In this section we are going to share the exact step-by-step process of how to Trade, Sell and Buy Bitcoin for personal or professional use.
Before we continue it’s important your understand that due to Bitcoin’s code based nature, Bitcoin does not care about:
- Your age
- Your gender
- You sexual preferences
- The amount of money in your bank account
- You social economic status
- Your standing in society or by a nation state
- Really anything about you at all (and this is a good thing!)
So, anyone can buy Bitcoin!
All you must do is learn how to download and use some software applications. Once you configure your “wallet”, you now have a decentralized bank account, owned and controlled by you.
Let’s dig in.
How to obtain Bitcoin is not a one size fits all. You could buy from custodial and non-custodial exchanges or even a friend peer-to-peer.
How Digital Currencies interact with banking, financial, legal and regulatory systems
As you will learn there are custodial and non-custodial ways to buy Bitcoin.
For custodial exchanges services and even non-custodial we are each in different nation state system with various laws, rules and regulations.
This means “authorities” that are in charge of any business around money or financial services as well as any gains derived from assets like Bitcoin and other Cryptocurrencies.
Let’s look at the main agencies in charge of this space in the United States of America (USA).
US Regulatory Agencies for Cryptocurrency and Blockchain usage include:
- Internal Revenue Service (IRS) – Investment Capital Gains, Taxation enforcement
- Securities and Exchange Commission (SEC) – Oversee securities regulation for Security Token Offerings (STO) Initial Coin Offerings (ICO), or Initial Exchange Offerings (IEO)
- FinCEN – A bureau under the US Department of The Treasury. They combat illicit use and money laundering by collecting and analyzing financial transactions under the Banking Secrecy Act (BSA). This requires compliance documentation for all business around Money Transmission.
- Federal Bureau of Investigation (FBI) – Investigates high crimes like theft of millions of dollars, fraud and other money laundering cases
- The U.S. Secret Service – They also investigate crimes using the U.S. financial system like computer hacks and digital currency scams.
Banking and Legal
Banks are private institutions that manage the majority of the worlds money. They follow a variety of banking rules and regulations set forth by the agencies above along with other governing bodies who form policy and enforce compliance.
Typically you begin the process by having fiat cash money in your bank account and/or a credit card line you can use to purchase crypto.
Buying directly with cash will be your cheapest option and credit cards will be the highest priced.
Next, you need a source to buy your Bitcoin from.
Accessing exchanges and Brokers
Centralized exchanges (CEX) are middlemen and third parties who provide buying and selling services from fiat (Like $, EUR) into Cryptocurrencies and vice versa (Crypto to cash) back to your bank account.
What is a cryptocurrency broker?
A broker is a firm that acts as an intermediary for people who want to buy or sell cryptocurrencies with Fiat currency and charge a premium per transaction.
These companies can range from small to large but are able to maintain a leaner operation for providing simply buying and selling on a per transaction basis.
What is a Cryptocurrency Exchange?
A Cryptocurrency Exchange operates as an intermediary but also provides an online platform for buyers and sellers to trade with each other (Similar to hosting stock and equity markets).
Exchanges are typically larger operations and subject to a variety of regulatory scrutiny worldwide.
Custodial hold your funds, non-custodial brokers do not
Note the distinction between purist non-custodial exchanges (think: an Airport Forex kiosk for Forex and Wyre for Crypto) and custodial broker-dealer exchanges (think: Scott Trade for Stocks and Coinbase).
Custodial exchanges include platforms like:
This means you can buy Bitcoin with Fiat (USD, EURO, or other currencies) from a bank account. These services will hold your Crypto as a default.
There is also the option for your to remove your Bitcoin off the platform to a different wallet you own and manage.
Note: We do NOT recommend storing Cryptocurrencies on external platforms because of the risk of hacks, outages and other inaccessibility to your funds.
Many opt to store their Bitcoin in the hands of other organizations due to convenience and lack of interest or knowledge in managing their own private keys.
Take the extra time and effort to learn how to do it right. (More on this in a future writing on public-private key management)
Non-custodial services (that do not hold your funds) include:
- Moon Pay
These services are ideal because they, as a default, do not take any custody of your Cryptocurrencies, other than a brief moment before sending it to a wallet you control.
To initiate a purchase, you must always give them a valid wallet address before you buy your Bitcoin.
Non-custodial brokers are not only a great starting point but often offer more competitive fees for buying and selling.
Not your keys not your Crypto (House)
Purchasing on custodial exchanges is one thing but if you store them there, you do not own your Bitcoin. The 3rd party you have chosen does and they control your access to it.
Imagine if you owned a house and didn’t have access to your house keys.
Instead, you gave them over to a property manager who you need to ask for permission when you want to get in your house.
What if you couldn’t get in touch with them to get into your house?
Replace “house” with “access to your Crypto” and this is the exact situation you could find yourself in. Specifically, being unable to access their account, with no response from third party providers.
Or even if you can get to your account, wallets are commonly “under maintenance” during large market moves, disallowing depositing and withdrawing.
Custodial exchanges may serve as a convenient starting point to buy but you should immediately transfer the coins off the exchanges on to an independent wallet you control.
Keeping funds on exchanges poses counter-party risk including hacking, system outages, bankruptcy and regulatory crack downs which can change the rules for users at any time.
Let’s go over your options of how to buy and sell with custodial and non-custodial exchange services.
Where to Buy and Sell Bitcoin
Centralized Exchanges (CEX)
An exchange is an organized market where trade-able assets, securities, commodities, foreign exchange, futures, and options contracts are bought and sold. In the case of Bitcoin they sell this digital asset to users.
Cryptocurrency exchanges are websites where you can buy, sell or exchange cryptocurrencies for other digital currency or traditional currency like US dollars.
Exchanges often require furnishing of personal data per Know Your Customer (KYC) Anti-Money Laundering (AML) rules for US users.
When you buy through Centralized Exchanges you will likely be on the hook for KYC and other tax reporting implications.
If you store on these platforms, you DO NOT own your Bitcoin and keys. Buying and removing into your wallet, yes. But if you leave it on there, no.
The entire basis for all Cryptocurrencies is the control, management and accessibility to your private keys which allow access to your Cryptocurrency assets.
Although these custodial services are convenient and are great starting points, they remove the true freedom of owning your own assets first hand.
Exchanges get outages and hacked all the time where users cannot access funds, so don’t think this is some far fetched idea, it is a regular thing.
(We know we sound like a broken record but these points aren’t discussed nearly enough out there in mainstream Crypto media land hence our repetitions.)
Custodial Exchanges Examples and Fees
The company’s Global Digital Asset Exchange (GDAX) is a subsidiary of Coinbase and facilitates a more formal technical trading platform.
Coinbase based in San Francisco is one of the most popular and well-known brokers and trading platforms in the world. The Coinbase platform makes it easy to securely buy, use, store and trade digital currency. Users can purchase bitcoins, Ether and now Litecoin through a digital wallet available on desktop, tablets or mobile devices (Android & iPhone).
Gemini is a New York trust company regulated by the New York State Department of Financial Services (NYSDFS). They offer a variety of financial products including stable coins, credit cards, staking and even institutional services.
Non-custodial Exchange Examples And Fees
Established in 2013, Wyre crypto wallets, virtual bank accounts, cross-border money transfer, and corporate payments. After trading over $3.5 billion in cryptocurrency assets and $750 million in bank-to-bank payments, they have established a strong network of relationships with leading banks and exchanges.
A bitcoin ATM is an internet connected machine which allows a person to exchange bitcoins and cash. Some machines offer “bi-directional functionality” meaning they enable both the purchase of Bitcoin (with cash) and the redemption of Bitcoin for cash.
Bitcoin kiosks are machines which are also connected to the Internet and allow insertion of cash in exchange for bitcoins. Users are given a paper receipt after moving funds to their wallet. They look like traditional ATMs, but Bitcoin directly to a Bitcoin exchange versus a bank account.
This is probably your best bet if you don’t want to have to deal with exchanges or Peer2Peer.
Websites like Coinatmradar.com maintain a global database and are great for finding ATMs near you.
Types of ATMs include:
- Buy Crypto only with Cash – This is the most common kind of ATM machine that only receives cash and sells Crypto. This makes for a pretty quick and easy user experience and is a great method to buy in.
- Buy and Sell Crypto with Cash – This ATM often has more specific requirements such as phone # and/or ID verification for a certain $ amount threshold of transactions. (Eg. Phone # for up to $750 and ID for $750-2000+)
Check your local ATMs in person to verify the specific details and requirements.
Things to keep in mind about using an ATM:
- You might have to wait an hour or more to get your cash due to confirmations Most ATMs requires 2-3 confirmations for the transaction to complete. However, if they require more like 6 which is thought to be safe, this can take several hours or even longer. The good news is that most vendors will only require far less confirmations but keep this in mind for first time use.
- Smile, you’re on camera – Yes, they have cameras attached to the machines which will take a snapshot of you for their compliance records (which they legally must keep).
- Operators are required to gather and report logs of certain users activity – If there’s alleged suspicious activity or a taxable event they are required by law to gather and submit certain information about your transactions and activities. (Things like one or multiple transactions over $10,000 in a 24 hour period). Oh, and they are not allowed to tell you about it, legally.
How much will it cost?
Bitcoin ATM Fees: 3-10%+
While this may seem steep, understand the risk and costs that ATM operators take on with reporting and other compliance not to mention banking fees to re-purchase Crypto for $.
So, although the rates may sting, as long as you buy at a local low (and even if you don’t) you’re likely ahead of the curve by having any Crypto to begin with.
Next, let’s look at how to Trade your Bitcoin.
Once you have Bitcoin (BTC) you will have a whole world of value that will now open up to you via “trading”.
What is Trading?
Trading is where you swap your asset for another asset or object of value. With Cryptocurrency this might mean swapping your Bitcoin for Ethereum or another asset.
One of the biggest ways people “Trade” Bitcoin is buying other Cryptocurrencies (which we will cover more in future writings).
The second most common use would be purchasing a product or service with your Bitcoin.
Popular product or services you could buy now with your Bitcoin include:
- Electronics (Eg. New Egg)
- Agriculture and Farming supplies
- Gift Cards
- Airline Flights
- Car Rentals
- Rideshare Services (e.g. Uber)
- Data Services (e.g. VPNs, Storage, Cloud computing)
We hope you enjoyed learning how to buy, sell, and trade Bitcoin.