The Costs to Trade and Invest in Bitcoin & Other Cryptocurrencies

Bitcoin, Ethereum, Ripple, Litecoin — cryptocurrencies are some of today’s most popular investments.

These global, digital currencies have rapidly increased in value, meaning that people who bought in early have seen significant portfolio growth.

Even though you aren’t likely to get the same return as a person who invested in Bitcoin in 2009, cryptocurrency investing has still proven profitable for many people.

If you want to get started with cryptocurrency, here’s what you need to know.

Understand the Risk

Before you start investing in cryptocurrencies, you need to be aware of the risks. Cryptocurrencies, like stocks, rise and fall.

The Bitcoin market, for example, had a historic rise in late 2017. By early 2018, the market had started to drop and Bitcoins began losing value.

Although people do make money by investing in cryptocurrency, be aware that you could also lose money — including the value of your initial investment.

The general rule of thumb is “don’t invest any money you can’t afford to lose.”

How to Invest in Cryptocurrency

Investing in cryptocurrency is like investing in the stock market.

You need to create a special investment account, you need to connect the account to your bank, and you need to decide how much money you’re going to invest.

Here’s a step-by-step guide:

1. Sign Up With a Cryptocurrency Exchange

If you want to buy stocks, you might set up an account through Vanguard or Charles Schwab.

If you want to buy cryptocurrency, start by signing up with an exchange service like Coinbase or Bitfinex.

Make sure the exchange you choose offers two-factor authentication — that extra step helps protect your accounts from hackers.

2. Connect a Bank Account or Credit/Debit Card to Your Exchange Account

Once you have your exchange account, you’ll want to connect a bank account or credit/debit card. When you want to buy cryptocurrency, the money will come out of the designated bank account or get charged to your card.

3. Make Your First Purchase

Now that your exchange account is set up, it’s time to make your first purchase.

Select the cryptocurrency you want to invest in — Bitcoin, Ethereum, Litecoin, etc. — as well as how much money you’d like to invest.

If you don’t have enough money to buy an entire coin, don’t worry.

Cryptocurrency coins are sold in fractions, so you could buy as little as a hundredth of a millionth of a bitcoin (that’s 0.00000001 BTC, otherwise known as a “satoshi”).

4. Store Your Purchase in a Wallet

Cryptocurrency is stored in wallets — and when you buy cryptocurrency, you’ll need to open up your own wallet.

Many exchanges offer digital wallets, but some people prefer the extra security of a paper wallet or a hardware wallet.

These “offline” wallets are stored on pieces of paper and/or USB drives, making them very difficult to hack.

Both digital and offline wallets come with passwords, aka “private keys,” that owners need to provide before storing more cryptocurrency in the wallet or removing cryptocurrency in order to make a sale.

5. Keep Buying and Selling

Once you’ve made your first cryptocurrency purchase, you’re ready to continue buying and selling.

There are multiple methods of “selling” cryptocurrency: you can cash out, which means the value of your cryptocurrency gets deposited into your bank account, or you can use your cryptocurrency to make a purchase.

(You’ve read those stories about people using Bitcoin to buy pizza, right?)

You can also use your cryptocurrency to buy other cryptocurrencies.

If you want to diversify your investment portfolio, consider using some Ethereum to buy Ripple or Bitcoin to buy Litecoin.

The Costs of Trading Crypto

If you’ve ever bought or sold stocks, you know that investing comes with a lot of fees. So does cryptocurrency investing.

You’ll probably end up paying a small percentage in fees every time you make a cryptocurrency transaction.

Here are some of the more common fees:

  • Trading fee: the fee for making trades (buying or selling) on the cryptocurrency exchange.
  • Maker fee: the fee for placing a cryptocurrency order that doesn’t fulfill right away, such as a limit order (which means you’ll only make the purchase if the cryptocurrency drops below a designated price limit).
  • Taker fee: the fee for placing a cryptocurrency order that fulfills right away, such as a market order (which means you’re buying the cryptocurrency immediately, regardless of price).
  • Miner fee: Cryptocurrencies are “mined,” so this fee goes to pay the people (and computers) that mine them.

Not all cryptocurrency exchanges charge the same fees.

Some exchanges charge trading fees for every transaction, while others charge maker/taker fees depending on the type of transaction.

Use this chart to help you compare popular cryptocurrency exchanges and their fees:

Cryptocurrency Exchanges

Exchange Fees Pros & Cons

Bitfinex


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH), Bitcoin Cash (BCH), Monero (XMR), Dash (DASH), Litecoin (LTC), Ripple (XRP)
Maker fee: 0.0% to 0.1%

Taker fee: 0.1% to 0.2%
Largest trading exchange in the world
Extensive FAQ & support center
User-friendly trading interface
Quick fiat withdrawals processed in 3 days
Meant for more professional/experienced traders
Many serious hackings reported
Recently discontinued service to U.S. residents

Kraken


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH), Bitcoin Cash (BCH), Monero (XMR), Dash (DASH), Litecoin (LTC), Ripple (XRP), Zcash (ZEC)
Maker fee: 0.0% to 0.16%

Taker fee: 0.1% to 0.26%
Largest Bitcoin exchange in terms of euro volume and liquidity
Low fees
Extensive FAQ & support center
Easy to understand trading interface
Fairly low fiat withdrawal fee
Website encounters many problems
Only accepts 4 types of fiat currency (Euro, Canadian Dollar, USD, British Pounds, and Japenese Zen)
Mobile platform is lacking
Slow withdrawal times

coinbase


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC)
Trading fee: 1.49%
Best exchange for cryptocurrency newcomers
Extensive FAQ & support center
Easy to understand trading interface
Supports a mobile platform and 33 countries
Trustworthy and regulated
Allows for Visa and MasterCard debit cards to buy coins
Many reported technical issues
Controversy involving close ties to big banking investors
Privacy concerns (may track where users send their cryptocurrencies)
☒Slightly higher fees than other exchanges

Bitstamp


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Ripple (XRP)
Trading fees: 0.1% to 0.25%
One of the oldest and most secure exchanges
Extensive FAQ section
No transaction fee when withdrawing Bitcoin
High buying limits
Lacks the in-depth support center other exchanges have
Only supports 5 digital currencies
Limited payment methods and high fees when you use a credit card
User-interface is not as intuitive as other platforms
No mobile platform

Cex.io


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH)
Maker fee: 0.0% to 0.16%

Taker fee: 0.1% to 0.25%
One of the best exchanges for beginners
Has an interactive mobile application
Extensive FAQ and archived support center
Can use a credit card for deposits and withdrawals
Many reported user complaints with security and not receiving transactions
Only supports 2 digital currencies
High fees
User complaints about customer service representatives not being responsive

coinfloor


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH), Bitcoin Cash (BCH)
Trading fees: 0.1% to 0.3%
One of the best trading platforms in the UK
Extensive FAQ section and quick, responsive support team
High market liquidity and competitive fees
High transparency between company and consumer
Only supports 3 digital currencies
High fiat withdrawal amounts
Unregulated and does not have a marketplace feature
Many reported issues with registering for an account

Bittrex


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Dash (DASH), Ubiq (UBQ)
Trading fee: 0.25%
One of the best trading platforms in the US
Extensive FAQ section
Very secure platform and low fees
Supports hundreds of cryptocurrency trading pairs
Does not support any fiat trading
If you want to buy Bitcoin or Ethereum, you must purchase over $10,000 worth
Meant for more professional/experienced traders
Many reports that customer service takes long to answer or does not answer at all

Coinmama


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH)
Trading fee: 5.5%
One of the oldest and most secure exchanges
Accepts all forms of fiat currency, plus you can buy Bitcoin with a credit card
User-friendly interface
Quick and secure transactions
Lacks the in-depth support center other exchanges have
Only supports 2 digital currencies
High fees because of the ability to use a credit card
No mobile platform

HitBTC


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Dash (DASH), Monero (XMR)
Maker fee: 0.0% to 0.0% (makers are rewarded with a 0.01% value of the deal)

Taker fee: 0.0% to 0.1%
One of the most technologically advanced exchanges
No limits for deposits or withdrawals of digital assets
Intuitive interface that offers a demo mode where you can test out their platform without pledging money
High liquidity and low fees
Extensive FAQ and support center
Users complain of receiving a lot of spam from the site
Interface may be confusing for beginners
The verification process can be tedious and take a long time

Gemini


Popular currencies supported: Bitcoin (XBT), Ethereum (ETH)
Maker fee: 0.0% to 0.25%

Taker fee: 0.1% to 0.25%
One of the most trustworthy and professional exchanges
Users seem very satisfied with service and have few negative things to say
Intuitive and easy-to-manipulate user-interface
Regulated and competitive fees
Extensive FAQ and support center
Only supports 3 digital currencies
Doesn't support a wide variety of payments
Operates in limited countries

Don’t Forget Taxes

The IRS requires you to pay capital gains tax on any money you make from selling your investments — and that includes cryptocurrency sales.

Many cryptocurrency investors aren’t aware that they need to track their sales profits or losses and report them to the IRS.

They also aren’t aware that they need to keep track of their initial purchase price in order to determine how much they made or lost by selling.

You can "sell" in more than one way

If you use your cryptocurrency to make a purchase, the IRS considers that to be the equivalent of selling your cryptocurrency.

Think of it this way: If you use a fraction of a Bitcoin to buy a $10 two-topping pizza, you’ve essentially sold that fraction of Bitcoin for $10.

Using cryptocurrency to buy other cryptocurrencies also counts as selling, so make a note of how much your cryptocurrency was worth when you made the transaction.

If you buy cryptocurrency and store it in your wallet without selling it (aka “buy and hold”) you won’t owe capital gains taxes even if your cryptocurrency increases in value.

It’s only when you sell your cryptocurrency that you need to track your profit and report it to the IRS.

Keep track of profits and losses

When you start buying cryptocurrency, make a note of what the cryptocurrency was worth when you bought it.

Don’t trust your cryptocurrency exchange to keep track of that information for you, because some of them don’t.

Put that information in a safe place so you’ll be able to compare your cryptocurrency’s original purchase value to its sale value and accurately report any profits or losses to the IRS.

If you think of cryptocurrency as just another form of investing, you’ll be able to make smart decisions about buying, selling, and diversifying your portfolio.

Remember that you can both make and lose money with cryptocurrency, that you want to choose a cryptocurrency exchange that comes with high security and low fees, and that you’ll pay taxes on any profit you make from selling your investments.

If you’re prepared for both the risks and the rewards of cryptocurrency investing, you might be ready to make your first cryptocurrency purchase.

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