Table of Contents
- Bitcoin can be purchased in a variety of ways, with trade-offs between volume, security, privacy, and premiums.
- Most retail investors use brokerages such as River to buy and store their bitcoin.
- Exchanges or brokerages usually offer to store your bitcoin for you. You can also hold your bitcoin independently with a wallet.
- Most institutions selling Bitcoin require the same information required by banks: government-issued ID, Social Security Number, and physical address.
How to Buy Bitcoin
Buying Bitcoin is usually very simple, especially in North America and most of Europe. There are multiple types of venues for buying Bitcoin, each focused on different clientele.
Where To Buy Bitcoin
Exchanges and brokerages
Exchanges and brokerages are the most popular venues for individuals or small institutions who wish to purchase bitcoin. Exchanges are used mainly by traders engaged in complex trading strategies, whereas a brokerage provides a much simpler experience for people who want the easiest way to buy Bitcoin as a long term investment or for usage as a currency.
River Financial is a brokerage for individuals buying moderate to very large amounts of Bitcoin. It takes about 2 minutes to sign up and buy your first Bitcoin.
Most brokerages and exchanges, including River, allow you to securely custody Bitcoin on their platform after purchase. The custody solutions and features offered tend to differ significantly among institutions.
Over-the-counter (OTC) desks transact with institutions or individuals with their own custody solutions looking to buy very large amounts of Bitcoin. Most OTC desks require the buyer to take physical delivery of the Bitcoin within 24-48 hours of purchase.
OTC desks focus on trading blocks of Bitcoin between large sellers (e.g. miners) and buyers (e.g. hedge funds).
People also trade Bitcoin for fiat currency peer-to-peer either in person or over the internet. In the early days this was one of the few ways to buy or sell bitcoin. However, today this is a less common method due to the fraud and safety risks associated with buying from untrusted sellers or interacting with people in person.
Bitcoin ATMs provide a way to purchase Bitcoin at a physical kiosk, often located in a gas station or grocery store. Bitcoin ATMs often require you to scan an ID to fulfill compliance obligations. A buyer then inserts cash and gives the Bitcoin ATM an address to which to send Bitcoin. Bitcoin ATMs typically charge a significant premium over online brokerages.
Derivatives are tradable securities that derive their value from its underlying asset like stocks, currencies, bonds, and commodities. The most common types of derivatives are futures, forwards, and options. In 2017, the growing demand for Bitcoin futures prompted major exchanges such as CME Group Inc and Cboe Global Markets Inc to launch Bitcoin futures contracts.
Opening an Account at a Bitcoin Exchange
Before you open an account at an exchange, examine its KYC requirements, verification levels, withdrawal and deposit waiting periods, order and withdrawal fees, and other variable factors that differ for each exchange. Be prepared to submit personal information in the form of a photo of your government-issued ID and more.
Once you’ve created an account, you may notice that the exchange provides its own wallet. Many third-party exchanges have wallets — called “custodial wallets” — built into the platforms themselves. Custodial wallets allow you to send and receive cryptocurrency; however, they are controlled by the exchange, which holds your coins “in custody” on your behalf. This means you do not have actual control of the funds stored on these wallets. In order to assume total control and ownership of your bitcoin, you must withdraw your funds to your own wallet.
Choosing Your Purchasing Method
The method of purchasing bitcoin can vary depending on the size and urgency of the order, and other factors such as privacy. If you plan on placing a very large order ($1M+), you may want to reach out to a service like River Financial’s Private Client.
For most people, purchasing bitcoin through an exchange or brokerage is the most ideal method. This is sometimes called “spot” buying, and consists of purchasing bitcoin by linking a bank account, debit/credit card or other payment method like PayPal to the exchange account. As previously mentioned, each jurisdiction has exchanges that are tailored to its citizens. Search for bitcoin exchanges that service your area and find out which are the most popular and trusted. (You could even consult your local Bitcoin communities — on Telegram, Twitter, Reddit, WeChat, Discord or wherever else Bitcoiners gather — to learn where they buy bitcoin.)
For institutional investors or those looking to get exposure to the price of bitcoin without registering on a cryptocurrency exchange, there are offerings on regulated stock exchanges, such as futures, mining stocks and other derivatives that provide exposure to Bitcoin without purchasing the currency.