Trading 101: How To Buy Crypto

Want to buy the dip? 📈 Find out how to buy crypto safely and securely, where to buy crypto and more in Koinly's beginner's guide on how to buy crypto. 💰

How to buy crypto in three steps

1. Choose a cryptocurrency to purchase

2. Find a crypto exchange

3. Buy your crypto

Step one: choose which crypto to buy

Are you wondering ‘which crypto should I buy?’. To help you choose, here are two of the most popular (we’re pretty sure you’ll have heard of them), as well as some interesting altcoins to consider.

What crypto should you buy?

Bitcoin

Bitcoin was the first cryptocurrency to be created, beginning its use in 2009. By far the most popular cryptocurrency and largest by market cap, it’s estimated there are around 109 million Bitcoin owners around the world. All of these factors mean that, for a beginner, BTC is one of the most popular choices. 

Although BTC is expensive to buy ($1,000 would get you about 3-4% of one Bitcoin), it is considered as one of the safest choices and has the nod of approval from thousands of financial experts. 

Ethereum 

Ethereum is the second-biggest cryptocurrency out there, with the second-largest market cap. This shows that it has market power in the crypto world, and it also means popularity and adoption are widespread. Ethereum is leading the way in terms of DeFi. This is important to consider, since some say DeFi could be 100 times larger than it is today within 5 years. 

The majority of the NFT space, including massive marketplaces like OpenSea, mostly run on the Ethereum blockchain. This is another factor that contributed to Ether’s immense growth during 2021. Put simply: as NFTs grow, ETH is likely to grow too.

Other altcoins

There are hundreds of other projects that could be worth investing in. It’s tricky though and far more speculative, but if you wanted a list of some cool and interesting altcoin projects to look into, here are five:

• Cardano (ADA) — with its exceptional development team, some argue ADA is a better version of ETH.
• Solana (SOL) — has its own fast growing NFT space.
• Dogecoin (DOGE) — a meme coin started as a joke that has garnered millions of investors.
• Algorand (ALGO) — innovative young project with a large ecosystem of partners and large number of use cases.
• Stellar (XLM) — a new project with a fascinating use case.

Step two: find a crypto exchange

Once you know what crypto coins you’re buying, your next task is to find a suitable crypto exchange.

A crypto exchange is a platform on which you can buy and sell cryptocurrency. You can use exchanges to buy crypto using regular currency, like the US Dollar. You could also trade one crypto for another — converting Bitcoin to Ethereum, for example.

Exchanges reflect current market prices of the cryptocurrencies they offer. You can also convert cryptocurrencies back into the dollars (or another currency) on an exchange, to leave as cash within your account or withdraw your portfolio (perhaps including profits) to your regular bank account.

Signing up to an account requires various forms of certification — including KYC, or Know Your Customer. But don’t worry, just have all your documents, such as driving license, bank card and passport ready. If you have them next to you and ready to go, the whole process is super smooth.

Which crypto exchange features should you think about?

Fees

Most exchanges will include some type of fee for your transactions. These are based on the size of the transaction, or they may be dependent upon your level of activity, or, in some cases, they may be unrelated to either of those factors.

Consider how fees would impact your investing based on your style. Do you plan to be highly active, making some transactions every day? If so, perhaps consider an exchange with a lower per-transaction fee. If you’re considering transacting less often, these fees aren’t as much of a problem, and you may want to focus on other features, such as security.

What kind of fees exist?

For a cryptocurrency exchange to make money, it needs to attach to some of the financial momentum flowing through it. These fees include:

• Trading fees : The primary source of revenue for exchanges. They are typically charged on both fiat-crypto trades as well as crypto-crypto trades.
• Deposit/Withdrawal fees : Some exchanges charge fees for deposits and/or withdrawals. Deposit fees vary based on the type of deposit but are less common than withdrawal fees since exchanges want to incentivize users to fund their account.
• Interest/Borrowing/Liquidation Fees  (Advanced): Some exchanges offer crypto margin trading: the ability to borrow or synthetically borrow additional funds to increase your position and create leverage. 

Security

Some will argue that the harder it is to create an account at a particular exchange, the better. If it's too easy to generate an account, that suggests that an exchange is not particularly trustworthy. Most exchanges ask you to do something called KYC (know your customer). This is where you input lots of personal data, such as driving license details, address and passport details, all to certify your identity. This is mostly to produce against fraudsters, terrorism and tax evaders, so if the exchange has it, it usually points to credibility.

But not all exchanges make you do KYC. If you don’t want to input your personal information, there are various centralized exchanges (DEX) that allow you to trade crypto without a KYC verification process. 

Available cryptocurrencies

Another important consideration is the cryptocurrency options that your exchange offers. Coinbase and Gemini for example, are two of one the most popular and successful exchanges in the world, but they only offer a relatively small selection of digital currencies for its users. This is cool if you only see yourself investing in the top dogs, like BTC and ETH, but if you’re someone looking for obscure altcoins, you may want to look elsewhere.

Special benefits

Some exchanges offer extra benefits and features which may favor some users over others. This may be transactional or to do with ability.

For example, some changes like Kraken and Bitfinex offer crypto margin trading. This sophisticated trading feature appeals to advanced users, but is not useful for beginners.

Then there’s stable coins. Some exchanges, such as KuCoin and Stellar, offer native stablecoins which get you discounts and decrease trading fees. This is great for people doing high volumes of trades.

If you want to see an in-depth guide on how to choose a cryptocurrency exchange, find our detailed guide. For now though, here are some links to popular exchanges that you can get a vibe from. 

• Binance
• Gemini
• Coinbase
• Kraken

Step three: buy your crypto

Once you have chosen your exchange and gone through the various sign-up processes, the next step is to link your bank account and buy some crypto.

All exchanges are slightly different, but the process will be generally the same. Either way most exchanges make this really simple for you because it’s in their interest to do so. So don’t stress. This is the easy part.

Once you’ve signed up, some of them ask to link your bank account right away. Others link your bank account while in the process of buying crypto. 

Let’s look at Binance as an example.

If you’ve chosen to buy crypto on Binance, first you go to the top left where it says ‘Buy Crypto’ and click on the drop down where it says ‘Buy crypto via card’

After that, enter an amount you'd like to spend on your chosen cryptocurrency. For example, $100 on BTC. The page will automatically show how much BTC $100 can buy you at that moment. Feel free to play around with the numbers to get an idea of conversions. 

The next page will be to choose a payment method. Add a bank card. Once it’s been added and approved, click continue. 

You are now ready to purchase. Click confirm to allow the transaction to go through.

Right, now that we’ve got the basics covered, let’s jump into a few extra resources and tips to get you on your way.

Why should you buy cryptocurrency?

Cryptocurrencies have been described as a transformative technology that could revolutionize a number of industries. Because they cannot be printed or seized, cryptocurrencies may also provide a safe store of value. However, crypto is still considered speculative, and there is no guarantee that they will ever achieve genuine mainstream usage. That depends on governments.

Decentralized and censorship resistant

Unlike fiat money, most cryptocurrencies have a limited supply capped by mathematical algorithms. This makes it impossible for any political body or government agency to dilute their value through inflation. 

For example, the supply of Bitcoin is capped at just under 21 million coins, while central-bank-controlled currencies can be printed at the will of the government.

Massive financial potential

Investors believe the cryptocurrency will gain value over the long-term because the supply is fixed, unlike the supplies of fiat currencies such as the U.S. dollar. Many investors expect Bitcoin to gain value as fiat currencies depreciate.

Those who are bullish about Bitcoin being extensively used as digital cash believe that, over the long term, Bitcoin has the potential to become the first truly global currency. 

Diversifies your portfolio

A diverse portfolio makes it easier to grow wealth, and it can also buy you some protection during periods of economic volatility. Adding cryptocurrency to your portfolio could be a good way to diversify, especially if you're primarily loaded up on stocks.

With inflation rising so much, having a separate store of value rather than letting your cash sit in a bank and lose buying-power, crypto could be the answer. 

When is the best time to buy cryptocurrency?

This depends on a few factors, but on the whole knowing the best answer to this question is pretty complex. So, to keep it simple, we’ll talk about two crypto buying strategies. 

Buy the dip

Buying the dup is the process of buying an asset after it has declined in value. When it comes to the crypto market, “buying the dip” is used to describe the opportunity of investing in a coin or token that has experienced a short or long-term decline in its price. By doing so, investors hope to profit from a potential future price increase.

If you’re a first time buyer, your best bet is probably just to go in and buy as soon as you can. If the market is high, it’s perhaps a good idea to put in less initially so you can get a sense of how the market behaves. When you have skin in the game, you tend to pay more attention. Then, once an investable dip does come, you can invest more money.

Dollar-cost-averaging

Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.

Many investors prefer this method because it protects them from a volatile market. If they invest the same amount each month, they get an average price over the year. This means they don't have to be as stressed and have their finger on the pulse with market prices.

Is buying cryptocurrency taxed?

In most countries, you are not taxed for buying crypto with fiat currency.

However the rules tend to be different if you are purchasing crypto with other crypto. This is because when you do, it's seen as disposing crypto.

But don’t get too stressed. Crypto is usually only taxed when your Capital Gains exceed a certain amount.

Crypto is taxed in various ways depending on the country. If you want to find a super in-depth article on your own country, check out our guides here.

Do you pay tax when you buy crypto in the US?

Yes and no. It all depends on what you're buying your crypto with as to whether you'll pay tax. You're not taxed when you buy crypto with fiat currency,  like USD.

If you're buying your crypto with another cryptocurrency, for example, buying ETH with BTC, this is a taxable event in the USA. The IRS views this as two separate transactions: a sell and a buy. When you sell, this is a disposal and therefore subject to Capital Gains Tax.

For full details on crypto tax in the US, see our full US crypto tax guide.

Do you pay tax when you buy crypto in the UK?

The UK has the same rules as the US: You're not taxed when you buy crypto with fiat currency,  like GBP, but you are if you're buying your crypto with another cryptocurrency.

See our full UK crypto tax guide for more information.

Do you pay tax when you buy crypto in Australia?

It’s the same down under. You're not taxed when you buy cryptocurrency with fiat currency in Australia, but trading one crypto for another is a taxable event.

See our big Australia crypto tax guide for more details.

Do you pay tax when you buy crypto in Canada?

And, you guessed, it’s the same in Canada. You're not taxed when you buy crypto with fiat currency, like Canadian Dollars. Buying crypto with another crypto is subject to Capital Gains Tax. 

For full details on crypto tax in Canada, see our full Canadian crypto tax guide.

How can Koinly help you with crypto taxes

It's crucial you keep records of your crypto transactions so you can keep a detailed account of your cost basis. This makes sure you can accurately calculate your crypto gains and losses later on.

Koinly is a crypto tax tool that calculates your crypto taxes for you, meaning you don’t have to go through the hassle of doing it yourself.

Not only does the software integrate with your exchanges' transaction history, but it calculates your taxes in a format that makes sense for your country’s tax authority. Essentially, Koinly does all the boring tasks that would cost your hours and hours sitting at a computer.

As a quick breakdown, here’s a short summary of what Koinly does:

• Imports all your trades including purchases, sales, swaps, and rewards.
• Converts your transactions into your country’s currency at fair market value.
• Shows which of your transactions are taxable and which are not.
• Allows you to submit a clean and accurate report to your tax office.