Synopsis: Assuming that you’ve found an online crypto exchange and have successfully signed up and become verified, you are finally able to get started with investing in cryptocurrency. Remember, whether or not you decide to invest is completely up to you, but your education will proceed much faster if you invest real money – even if only a modest sum.
Funding Your Account
Once you have become verified with an exchange, you need to deposit funds to start investing in cryptocurrency. Remember that not all crypto exchanges offer all funding options. Start slowly, with a small amount. It doesn’t make sense to put too much at risk while you are still figuring out how investing in cryptocurrency works.
1. Bank Transfer / Bank Wire
If you live in a country where the crypto exchange offers local banking, then a local bank transfer is the best way to get funds into your account and start investing in cryptocurrency. Coinbase offers instant verification when linking bank accounts from most US banks.
If you are from somewhere more remote, then you may have no choice but to make an international bank wire. International bank wires attract quite hefty fees – exactly how much will vary, but reckon on something around US$30 per wire. If your international bank wire requires a currency exchange (e.g., your bank balance is in New Zealand dollars, but the online crypto exchange deals only in US dollar deposits), then the banks will also sting you with a poor exchange rate.
To illustrate, I looked at making a US dollar bank wire from a New Zealand bank account:
- The true international exchange rate at the time was 0.71120 US dollars per 1 NZ dollar.
- But my bank would only offer me 0.70372 US dollars per 1 NZ dollar
If I were able to get the true exchange rate, NZ$1,000 would have given me US$711.20. Because my bank gives me a different rate, I am only getting $703.72 – representing an additional cost of US$7.48, on top of the explicit wire fee that the bank charges. All this means less money for investing in cryptocurrency.
The exchange will provide a set of information to make the bank transfer. Go to your online banking and enter this information, along with the amount to send. If you have never made an international money transfer before, this step can be a little intimidating. The crypto exchange will present you with a list of details, which will include:
- Their bank’s name
- Their bank’s physical address
- Their bank’s country
- Their bank’s SWIFT code / BIC code (these are the same thing – it’s a unique series of numbers and letters that identifies the bank)
- The exchange’s bank account name (must be fully spelled – no initials)
- The exchange’s physical address (not a PO Box number)
- The exchange’s bank account number
- Reference number (this must be included exactly as given – it’s what will match your deposit with your account at the crypto exchange)
You might also be asked for extra information, like “BSB numbers”, “sort codes”, “routing codes” or “IBAN numbers”. These are just different terms for various parts of the account number.
If you are in any doubt, ask your bank before making the transfer. Unfortunately, the banks still don’t use uniform terminology – it’s a bit like the metric system of kilometers, versus the imperial system of miles.
Once the transaction has gone through, you will receive the funds in your account. If you are making a local bank transfer, then it may go through as quickly as overnight and at relatively low cost. But if the sending and receiving banks are in different countries, the international transfer may take 3-5 working days to complete, meaning a delay before you are able to start investing in cryptocurrency.
PayPal offers excellent convenience. If you want to get started with investing in cryptocurrency quickly, they can guarantee your payment. Just keep track of the fees you are being charged. Paxful is an online crypto exchange that offers this as an option.
The exchange rates charged by PayPal are usually even worse than those charged with international bank wires. I did the same exercise as before to illustrate the extent of PayPal’s own “bad exchange rate problem”.
- The true international exchange rate at the time was 0.71120 US dollars per NZ dollar
- But PayPal would only offer me 0.69013 US dollars per 1 NZ dollar
Doing the same calculation as before, NZ$1,000 would give me US$711.20 at the true exchange rate. But PayPal’s rate is only going to give me $690.13 – effectively, a US$21.07 fee.
Although the value lost in the exchange rate is higher, at least with PayPal there is no US$30 (or whatever) bank wire fee. All in all, PayPal can be better option for small international payments, depending on how your own numbers come out. The point is to be aware of both the fixed fees and the cost implicit in an inferior exchange rate, and do your own calculations.
3. Credit Cards / Debit Cards
Another instantaneous solution for getting started with investing in cryptocureency is to use a credit card or a debit card. CEX.io offers this as an option. Again, be cognizant of the fees that are charged. Fees of around 7% of the value purchased may be deducted – a high price to pay for convenience.
You will need to enter your credit card information with the online crypto exchange. Once approved, you can start investing in cryptocurrency right there with your card. Go to the crypto exchange and click “Add a Credit / Debit Card”.
Some card issuers are blocking digital currency purchases with credit cards. If you are having trouble with this method, try switching to a debit card instead.
4. Alternative Money Transfer
Services like Transferwise, hifx and Revolut have set out to solve the problems of poor exchange rates, high fees and slow transfers. They are fintech companies that offer some of the same services as bank accounts, but at a fraction of the cost. They can offer their services for cheap because they don’t have all the overhead of traditional banks – no physical branches, and far fewer staff.
Who can sign up for accounts with these companies is always changing. As of writing, Revolut was only available to residents of the European Union and European Economic Area. But if you can get an account, the experience can be a lot better than making an expensive international bank wire, PayPal transfer, or credit card payment.
However, check that they actually support investing in cryptocurrency. As of writing, Transferwise does not allow its users to make payments to the online crypto exchanges. This may change in the future, but before you go to the trouble of signing up, see what their policy is towards investing in cryptocurrency.
5. Cryptocurrency Transfer
By far, the fastest and cheapest way to get cryptocurrency into your account is to avoid the fiat money system altogether. If you have a friend who can sell you $100 of Bitcoin, you can give them physical cash and get them to send the cryptocurrency to your wallet on the online crypto exchange.
Placing An Order & Investing In Cryptocurrency
When transacting on online crypto exchanges, you can either be a price-maker or a price-taker. Here is the difference:
- Being a price-maker means you offer prices to buy and sell at. In financial lingo, these are known as limit orders.
- Being a price-taker means you take the best price on offer by others. These are known as market orders.
While you are getting started with investing in cryptocurrency, make a market order. You will get the best available price that others are offering, your transaction will be executed immediately, and there is less that can go wrong. Simply find the part offering “market order”. Then, you can either enter the amount of your desired cryptocurrency you want to buy, or the amount of fiat money that you wish to spend. Once you hit “confirm”, the trade will happen instantly and you will be the proud owner of your first cryptocurrency!
Limit orders have their advantages too. If you have a price in mind that you want to buy or sell at, you can set it up and it will only be executed if the market moves enough. Online crypto exchanges sometimes also offer lower transaction fees on limit orders because they are providing the exchange with liquidity. For example, Bitfinex charges 0.1% on limit orders, and 0.2% on market orders (as of writing, for orders under $500,000).
When placing limit orders, be very, very careful with the price you insert. If the prevailing price of Bitcoin is around $10,000, and you enter a limit sell order at $1,0500 (carelessly leaving off a zero), then you may be in big trouble. Your order could get filled immediately, and your Bitcoin will be transferred to the overjoyed buyer, and you will receive only 10% of the price that you thought you were going to get. Yes, it might have been an honest mistake, but no-one is going to undo it for you. Some exchanges will provide you with an alert if you submit a price which is drastically different from the market price.
This concludes the series on signing up and funding online crypto exchanges. Next up, we’ll deal with the offline and alternative exchanges.