
- Decide the amount you want to sell and choose the sell option on your exchange or investment app. Many interfaces show you the dollar amount of your sale to make it easier to see how much you can expect to receive.
- Once you sell crypto, confirm that the transaction went through. Verify your available cash balance in the exchange or investment app.
- Once you have the balance, you should be able to withdraw it to your bank account. Most exchanges and investment apps don’t charge you a fee to withdraw via ACH bank transfer. You may also have other withdrawal options, such as wire transfers or PayPal. However, you may be subject to fees.
How much money do you need to buy cryptocurrency?
How much money you need to buy cryptocurrency depends on where you’re buying it and the policies in place. It’s possible to buy crypto coins with as little as a dollar, although there might be different minimums for different coins.
Do you have to pay taxes on cryptocurrencies?
Yes, you pay taxes on profits you make by trading cryptocurrencies. The IRS treats cryptocurrencies as property for tax purposes. If you sell a cryptocurrency for more than you paid for it, you will be subject to capital gains taxes. Additionally, if you receive cryptocurrency in exchange for work, you need to report it as income on your taxes.
Is buying cryptocurrency illegal?
Whether or not it’s illegal to buy and sell cryptocurrency depends on your country. In the United States, it’s legal to buy cryptocurrency.
Why is cryptocurrency so popular?
Recent headlines involving celebrities have pushed cryptocurrencies into public consciousness. Many people are likely excited by the prospect of something new and don’t want to miss out on what they might perceive as an opportunity to strike it rich.
What are the risks of buying cryptocurrency?
As with any investment, there’s a potential that you will lose your initial investment when you buy cryptocurrency. The coin may not take off, or it could lose value rapidly. Additionally, cryptocurrencies can be illiquid, meaning it can be difficult to turn them back into fiat currency readily, especially if you buy an altcoin that isn’t frequently traded. Finally, crypto prices are highly volatile, and this contributes to the uncertainty and risk of loss.
These days it’s fairly easy to purchase cryptocurrencies, especially if you’re just looking to buy and sell Bitcoin. All you need is access to a computer or a mobile app, along with a few dollars. However, before you move forward, make sure you understand the coins you’re buying and know the risks. Avoid investing money you can’t afford to lose and make sure that you have an investment strategy in mind.
If you want to learn more, make sure to check out our guide to cryptocurrency for beginners.
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