STRATEON INTELLIGENT WEALTH INSIGHTS
Where Should You Buy Bitcoin?
by Mike Halper 01/17/2025
Bitcoin has been making headlines with its price surging past $100,000, adoption growing among corporations and institutions, and now with the United States (including individual states) and other nations discussing sovereign Bitcoin reserves. More people are looking to invest in Bitcoin, and if you're among those who have decided it’s time to take the plunge, knowing where and how to buy Bitcoin is essential. Here’s an overview of where and how investors can acquire Bitcoin.
Buying Bitcoin in Taxable Accounts
Traditional Brokerage Accounts (ETFs)
One of the simplest ways to gain exposure to Bitcoin is through exchange-traded funds (ETFs). Bitcoin ETFs are traded like stocks and offer a convenient way to invest in Bitcoin without directly owning it.
Pros: Easy to use, accessible through standard brokerage accounts, regulated.
Cons: You don’t own actual Bitcoin, which means you cannot transfer it to a personal wallet or use it directly. There are also fees via each fund's expense ratio that are charged just for holding them.
Broker-Dealer Digital Asset Accounts
Some broker-dealers, such as Fidelity, offer platforms to buy and sell actual Bitcoin.
Pros: Allows direct ownership of Bitcoin.
Cons: Trading fees may be higher than traditional investments, and higher than some other ways of buying and selling Bitcoin. Fees may be hidden in large spreads, where you pay more than the current market price or sell for less than the current market price. Some platforms charge additional custody fees, either quarterly or annually.
Costodial Services
There are custodial companies like River, Swan Bitcoin, and Unchained that specialize in Bitcoin buying and selling, often catering to those looking for a more streamlined experience.
Pros: Direct ownership of Bitcoin, user-friendly.
Cons: Fees via explicit trading fees or spreads can be higher, and some services charge custody fees. These are private companies, so due diligence is essential.
Crypto Exchanges
Cryptocurrency exchanges like Coinbase and Gemini are popular platforms for buying and selling Bitcoin. They often offer two interfaces: a simplified Interface that is easier for beginners but comes with higher fees, and an advanced interface that features lower fees and more control over trade execution.
Pros: Supports transferring Bitcoin to a self-custody wallet, potential for lower trading fees, no custody fees.
Cons: May require navigating a learning curve, may lack enough insurance to cover a large loss to the exchange.
Payment Services
Payment platforms like PayPal, Venmo, and Cash App have added Bitcoin to their offerings, allowing users to buy, sell, and sometimes transfer Bitcoin.
Pros: Convenient and easy to use.
Cons: High spreads between buy and sell prices can make trading expensive. Some services restrict Bitcoin withdrawals to external wallets.
Crypto Wallets
Some services allow direct Bitcoin purchases within a wallet. They do this with an arrangement between the wallet software developer or hardware wallet manufacturer and a third-party service provider such as Transak, Wyre, or MoonPay.
Pros: Bitcoin is immediately in your custody, enhancing security.
Cons: Limits on transaction amounts are common. Fees and spreads can be extremely high, potentially adding up to 10% above or below the market price. You may also pay additional fees if you pay with a credit card.
Buying Bitcoin in Retirement Accounts
IRA and Roth IRA Accounts
Using Bitcoin ETFs in an traditional IRA or Roth IRA provides tax advantages for Bitcoin exposure.
Pros: Simple to use, offers tax-deferred or tax-free growth.
Cons: Not actual Bitcoin, so it cannot be self-custodied. There are also fees via each fund's expense ratio that are charged just for holding them.
Custodial Services
Some private custodial services, like BitGo, AltoIRA, and Choice specialize in managing Bitcoin within a retirement account. They may custody the Bitcoin themselves or partner with an exchange like Coinbase.
Pros: Allows direct Bitcoin ownership within an IRA or Roth IRA.
Cons: High trading fees or spreads, and annual account maintenance fees.
Self-Directed IRA
For those wanting more control, a self-directed IRA can hold Bitcoin and other alternative investments. These are often set up as an LLC or trust, allowing for self-custody of Bitcoin. However, legal uncertainties exist regarding self-custody in IRAs. The McNulty v. Commissioner case highlighted potential risks, as the court ruled against a taxpayer who held physical gold in an IRA, suggesting self-custody might not meet IRS requirements.
Pros: Full control over investments.
Cons: Higher fees and regulatory uncertainty.
Important Considerations
Security: Bitcoin ownership comes with unique risks, including hacking and theft. If you plan to self-custody, invest in a reputable hardware wallet and practice safe storage habits.
Insurance Coverage: Digital assets are not covered by SIPC insurance, unlike traditional securities. Some exchanges and custodians may have insurance, but their coverage may not be enough to cover a significant loss to the exchange or custodian. There are some hardware wallet providers that offer insurance as an option through a third-party insurer to cover up to a certain amount of losses in case of a stolen assets.
Regulation: Always ensure the platform or service you choose complies with relevant regulations and offers the level of security you need.
Volatility: Bitcoin’s price can be highly volatile. Only invest what you can afford to lose.
Investing in Bitcoin can be a rewarding venture, but it requires careful consideration and planning. By choosing the right platform and approach, you can take your first steps into the world of digital assets with confidence.
Disclaimer
The platforms and services mentioned here are examples and not endorsements. Each investor should conduct their own research and due diligence to determine the most suitable and secure option for their needs. Consulting a financial advisor or tax professional before investing in Bitcoin or any digital asset is strongly recommended.
The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in any security, digital assets, cryptocurrencies, or any other investment. Some content may be developed from sources believed to be providing accurate information.
Subscribe to the Strateon Intelligent Wealth Insights Newsletter
Stay informed and ahead of the curve with Strateon Intelligent Wealth Insights Newsletter, bringing you concise yet insightful commentary on the economy, traditional markets, and digital assets markets. Get a clear summary of the most important economic developments and market movements from the past week, along with curated recommendations of the top articles covering economics, investing, and financial planning. Subscribe today and confidently navigate the markets with knowledge you can trust.