So you have done your research, understand the risks of investing in cryptocurrencies, have allocated a small portion of your total assets, and are ready to begin buying crypto. If you are just jumping straight in, I recommend you head to crypto section and read my beginner series called “Should I buy Bitcoin or any other cryptocurrency.” Do this first before risking your hard earned money.
This guide will now walk you through how to actually convert your US dollars into cryptocurrencies.
Similar to traditional investments like stocks and bonds, you need an investment account at an exchange to purchase cryptocurrencies. Exchanges let you deposit USD or use your credit card to purchase cryptocurrencies from other people who are trading on that exchange. Quick note- cryptocurrencies can often be “mined” by using your computer to verify transactions on the network and get paid in that network’s coin, but that is not the focus of this post and for most people, using dollars to buy the crypto directly will be best.
The first thing you need to do before you can buy any cryptocurrency is to pick an exchange and open your account. I suggest Coinbase to most people as it currently has the fastest and easiest sign-up process and has a good track record of safety.
Below is a list of some of the most popular exchanges available to US customers:
- Safest, most secure, beginner friendly
- Currently has 4 coins (BTC, ETH, LTC, BCH) but adding more in 2018,
- Has insurance policy and FDIC insurance.
- GDAX is owned by Coinbase, it is their trading platform. Open your Coinbase account, then sign into and verify for gdax to place trades will save money.
- Quick and secure as well
- Better for bigger blocks of money, Coinbase has initial limits that need to be raised to trade more
- Only BTC and ETH right now
- Owned by Winklevoss twins
- Good for large number of alt coins
- Nice platform
- I’ve personally never deposited USD here, but use it for alt coins
- I’ve never sent USD here, not sure if you can yet (you can deposit crypto)
- Good for the huge variety of alt coins
- Can deposit USD
- Offers Ripple along with the other major pairs
- Has been hacked in the past
What To Buy
This is entirely up to you and your beliefs about the future. Regardless of what “experts” and smart people say, no one actually knows what will happen in the future. Do your own research, read about the projects and the development teams, look at the market capitalization of the token, and make your own decision. Picking stuff you like or that you believe in long term will allow you to remain confident and hold for the long term, rather than cut and run at the first market downturn.
Personally, I am mostly invested in Ethereum with Ripple a distant second. However, this is not advice or a suggestion, this is just my opinion after doing my own research.
Coinmarketcap.com is a great resource for looking at the current snapshot of the market and to see the “market cap” of each coin. Market cap isn’t necessarily a good measure but it’s quick and dirty way to compare the price of coins. The market cap is simply the # of coins in circulation x the current price. So don’t assume Ripple trading at $2.00 is really cheap, there are a lot more Ripple tokens in circulation so at $2.00 it is currently the third biggest coin by market cap.
Also, you should visit the official project websites and read their white paper. The white paper isn’t as intimidating as it might sound, it is usually a 10-20 page PDF that explains the concepts underlying the project. Check out Ethereum, Bitcoin, and Ripple first.
How to Place Orders
First and foremost read the FAQ at whatever exchange you signed up with. Ask the exchange for help to ensure you aren’t paying more in fee’s than you’d like or that you don’t lose money by buying the wrong thing. Here is a quick overview of what you will see at most exchanges when you go to place an order.
Orderbook – Bids and Asks
When you go to buy a coin you will see two sets of orders, the bids, and the asks. The list of bids represent orders willing to buy that coin at the given price, while the list of asks represents orders of people willing to sell a coin at the given price. If you wish to purchase instantly you can pay a slightly higher price and “take” someone else’s asking price. If you have a bit more patience you can bid and wait for someone to “hit” your bid and sell to you. This is also referred to as maker/taker. If you make the market by providing liquidity (placing a bid or placing an ask) you often pay less or no fees on the transaction. If you take the liquidity by buying someone else’s ask or selling to someone else on the bid you will pay a higher fee.
The snapshot below represents the orderbook for ETH/USD on GDAX. The orders in red are the asks, the orders in green are the bids and the white numbers indicate the quantity of Ether at that price. The inside market is 1294.25×1294.26. These are the current best prices for both sides. If you place a market order to buy you would be buying at $1294.26 but you would also be charged a transaction fee by GDAX.
To save money on fees it pays to be just a bit patient on your execution. Especially since you should be investing and not trading, you should have patience when it comes to entering the market. Use a limit order to buy and set the price at $1294.25, the inside bid. You would then see your order pending and will likely be filled within a few minutes with $0 transaction fee. Currently GDAX does not charge a maker fee but this could change in the future, however, it will still likely be cheaper to be a maker than a taker of liquidity. If after a few hours or a few days your bid has not been filled then feel free to cancel and replace your bid at the new inside market. However, it is unlikely to not eventually get filled on the inside bid, but possible so keep an eye on it and adjust accordingly. In my opinion, the patience of waiting to get filled on the bid is something investors can afford to do while traders who need specific prices for their short-term trades really can not afford and need to “pay up” for that liquidity now.
And yes, you can buy less than 1 ETH. You can buy fractions of an ETH or BTC or any coin. Instead of thinking in terms of quantity of the coin you are buying, think in terms of dollar amount you are investing.
After you make your purchase you will now have a balance of whatever coin you just bought on the exchange you made the purchase. Most people leave their cryptocurrencies on the exchanges because it is convenient and easy. For most people this is probably OK. It is generally not recommended to leave your crypto on the exchange because if anything happens to your account or that exchange you are liable to lose your crypto holdings entirely.
Coinbase does claim to have an insurance policy to protect crypto assets against certain kind of risks.
Each coin has it’s own wallet. A wallet is how your computer knows to send, receive, and store a certain kind of crypto asset. Bitcoin wallets CAN NOT accept Ether and vice versa. Be sure that when sending a crypto coin to a wallet, that it is a wallet on it’s same network. If you send ETH to a BTC wallet, you will lose your ETH. Always check with your exchange, check with the internet, and verify that you are sending a token to it’s proper wallet. You can store your crypto on your local computer by setting up the wallet for that particular token. Just be sure to save the recovery key or any other means of backup to recover your tokens should your local computer malfunction.
Another option is to use a hardware wallet. This is probably the most secure way to store crypto but is much more complicated to set up. I will post on this more in the future. If you have a significant amount of money and want the safest storage possible a hardware wallet is probably the best. Check out the Ledger Nano S or the Trezor. Both are very similar.
Sending and Receiving Coins
As touched on above, when you are sending or receiving coins, what you are doing is moving coins between wallet addresses on it’s respective network. When you click deposit ETH on your account, your account has an ETH wallet address associated with it. This is the address you use to send your ETH. BTC has its own wallet, with its own address, and once again you can only send tokens to the wallet if they are on the same network. Before sending tokens be sure to confirm with the exchange or the project that you are sending to the correct wallet.
When sending coins it is good to send a small amount first and ensure it arrives OK rather than losing your entire stake because you sent it to an invalid address.
Each network (coin) has its own policy regarding transaction fees and confirmation times. Exchanges also sometimes have a minimum withdrawal and will charge a withdrawal fee, this depends entirely on your exchange. There are also times when networks get congested, meaning there are too many transactions to process, so fees go up and/or confirmation times take longer.
After you make a transaction you may see it as a pending deposit on your exchange or you can check a block explorer for your transaction id on the network you are sending/ receiving. Block explorers show all the transactions that have been mined by the network. Again depending on network congestion and the particular coins confirmation times, it may take anywhere from a few minutes to a few hours to confirm and see your transaction completed.
When it comes to choosing an exchange, the advice above is all strictly my own opinion. You should do whatever you feel is best given your situation and the opinion you form in doing your own research.
Find an exchange you are comfortable with, pick projects you like or have the confidence to invest in for the long term. Choose a method of storing your coins that you feel is safest or that works for you. Use market orders if you don’t want to be patient and are afraid of the price moving any further, otherwise follow my advice and use a limit order to avoid exchange transaction fees. When in doubt ask your exchange, read their FAQ, contact support, be careful before moving coins- be sure it is to a valid wallet address on the correct network!
For further reading about investing in cryptocurrency check out the Should I Buy Bitcoin or any Cryptocurrency. Also, before investing in cryptocurrency check out the start here for the basics of personal finance.