If you are new to the world of crypto, understanding how to buy Bitcoin, Dogecoin, Ethereum, and other cryptocurrencies can be confusing at first. Luckily, it’s pretty simple to learn the ropes. You can start investing in cryptocurrency by following these five simple steps.
1. Choose a crypto broker or exchange
To buy cryptocurrency, you must first choose a crypto broker or exchange. While either allows you to buy crypto, there are a few 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 transaction types and advanced performance charts, which can make them intimidating for new crypto investors.
Some of the best known cryptocurrency exchanges in Canada are Coinbase, Netcoins, Newton, Coinberry, and Binance Canada. Although these companies’ standard trading interfaces may overwhelm beginners, especially those with no experience in stock trading, they also offer easy and user-friendly buying options.
However, the convenience comes at a cost, as beginner-friendly options charge significantly more than what it would cost to purchase the same crypto through each platform’s standard trading interface. To save on costs, you can aim to learn enough to use standard trading platforms before making your first cryptocurrency purchase, or soon after.
Important Note: As a newcomer to crypto, you should ensure that your exchange or brokerage of choice allows fiat currency transfers and purchases made with Canadian dollars. Some exchanges only allow you to buy crypto using another crypto, meaning you will need to find another exchange to buy the tokens that your preferred exchange accepts before you can start trading crypto on that platform.
What is a Cryptocurrency Broker?
Cryptocurrency brokers make buying crypto simple, offering easy-to-use interfaces that interact with exchanges for you. Some charge higher fees than exchanges. Others pretend to be “free” while making money by selling information about what you and other traders are buying and selling to big brokerages or funds or by not executing your trade at the best price of the possible market. Wealthsimple Crypto is one of the best known crypto brokers.
While they are undeniably convenient, you should be careful with brokers as you may face restrictions on moving your cryptocurrency holdings off the platform. At Wealthsimple Crypto, for example, you cannot transfer your crypto holdings out of your account. It might not sound like a lot, but advanced crypto investors prefer to keep their coins in crypto wallets for added security. Some even choose hardware crypto wallets that are not connected to the internet for even more security.
2. Create and verify your account
Once you have chosen a cryptocurrency broker or exchange, you can register to open an account. Depending on the platform and the amount you plan to buy, you may need to verify your identity. This is an essential step to prevent fraud and meet federal regulatory requirements.
You may not be able to buy or sell cryptocurrency until you complete the verification process. The platform may ask you to submit a copy of your driver’s license or passport, and you may even be asked to upload a selfie to prove that your appearance matches the documents you submit.
3. Deposit money to invest
To buy crypto, you need to make sure that you have funds in your account. You can deposit money into your crypto account by linking your bank account, authorizing a wire transfer, or even making a payment with a debit or credit card. Some exchanges in Canada will also allow you to use an Interac e-Transfer. Depending on the exchange or broker and your funding method, you may need to wait a few days before you can use the money you deposit to buy cryptocurrency.
Here’s a big buyer beware: Although some exchanges or brokers allow you to deposit money from a credit card, it is extremely risky and expensive. Credit card companies treat cryptocurrency purchases with credit cards as cash advances. This means that they are subject to higher interest rates than regular purchases and you will also have to pay additional cash advance fees. For example, you may have to pay 5% of the transaction amount when you make a cash advance. This is in addition to any fees your crypto exchange or brokerage may charge; these can reach up to 5% themselves, meaning you could lose 10% of your crypto purchase to fees.
4. Place your cryptocurrency order
Once there is money in your account, you are ready to place your 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 or Holo.
When deciding which cryptocurrency to buy, you can enter its ticker symbol (Bitcoin, for example, is BTC) and the number of coins you want to buy. With most exchanges and brokers, you can buy fractional cryptocurrency shares, allowing you to buy a slice of high-priced tokens like Bitcoin or Ethereum that would otherwise take thousands.
The symbols of the 10 largest cryptocurrencies based on market capitalization* are as follows:
- Bitcoin (BTC)
- Ethereum (ETH)
- Tether (USDT)
- USD coin (USDC)
- Binance Coin (BNB)
- XRP (XRP)
- Binance USD (BUSD)
- Gimbal (ADA)
- Solana (SOL)
- Dogecoin (DOGE)
*Based on market capitalization as of May 12, 2022
5. Select a storage method
Cryptocurrency exchanges are not backed by protections like the Canada Deposit Insurance Corporation. (SADC), and they are at risk of being stolen or pirated. You could even lose your investment if you forget or lose the codes to access your account, because millions of dollars of Bitcoin have already been. This is why it is so important to have a secure storage place for your cryptocurrencies.
As stated above, if you buy cryptocurrency through a broker, you may have little or no choice over how your cryptocurrency is stored. If you buy cryptocurrency through an exchange, you have more options:
- Leave the crypto on the exchange. When you buy cryptocurrency, it is usually stored in a so-called crypto wallet attached to the exchange. If you don’t like the provider your exchange partners with or want to move it to a safer location, you can transfer it off the exchange to a separate hot or cold wallet. Depending on the exchange and the size of your transfer, you may need to pay a small fee to do this.
- Hot wallets. These are crypto wallets stored online and run on internet-connected devices, such as tablets, computers or phones. Hot wallets are convenient, but the risk of theft is higher because they are always connected to the Internet.
- Cold wallets. Cold crypto wallets are not connected to the internet, making them your most secure option for holding cryptocurrency. They take the form of external devices, such as a USB flash drive or hard drive. You should be careful with cold wallets though – if you lose the passcode associated with them or if the device breaks or fails, you may never be able to recover your cryptocurrency. While the same can happen with some hot wallets, some are run by custodians who can help you recover your account if you get stuck.
Alternatives to buy cryptocurrency
Although buying cryptocurrency is a major trend right now, it is a volatile and risky investment choice. If investing in crypto on an exchange or through a broker doesn’t seem like the right choice for you, here are some options for investing indirectly in Bitcoin and other cryptocurrencies:
1. Wait for Crypto Exchange Traded Funds (ETFs)
ETFs are extremely popular investment tools that allow you to buy exposure to hundreds of individual investments at once. This means that they offer immediate diversification and are less risky than investing in individual investments.
Currently, there are 5 cryptocurrency ETFs approved for trading on the Toronto Stock Exchange in Canada. These are Evolve Bitcoin ETF (EBIT), Fidelity Advantage Bitcoin ETF (FBTC), CI Galaxy Bitcoin ETF (BTCX), Purpose Bitcoin ETF (BTCC) and 3iQ CoinShares Bitcoin ETF (BTCQ).
2. Invest in cryptocurrency-connected businesses
If you prefer to invest in companies that offer tangible products or services and are subject to regulatory oversight, but still want exposure to the cryptocurrency market, you can buy shares of companies that use or own cryptocurrencies and the blockchain that powers them. You will need an online brokerage account to buy shares of public 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 payment platform has recently been expanded to allow customers to buy and sell certain crypto- currencies with their PayPal and Venmo accounts in the United States.
- Square (SQ). This small business payment service provider has purchased over $220 million in Bitcoin since October 2020. As of February 2021, the company revealed that Bitcoin represented around 5% of the cash on its balance sheet. Additionally, Square’s Cash app (not available in Canada) allows people to buy, sell, and store cryptocurrency.
As with any investment, be sure to consider your investment goals and current financial situation before investing in cryptocurrency or individual companies with a significant stake in it. Cryptocurrency can be extremely volatile – a single tweet can send its price crashing – and it’s still a highly speculative investment. This means that you should invest with care and caution.