How To Buy Cryptocurrency in America
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So, you’ve decided to invest in cryptocurrency. At first, learning how to buy cryptocurrency can understandably seem complicated. With so many options available, it can be difficult to choose the best option for you. Plus, there are lots of things you need to think about before you can excitedly say you own Bitcoin (BTC), Ethereum (ETH), Doge, or any other cryptocurrency you desire.
It doesn’t have to be confusing and complicated, though. Buying Bitcoin and other cryptocurrencies is easier than you might think. The process of buying and selling has been getting a lot simpler and faster over the last years.
The easiest ways of buying Bitcoin are either through a cryptocurrency exchange like Coinbase, an investment broker like Robinhood, or a payment provider like Paypal. We’ll cover all those and break the process of buying crypto down into easy, simple steps.
But first, a quick look into the peculiarities of buying crypto in the United States.
In this article
How regulations affect the crypto market in the U.S.
Buying cryptocurrencies differs from country to country based on laws and regulations. The exchanges and banks have to comply with different regulations, affecting payment options available and also the offered cryptocurrencies in each exchange.
Well-known coins like Bitcoin and Ethereum are found everywhere to trade, but more obscure coins are often harder to find and might require opening accounts on several exchanges or trading on decentralized exchanges.
It is legal to buy and trade cryptocurrencies in the U.S. The U.S. Treasury classified Bitcoin as a virtual currency, the Commodity Futures Trading Commission (CFTC) classified it as a commodity, and the Internal Revenue Service (IRS) classified it as property, making it liable to taxation.
There are no states where cryptocurrency is unavailable for purchase. However, due to the regulations being done at a state rather than a federal level, exchanges avoid states where the regulations make it too costly to do business there.
New York requires businesses to apply for a BitLicense. Rhode Island taxes crypto transactions, development, and research. In Hawaii, exchanges are required to have their entire cryptocurrency balance backed up by traditional currency. These regulations led many crypto-related businesses to avoid or stop doing business in these states.
Still, the U.S. accounted for over a third of the total global Bitcoin trading volume on online exchanges in 2020, according to Statista.
Related: How to Invest in Crypto in 2021
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How to buy crypto in the U.S.
Choose an exchange
The cryptocurrency exchange you use will depend on what your goals are. The very first step is choosing an exchange that supports the deposit and withdrawal method of your choosing. Exchanges usually support receiving deposits through bank transfer, credit card, debit card, PayPal, and more. The processing time and fees vary depending on the method chosen, with credit cards usually having the highest fees.
After making sure your preferred funding method is supported, check if your desired cryptocurrencies are available on this exchange. Not all cryptocurrencies are available for purchase on every website. Most support the popular coins like Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and Ripple. Popular altcoins with high trading volume are also often offered for trading, while smaller and lesser-known ones are harder to find. You can check on CoinMarketCap the exchanges where a coin is tradable.
Now, there are different kinds of exchanges and trading platforms to choose from for buying crypto. The following are the best options based on their ease of use.
Cryptocurrency exchange
Cryptocurrency exchanges are the cheapest way of buying cryptocurrency in the U.S. They tend to have lower fees than brokers and offer a bigger range of coins to trade. The bigger ones are also secure, easy to use and have American customer service.
Due to regulations, consumers from the U.S. are blocked from big exchanges like Binance and FTX. These exchanges then opened branches in the U.S., Binance.US, and FTX.US, with a smaller offering of services and coins. Along with Coinbase, Kraken, and Gemini, these are the biggest exchanges in the U.S.
Read a full review on Kraken and Binance.US.
Investment broker
Along with their traditional investment tools, investment brokers have picked up and added cryptocurrencies to their offerings. You can fund your account using traditional payment methods. Their platforms are user-friendly and allow you to buy the more popular coins. The downside is they often charge higher fees than cryptocurrency exchanges.
A few of the investment brokers who offer crypto:
Payment providers
Payment providers like Paypal, Square, and Venmo also allow customers to buy and sell cryptocurrencies on their platforms. Most payment providers don’t let you withdraw them though, so you’ll have to convert your coins to USD before withdrawing or transferring.
Create an account
Now that you have decided which exchange you would like to trade on, it is time to sign up for an account. Signing up for an exchange will allow you to buy, sell, and hold cryptocurrency.
Exchanges in the U.S. are required to verify your identity. This is known as “Know Your Customer” (KYC). This involves providing personal information like your full name, date of birth, and address to the exchange, along with a copy of a government-issued ID. After submission, it takes anywhere from minutes to a couple of hours to get approved.
Some exchanges require you to also set up two-factor authentication. It adds an extra layer of security, and even if your exchange doesn’t require it, it is highly encouraged to activate it.
Fund your account
After KYC is done, you should now be allowed to fund your account. Choose the deposit method that suits you best and deposit the amount you’re willing to invest. The most common and accepted payment methods to buy cryptocurrency include local bank transfers, international wire transfers, third-party payment processors, and credit and debit cards.
Remember to pay attention to the fees associated with each payment method. The fees do add up quite quickly!
Place an order
You now have a verified, funded account and already know which cryptocurrencies you want to buy. It is time to buy.
Exchanges have evolved and increased the options a user has to buy cryptocurrencies. The most common method is to buy spot, which means straight-up buying a coin with the money you have on the exchange. Other methods include buying with leverage or buying futures.
When buying crypto, you can either place a bid at a certain price and once it reaches the price you set, your order gets filled. Or, you can pay the current market price and directly buy the amount of Bitcoin or any other cryptocurrency you desire.
Some exchanges like Coinbase also offer you the opportunity to dollar-cost average (DCA). You can set up recurring purchases that happen daily, weekly, or monthly, making it more likely that you’ll buy at the average price, and not at the top or bottom.
That’s it! You now own crypto!
Related: Best Cryptocurrency Investing Apps
Alternatives to exchanges and trading platforms for buying crypto
Besides the more popular options to buy crypto listed above, there are a couple more also worth mentioning.
Peer-to-peer
A peer-to-peer (P2P) crypto exchange cuts out the middleman and allows users to trade directly with one another. A user gets in contact with another user over a website, and they decide on the terms of the trade. These types of trades can be much more difficult to facilitate. The upside is the extra privacy since you don’t have to create a verified account anywhere. Examples of peer-to-peer exchanges include LocalBitcoins and Paxful.
Decentralized exchange
While being an exchange, they are quite different from the centralized exchanges listed above. The biggest advantage is the lack of regulation. No one needs to create accounts with personal information, and the range of coins offered is huge. Often, anyone can list a coin to be traded on the exchange.
Disadvantages of decentralized exchanges are the increased difficulty of use and, ironically, the lack of regulations. If a wrong trade is executed, there’s no way to reverse it.
ATM
Another way to buy Bitcoin in the U.S. is through automated teller machines (ATMs) using bank cards or cash. They are becoming more and more popular. Because they are very new, though, they aren’t available everywhere yet. And you might need a government-issued ID to buy crypto on some Bitcoin ATMs.
- Commission free stock trading.
- No account minimum.
- Trade stocks, options, ETFs, and more.
- First stock free.
How to store your crypto
After buying your desired crypto, you’ll have to choose between keeping it on the exchange or transferring it to a wallet you own.
Keeping it on the exchange is the most convenient option and in some cases your only option. Payment providers like PayPal don’t let you withdraw your crypto. You’d have to liquidate your holdings with them and then withdraw in fiat currency, like dollars. And if you want to trade with your crypto, you’ll also have to keep it in the exchange.
While keeping it there is convenient, it is not the safest way. Exchanges are often the target of hackers, and billions have already been stolen from them.
You could, instead, store them in your wallet. Setting up a wallet allows you to more securely store your new cryptocurrencies. Wallets don’t hold your coins though, they instead store the private keys needed to access the address containing the coins. Still, it comes with its risks for users who aren’t comfortable holding their private keys.
There are two main types of wallets. Software wallets, on your pc or phone, and hardware wallets, which can be just a piece of paper or a portable device that you connect to your computer and use to sign transactions.
Either way, it is highly important to keep your exchange account and your wallet secure. Don’t use the passwords anywhere else, activate 2FA, create a copy of your wallet and place it somewhere safe.
FAQ
How do I cash out?
You can sell your cryptocurrency through an exchange. Simply sell it for market value, and then once it is sold you can withdraw the funds to the bank account you connected to the exchange.
Is it legal to buy cryptocurrency in the U.S.?
It is legal to buy cryptocurrency in the U.S. Regulators have classified cryptocurrencies as commodities, securities, and property.
Can I buy less than 1 Bitcoin?
Yes, each Bitcoin contains 100 million Satoshis. That means you can buy a fraction of a Bitcoin.
Can I buy cryptocurrency without an ID?
Yes, some crypto exchanges allow you to buy cryptocurrency without undergoing an ID verification process.
How long does it take to buy cryptocurrency?
Once you have a funded, verified account on an exchange, you can buy it in an instant. Getting your account verified and funded depends on the exchange and the funding method you picked. From start to finish, it usually takes just a couple of days.
Do I have to pay tax on cryptocurrency in the U.S.?
The IRS treats cryptocurrencies as property. Therefore, any sales of cryptocurrencies are subject to capital gains tax.
How high are the taxes on cryptocurrency in the U.S.?
Selling bitcoin is a taxable event in the US and subject to capital gains tax. Short-term investments are thereby taxed at the same rate as income. Long-term capital gains are taxed at lower rates between 0% and 20%, depending on your income.
The bottom line
There are more ways to buy cryptocurrency becoming available each year. It is a lot easier now to buy cryptocurrency than it used to be.
But, which way is the best? The truth is, it depends on what you want and need.
The fastest, easiest way is still through centralized, reputable platforms like Coinbase, Robinhood, and others mentioned above.
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Writer
Claudio is a freelance copywriter specialized in finance and cryptocurrencies. Besides writing, he is interested in biohacking, trading cryptocurrencies and being curious.
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