How to buy Bitcoin
As Bitcoin has matured, it's become an investment that's impossible to ignore.
After a rocky period after it first exploded into the public consciousness in 2013, Bitcoin has outgained virtually every investment class. The price of Bitcoin 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 and the bankruptcy of what was its biggest exchange.
In fact, Bitcoin is so resilient, and so technologically advanced, it's going to revolutionize the world's currency system.
With Bitcoin's tremendous potential, some proponents believe the Bitcoin price could rise to $10,000, $100,000, or even $1 million over the next decade. If Bitcoin prices do rise as much as some expect, even a modest investment of $500 or $1,000 could turn into the payoff of your life.
While there will be inevitable pullbacks, Bitcoin is built to continue appreciating over time...
Why Bitcoin Beats the Dollar
One of the biggest and often-overlooked reasons for Bitcoin's potential lies in the most basic of economic concepts : supply and demand.
"bitcoin miners" create the blocks that make up the foundation of the digital currency .
But the number of coins generated declines over time, tightening the supply.
When Bitcoin launched in 2009, the reward for mining one block was 50 bitcoins. That was cut to 25 bitcoins in 2012. And the reward was halved gain in 2016, to 12.5 bitcoins. The next halving is expected in 2021.
As time goes on, the supply of new bitcoins will get smaller and smaller, becoming a trickle until the very last Bitcoin is mined in 2140.
And that's it. No more new bitcoins. The Bitcoin supply will never grow beyond 21 million.
Now contrast this to fiat currency, such as the U.S. dollar.
The central banks that print fiat money have no limits. They just print more to pay the bills run up by free-spending governments.
But over the years the constant printing of new dollars has eroded 97% the buying power of existing dollars.What
cost $1 in 1913 would cost more than $24 today.
That can't happen with Bitcoin. It's controlled by a software algorithm, not governments. But supply is only half of the Bitcoin price increase equation ...
More Demand Equals Bigger Gains
The other piece of the Bitcoin story is demand. And it's on the rise.
Bitcoin price has spiked each time a monetary crisis has erupted, be it the Cyprus bank "bail-in" of 2013, the imposition of capital controls in Greece in 2015, or the shocking Brexit vote in 2016.
Just as importantly, adoption continues to grow as the financial world realizes how it can benefit from Bitcoin's underlying technology, the blockchain. Bitcoin startups continue to proliferate, attracting hundreds of millions of dollars in venture capital.
This rising demand is reflected in the growing number of confirmed daily Bitcoin transactions. Between 2014 and 2017, daily Bitcoin transactions have more than quadrupled.
Another key aspect of Bitcoin is that it benefits from something known as the "network effect."
Simply put, the more people adopt a technology, the more useful it becomes. In other words, having e-mail back in the 1990s wasn't very useful when only a handful of people had it. But once a critical mass of people had it, e-mail became a virtual necessity to communicate.
Because part of Bitcoin's utility rests on the number of people using it, growth in its adoption rate feeds on itself, drawing more and more people in. And that will supercharge the already rising demand within the Bitcoin market.
still have time to add this unique investment to your portfolio.
To join the massive Bitcoin revolution, you need only know how to buy bitcoins. That's why Money Morning has put together this handy guide.
You have a lot of options
Join the Bitcoin Revolution
Many investors will want to use conventional vehicles to invest in Bitcoin:
• A 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
(https://moneymorning.com/stocks/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 Area: GLD (https://moneymorning.com/stocks/gldl)).
• 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.
Some investors may prefer to own the real thing. One way to buy Bitcoin directly is through a Bitcoin ATM.
• Bitcoin ATMs are becoming increasingly popular. Rare in 2014, U.S. Bitcoin ATMs now number in the hundreds, although they tend to be concentrated in urban areas (see CoinATMRadar.com {https://coinatmradar.com/) for a searchable map). Most Bitcoin ATMs work with any smartphone that has a Bitcoin wallet app. Although the exact
process vanes by machme manufacturer, 1n most cases you scan a
smartphone wallet.
But the most common way to buy bitcoins directly is through a Bitcoin exchange.
Sorting out the Bitcoin Exchanges
Buying from a Bitcoin exchange may make some investors nervous, given the negative news stories of the past few years. There was the 2014 Mt. Gox bankruptcy, in which 750,000 customer bitcoins were lost, and numerous hacks of smaller exchanges since then in which bitcoins were stolen.
But the survivors have learned from these
incidents. The Bitcoin exchanges of today are •
much safer and more reliable.
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.
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 ir:t most, but not all, U.S. states.