How to buy Bitcoins without a wallet
In this article, we discuss a method of investing in Bitcoins and other cryptocurrencies which is both safer and faster.
With global interest in Bitcoin, many people are naturally gravitating towards Google and other search engines for advice on how they can invest in Bitcoin.
Here are 3 simple truths about buying Bitcoin in the current market:
1. High barrier to entry
As of December 15th 2017, the price of Bitcoin is over $17,000. That's a very high price to pay for a full unit of the currency. Yes you could buy smaller amounts but it's always much simpler to buy whole units.
2. Too many steps involved in purchase
You first need to create a wallet. Then you need to go and find a Bitcoin exchange (a marketplace) that you can trust. That palce has to accept users from your country. You also need to make sure they accept your preferred method of payment. You then need to verify your payment method, for example a credit card. Even after this, they may impose deposit limits on your account. Our account at CoinBase was limited to $500 USD AFTER verification. We can't even buy 5% of a Bitcoin.
3. Wallet management & selling is your responsibility
You sure better not lose that digital wallet of yours, and whenever you decide to sell, you have to go through the reverse process on an exchange of putting up your coins for sale, receiving the money and withdrawing it.
We could go on, but there are simply too many hurdle and unknowns for us to recommend new investors go down the route of actaully buying Bitcoin.
So what's the alternative?
The easiest way for new investors to take part in the cryptocurrency boom is by trading Bitcoin as a CFD (Contract For Difference) with a forex broker. Let us explain what a CFD is first so that you have an understanding of the product.
To put it very simply, a CFD is a "bet" that you have regarding the price of a commodity which in this case is Bitcoin. There are 2 sides to the contract, the buyer and the seller. The buyer believes the value will rise and the seller takes the opposite side. The buyer doesn't actually buy the asset, but it's exactly the same as if they had bought it because the buyer profits if the price goes up and makes a loss if it goes down. The one thing you can't do if you buy a CFD instead of a real Bitcoin is that you can't üse the Bitcoin (for example to pay for something) because you don't actually own Bitcoin.
Here's another explanation using 2 friends, Bob and John who are having a disagreement over Bitcoin.
|Bob thinks that Bitcoin is the future. He has been following it closely and wants to invest soon.||John thinks that Bitcoin is all hype and just a ridiculous trend and it will die pretty soon.|
|Current Bitcoin Price: $17,000 USD|
|Bob is certain Bitcoin will go up so wants to invest in Bitcoin. He is about to create a wallet, find an exchange to deposit money into and buy Bitcoins but is unsure of the process.||John is certain Bitcoin will go down so wants to somehow make money from his prediction but he obviously can't buy Bitcoins because he is sure it's going to go down. It's impossible to buy something, have it decrease in value and make a profit.|
|John says to Bob "Don't worry about buying Bitcoin. I'll make the bet with you that in a weeks time, the price won't be higher than it is today. Let's have an agreement over Bitcoin, the price right now is $17,000 and whatever the price is in exactly 1 week, the person who was right will pay the person who was wrong the difference in price."|
|Bob agrees and the 2 enter into an agreement, which is also known as a contract. The contract term is 1 week and they have agreed to pay whoever is correct the difference between the price at the time of agreement and the price after 1 week. In other words, they have agreed to a Contract For Difference (CFD) on Bitcoin.|
Advantages of Bitcoin CFD
Currently, we see an overwhelming number of advantages trading Bitcoin as a CFD. Let's look over some of the major positives:
1. Trading with a regulated broker
Bitcoin is unregulated and decentralised. The exchanges that you trade on could be run in a backyard and you would never know. When you trade CFDs with a broker, you can choose a well known reputable broker who is regulated in multiple countries. This ensures the safety of your funds.
2. Instant execution and minimal setup
When you trade with a broker, you only need to open an account with them and verify your details. After you've done so, trading Bitcoin is as simple as choosing your amount and clicking buy (or sell, if you think it will go down, more on this next).
3. You can "short" Bitcoin if you think it will go down
John in the example above could make a profit by being on the "sell" side of the Bitcoin CFD. This is the only way that a person who thinks that the value will go down can profit.
4. CFDs are an establish product in other markets
CFDs have been offered by brokers for years. It's an innovative product that takes the administration and hassle out of having to purchase the asset being traded.
5. Ability to trade with leverage
Most brokers offer leverage to their clients. This means that you are able to trade bigger amounts than what you have deposited. For example a leverage of 5:1 on an account with $5,000 would allow you to trade up to $25,000. Of course this isn't free money, it's more like a loan and generally there are mechanisms in place that prevent you from losing more than what you have deposited yourself. Here's a more detalied explanation on what is leverage?