How to Buy Bitcoin and Trade Cryptocurrencies
Given all the latest news regarding cryptocurrency and blockchain in general, I decided to put together a step-by-step guide to get started when it comes to buying Bitcoin (or any other cryptocurrency) and trading cryptos.
Despite the huge market cap and trading volumes, and despite the simplicity involved, I still feel like getting started with cryptocurrency is not very intuitive for people that are approaching this world for the first time. One reason might be the number of exchanges and wallets available which can be overwhelming. This guide aims to explain everything you need to know step-by-step.
There is no magic formula to make money, my goal with this article is to raise awareness about cryptocurrency and explain what I would to to get started. I am not responsible for any loss you may experience, whether it is related to information provided in this post or not. You are responsible of what you do with your capital and I encourage you to do your own research before risking any money. Always be very suspicious of people telling you that a certain investment will for sure be profitable. Also, I added a few referral links and want to be completely transparent about it.
Ready? Let’s get started.
Is it too late to buy cryptocurrency?
It would have been great if you — and I — bought some Bitcoin back in 2011 (or even 2014). However, this doesn’t mean it’s not worth it to buy some now, especially considering the likely economic recession that will follow the COVID-19 pandemic (and that is already going on, for that matter).
Consider that, at the time of writing, the cryptocurrency market is worth about 530 billion dollars. New cryptocurrencies are constantly being introduced on the market, each one with its own peculiarities: from faster transactions to higher security, from coins focused on anonymity to coins that aim to solve real-world problems.
What is so special about cryptocurrencies anyway?
From lower transaction fees and insant payments to the impossibility to reverse a transaction, the list of advantages brought by cryptocurrencies is long. What I want to focus on here, however, are the two main reasons why I personally think cryptocurrency has the potential to revolutionize the economic world: blockchain technology and absence of a man-in-the-middle.
Despite the different peculiarities of each cryptocurrency, all of them have one thing in common: some sort of blockchain. A blockchain, as the name suggests, is a growing chain of blocks that are linked to each other. Every new block that gets added to the chain (usually in the form of a transaction) is permanently stored in the blockchain, and cannot be altered in any way.
Cryptocurrencies are just a small part of this extremely innovative technology, and other products such as video games or smart contracts can be built on top of a blockchain.
Think about the potential applications of this technology. Anything we currently use registers or lists to keep track of could virtually rely on a blockchain, and that would guarantee permanent storage of any information. From property registers (think about houses) to food supply chains, there are thousands of areas that would benefit — and are currently benefiting — from this technology.
What does all of this have to do with cryptocurrency? Whenever someone makes a blockchain, they need to create an incentive to make the whole system work and a way to reward its users (and miners). This is where cryptocurrency comes into play: blockchain needs some sort of token exchange in order to work.
While many cryptocurrencies’ only job is to back a blockchain system, some of them are created with the clear goal of bringing being a better cryptocurrency for the market. Some reasons may include better anonymity, faster transactions, higher energy efficiency, and so on.
Absence of a man-in-the-middle
The absence of a third-party entity is by itself a great step forward. Think about some of the most successful services that were born in the last few years. Airbnb allows you to immediately get in touch with the property owner, no mediator. Uber allows you to directly contact a driver. When you send money in the form of cryptocurrency, you are letting the network do the job, not a bank. Everything is transparent and every transaction is kept track of.
Can cryptocurrency be used for payments?
Unfortunately there is still a big misconception about this aspect, and many people believe that cryptocurrency can’t be used as a form of payment.
First of all, even if it couldn’t be spent, it wouldn’t imply that Bitcoin has no value: crazy gains have been made in the past trading gold, but I’ve never seen anyone pretending to pay with gold at the grocery store.
Second of all, many businesses are accepting Bitcoin and other cryptocurrencies as a form of payment, and the list just keeps growing. A few examples?
The list could be as long as you want (Subway, Twitch, Playboy, KFC, Namecheap, you name it), just try to do a quick Google search.
And Amazon? While they don’t accept cryptocurrency payments directly (but hey, they don’t accept PayPal either), you can buy anything they sell by using Purse!
What if I want to go back to cash?
Bitcoin and other cryptocurrencies can be converted to cash at any time either at a Bitcoin ATM or through Bitcoin exchanges (I highly suggest Coinbase, given their long presence on the market). You may also want to check out services such as LocalBitcoins.com.
How to invest in Bitcoin and trade cryptocurrencies
Having covered the basics, let’s get down to business.
Please remember: you should only invest as much as you are willing to lose. Gains in the cryptocurrency world can be huge, but the opposite can hold as well if you don’t make informed decisions. You don’t want to lose more than you can afford to.
I decided to split this part into three main points:
1. Education (arguably the most important part)
2. Buying Bitcoin (or any other crypto)
Let’s first take care of the most important step: education.
Make sure you educate yourself, and make sure you know at least the basics before you start trading cryptocurrency or any other asset. The good things about cryptocurrency is that you don’t need to start out with $10k in order to see some profits. In fact, anyone can get started with as little as a few hundred dollars. This, however, does not mean it’s a game, and you should never take cryptocurrency trading as a gambling session.
There are many books and online resources out there covering trading, forex markets, technical analysis and more. The more you learn and the wider your knowledge of the subject is, the better. These are some of the resources that I found particularly valuable in the past (and some of them I was even impressed with).
- Charting and Technical Analysis is a very good general book on technical analysis for beginners.
- How to Day Trade for a Living is great if you are considering day trading, but you will likely find some useful tips even if you don’t intend to day trade.
- How To Swing Trade is definitely one of my favorite books on the subject. If you are not going to day trade and prefer to keep your positions for days or weeks, this is the book for you.
- School of Pipsology is a well-organized online course. Taking the whole course might take a while and be overwhelming, you most likely won’t need all of the information provided.
- Advanced Techniques in Day Trading is a little more advanced but I found it very good (as you may guess I love Aziz’s books).
- Technical Analysis of the Financial Markets is a huge book and more academically-oriented, but very good and complete nonetheless.
- Udemy also has some nice courses, but I would suggest against spending $200 on a course since they usually have 80% discounts every few weeks.
These last two books don’t need a description — the reviews will suffice — and will take your trading game to another level. Trading is likely 90% psychology, do not underestimate this aspect if you want to be successful.
Whatever book/site/video you choose, the important thing is to get to a point where you can understand how the market works and the basics of technical analysis before you start dealing with money.
At first, all the information may seem a little overwhelming but, after a while, you will get used to different types of candles, volume patterns, moving averages and even more.
What kind of investor are you?
We could say that tehre are mainly two types of investors in the cryptocurrency world:
- Those who buy a BTC (or ETH, or any cryptocurrency) and keep it, waiting for its value to grow over time;
- Those who not only buy cryptocurrency, but also trade it against other coins in order to boost their holdings.
In the first case, to keep everything simple, let’s say you are confident that BTC price will grow. So you buy 1 BTC at $10,000 and sell it later for $20,000: the price of BTC has doubled, you made a +100% profit.
In the second case let’s say you buy the same BTC at $10,000 and start trading BTC with other cryptocurrencies (Litecoin, Ripple, Stellar, there are thousands) that increase their value against BTC. After a while, having these altcoins increased in value against BTC, you don’t have 1 BTC anymore. In fact, you may end up having 1.5 BTC that you can still sell for $20,000 each, for a total of $30,000. You obviously made more money in this case, a 200% profit to be exact.
The second strategy can be extremely profitable if you buy at the right time (partnerships announcements, technological advancements in the underlying technology, etc.), and spikes of 100% or more in a short time are not uncommon for smaller market cap cryptocurrencies. Of course, the opposite hold as well, so be extremely careful when buying and only trade if you think there is a underlying reason for doing so, not just because you feel like it. Again: education and discipline always come first.
Focus on your BTC holdings, not USD
With reference to the example above, it should be clear how important it is to focus on how much Bitcoin you have, not how many USD it is currently worth. Focusing solely on USD is an error a lot of people make, but try to think about it this way. Just like above, you buy 1 BTC for $10,000 and start investing in altcoins, you lose some of the BTC you had and end up having 0.8 BTC. Now you sell your BTC (again for $20,000 each) and get $16,000. Obviously you made a $6000 profit, which is still a 60% return, but you would have been better off just holding your initial 1 BTC.
Buying Bitcoin (or any other cryptocurrency)
In order to send and receive cryptocurrencies, you need a wallet. I strongly suggest you use Coinbase to buy, since it is the most used and the safest website when it comes to buying cryptocurrencies. If you buy through the link above, you get $10 extra if you buy at least $100 within 180 days of opening your online account.
Beside BTC, you can choose to buy some other cryptocurrencies such as Ethereum (ETH), Litecoin (LTC) or Bitcoin Cash (BCH). They accept all kinds of cards and you can also link your bank account if you wish to do so, this allows you to convert your cryptocurrency holdings back to USD (or EUR and many other currencies) and have it deposited in your bank account directly.
The buying process is straightforward and the instructions on the website are very clear. Once you have verified your account, you only need to choose how much BTC to buy and that’s it.
The general advice in the cryptocurrency community is to start by investing about $200-$300 in order to be able to see some gains right away, but of course it is up to you to choose how much you want to invest. You can invest thousands of dollars as well as $20 or lower, your call.
Keep in mind, however, that if you invest too little you may end up not reaching the minimum trading amount needed to buy other cryptocurrencies.
Once again: never risk more than you are willing to lose.
In order to trade different cryptocurrencies, you need to move your funds to an exchange. I highly suggest Binance, which now has the highest trading volume among the cryptocurrency exchanges. If you sign up using the link above, you will get a 5% back on every commission on the website, which really adds up over time.
Once you have your cryptocurrency on Coinbase and have an exchange account, you can transfer your holdings from one site to the other.
On Binance (the process is similar for other exchanges as well) navigate to Wallet -> Spot Wallet and find the cryptocurrency you bought on Coinbase. If you bought BTC on Coinbase, look for BTC and click on Deposit, otherwise choose the appropriate coin. You will be presented a Deposit Address which you need to copy.
Now move to Coinbase and click on Send, you only have to paste the address which you want to send money to (the one you copied on Binance): be very careful to paste the right address, or you may lose your money.
Done! Don’t worry if the transaction takes a while. BTC normally takes 10–30 minutes, but sometimes a few hours are needed due to the large amount of transactions. ETH and LTC transactions are usually faster, and you may want to buy one of them instead of BTC if you want your money on Binance quickly (or if you want to save on fees). Grab a cup of coffee and wait until your funds become available on Binance.
Now what? You have your money on Binance and can trade whatever cryptocurrency you wish. Just click on Markets and you will be presented with a huge selection of coins, from this page you can buy or sell each of them. Under the price chart of every pair you can see the Limit, Market and Stop-Limit tabs:
- Limit: place a buy/sell order at the price you prefer (looking at the panes on the right — current sell and buy orders — may be helpful);
- Market: you automatically place a buy/sell order at the current market price;
- Stop-Limit: allows you to place conditional buy/sell orders.
Ideally, you are looking for a low market cap coin which is still undervalued and you believe will become more successful in the future.
I suggest you always do your own research before choosing a coin to invest in, avoid buying impulsively or you will lose money. Also, don’t buy a cryptocurrency just because you read it or heard it somewhere. You may not lose money the first time but, eventually, you will regret it. Don’t randomly pick a coin because its value is increasing. Again, it may work a few times, but sooner or later you will regret it.
Finally, make sure to always place a stop loss. That way, even if the most unlikely and unexpected market change happens, an order will be placed for you even if you are sleeping.
There’s really no reason not to place a stop loss.
The following are some of the websites I personally use when looking for potentially profitable investments:
- Coinmarketcap (all the alts you can possibly buy are listed here, along with market cap, volume, price and many other indicators)
- Trading View
- Telegram channels
- Twitter and some other dedicated forums
Be aware of people who try to make you invest in a particular cryptocurrency just because it may be advantageous for them. I can’t stress this point enough, make sure you do your own research.
When I am looking for a new potential cryptocurrency to invest in, I also like to visit the official website and check if the website looks professional or if it is just trying to create hype. Some questions you should look for answers to are:
- What is the real value of the coin (why is it better than the other ones)?
- What is the team behind the cryptocurrency?
- What real problems does coin solve?
- Is the supply limited?
- Is there a whitepaper?
- What about this project’s roadmap?
- …and so on.
If I am confident about my research, and only at that point, I proceed with the trade.
- Never risk more than you are willing to lose
- Don’t be scared of the high volatility. If you are aware of what you are doing, you can get unbelievable gains.
- Never buy solely based on the fact that the value of a cryptocurrency is going up.
This is my humble attempt at making cryptocurrency more accessible to everyone, hopefully someone will find it useful.
Good luck and thanks for reading.