Forbes Advisor has provided this content for educational reasons only and not to help you decide whether or not to invest in cryptocurrency. Should you decide to invest in cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
According to a recent Forbes Advisor survey, 90% of respondents had heard of Bitcoin making it the most well-known cryptocurrency. Other familiar coins include Ethereum (50%), Dodegcoin (45%) and Binance Coin (36%). Lesser known coins according to the survey include Solana (21%) and Cardano (18%).
Figuring out how to buy any cryptocurrency can be confusing to newcomers. But, so long as investors are aware of the considerable risks, learning the ropes can be pretty simple. Investors can start with these five easy steps.
1. Choose a broker or crypto exchange
To buy cryptocurrency, investors first need to choose a broker or a crypto exchange. While either allows the purchase of crypto, there are key differences between them to keep in mind.
What is a cryptocurrency exchange?
A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Exchanges often have relatively low fees, but they tend to have more complex interfaces with multiple trade types and advanced performance charts, all of which can make them intimidating or even unsuitable for new crypto investors.
Some of the most well-known cryptocurrency exchanges are Coinbase and eToro. While these companies’ standard trading interfaces may overwhelm beginners, particularly those without a background trading stocks, they also offer user-friendly purchase options.
The convenience comes at a cost, however, as the beginner-friendly options charge substantially more than it would cost to buy the same crypto via each platform’s standard trading interface. To save on costs, investors might aim to learn enough to utilise the standard trading platforms before making their first crypto purchase, or not long after.
An important note: new investors to crypto will want to make sure the exchange or brokerage of their choice allows fiat currency (such as sterling and dollar) transfers and purchases made with sterling.
Some exchanges only investors to buy crypto using another crypto. This means investors would have to find another exchange to buy the tokens their preferred exchange accepts before beginning to trade crypto on that platform.
Related: Best Crypto Exchanges
What is a cryptocurrency broker?
Cryptocurrency brokers take some of the complexity out of purchasing crypto, offering potentially easier-to-use interfaces that interact with exchanges for investors.
Some charge higher fees than exchanges, however. Others claim to be “free” while making money by selling information about what traders are buying and selling to large brokerages or funds or not executing user trade at the best possible market price.
While on one hand, they can be more convenient, investors should be careful with brokers because they may face restrictions on moving cryptocurrency holdings off the platform. With some, for example, investors cannot transfer crypto holdings out of their account.
This may not seem like a huge deal, but some crypto investors, especially advanced investors, prefer to hold their coins in crypto wallets for extra security. Some even choose hardware crypto wallets that are not connected to the internet for even more security.
2. Creating and verifying an account
Once a cryptocurrency broker or exchange has been chosen, investors can sign up to open an account. Depending on the platform and the amount they plan to buy, they may have to verify their identity. This is an essential step to prevent fraud and meet anti-money-laundering regulatory requirements.
Investors may not be able to buy or sell cryptocurrency until they complete the verification process. The platform may require investors to submit a copy of their driving licence or passport, and even to upload a selfie to prove their appearance matches the documents they submit.
3. Deposit cash to invest
To buy crypto, investors will need to ensure they have funds in their account. This might mean depositing money into their crypto account by linking their bank account or making a payment with a debit or credit card (watch out for high charges from card providers with the credit card option – see below).
Depending on the exchange or broker and the funding method, investors may have to wait a few days before they can use the money deposited to buy cryptocurrency.
Here’s one big buyer beware: while some exchanges or brokers allow investors to deposit money from a credit card, doing so is extremely risky and often expensive.
Many credit card companies process cryptocurrency purchases with credit cards as cash advances. This means they’re likely to be subject to higher interest rates than regular purchases, and also likely to charge additional cash advance fees.
For example, investors may have to pay 5% of the transaction amount when making a cash advance. This is on top of any fees that the crypto exchange or brokerage may charge, and these can run up to 5% themselves, meaning investors might lose 10% of their crypto purchase to fees.
4. Placing a cryptocurrency order
Once there is money in their account, investors are ready to place their first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum to more obscure cryptos like Theta Fuel.
When the cryptocurrency to purchase is decided on, investors can enter its ticker symbol (Bitcoin, for instance is BTC) and how many coins they’d like to purchase.
With most exchanges and brokers, investors can purchase fractional shares of cryptocurrency, allowing them to buy a sliver of high-priced tokens like Bitcoin or Ethereum that otherwise take thousands of pounds to own.
According to a Forbes Advisor survey, just over a quarter of respondents (27%) said they had cryptocurrency holdings to £500. Just under a quarter (24%) said their exposure to the sector was between £501 and £1,000. Investors should only invest what they can afford to lose.
5. Select a storage method
Cryptocurrency exchanges are not backed by protections like the UK’s Financial Services Compensation Scheme, and they’re at an additional risk of theft or hacking. Crypto owners could even lose their investment if they forget or lose the codes to access their account. That’s why it’s so important to have a secure storage place for cryptocurrencies.
As noted above, if buying cryptocurrency via a broker, investors may have little to no choice in how their cryptocurrency is stored. If the purchase of cryptocurrency is made through an exchange, there are more options:
- Leave the crypto on the exchange. When buying cryptocurrency, it’s typically stored in a so-called crypto wallet attached to the exchange. If an investor doesn’t like the provider the exchange partners with or wants to move it to a more secure location, they might transfer it off of the exchange to a separate hot or cold wallet. Depending on the exchange and the size of your transfer, investors may have to pay a small fee to do this
- Hot wallets. These are crypto wallets that are stored online and run on internet-connected devices, such as tablets, computers or phones. Hot wallets are convenient, but there’s a higher risk of theft since they’re still connected to the internet
- Cold wallets. Cold crypto wallets aren’t automatically connected to the internet, making them most secure option for holding cryptocurrency. They take the form of external devices, like a USB drive or a hard drive. Investors should be careful with cold wallets, though: if they lose the key code associated with them or the device breaks or fails, access to that cryptocurrency may be lost for good. While the same could happen with certain hot wallets, some are run by custodians who can help investors get back into their account if they are locked out.
Alternative ways to buy cryptocurrency
While buying cryptocurrency is a trend right now, it’s a volatile and high risk investment choice unlikely to be a suitable investment for many investors. But some investors may choose to indirectly invest in Bitcoin and other cryptocurrencies.
1. Crypto exchange-traded funds (ETFs)
Exchange traded funds are popular investments that allow investors exposure to hundreds of individual holdings in one fell swoop. This means they provide immediate diversification and are often less risky than selecting the individual investments.
There is an appetite for cryptocurrency ETFs, which allow you to invest in many cryptocurrencies at once. The first cryptocurrency ETFs started to be rolled out to private investors in Autumn 2021.
2. Companies connected to cryptocurrency
For investors who would rather invest in companies with tangible products or services, but still want exposure to the cryptocurrency market, they could consider buying shares in companies that use or own cryptocurrencies and the blockchain that powers them. They will need an online brokerage account to buy shares in publicly-listed companies such as:
- Nvidia (NVDA) This technology company designs and sells graphics processing units, which are at the heart of the systems used to mine cryptocurrency
- PayPal (PYPL) Already a popular choice for people buying items online or transferring money to family and friends, this payments platform recently expanded to allow customers to buy and sell select cryptocurrencies with their PayPal accounts
- Square (SQ) This payment services provider for small businesses has purchased Bitcoin worth millions of dollars since October 2020. In February 2021, the firm disclosed that Bitcoin made up around 5% of the cash on its balance sheet. In addition, Square’s Cash App allows people to buy, sell and store cryptocurrency.
As with any investment, users should first consider their investment goals and current financial situation. Cryptocurrency can be extremely volatile (a single tweet can make its price plummet) and it remains a very speculative investment.
According to the Forbes Advisor survey, there are a range reasons why people decide not to invest in cryptocurrency. For exampe, 58% state that they do not trust it, while 34% do not understand the technology.
Your capital is at risk, and you could get back less than you put in. Cryptocurrency is highly volatile and unregulated in the UK and is not eligible for any form of regulatory consumer protection.
Cryptocurrency is unregulated in the UK. The UK regulator, the Financial Conduct Authority, has repeatedly warned investors that they risk losing all their money if they buy cryptocurrency, with no possibility of compensation.
Frequently Asked Questions (FAQs)
How much money is required to buy cryptocurrency?
Some cryptocurrencies, such as Dogecoin (DOGE), can be bought for pennies. Others, such as Shiba Inu (SHIB) sell for a fraction of a penny, so the price of crypto ownership can be extremely low.
Big tokens like Bitcoin and Ethereum are worth tens of thousands of pounds. So unless investors have big money to invest, they’ll be buying a percentage of a single token.
Whatever the case, crypto exchanges tend to ask for a minimum deposit of around £10 before investors can buy any cryptocurrency, even if they only want to buy a token worth less than a penny.
A better question investors can ask is how much they can afford to lose speculating on cryptocurrency because, as the financial watchdog the Financial Conduct Authority (FCA) has repeatedly warned, anyone who invests in these volatile markets should be prepared to lose all their money.
