If You're Ready to Start Buying Cryptos, Read This First
Editor's note: The best is yet to come for cryptos...
Crypto Capital editor Eric Wade explained yesterday that he believes cryptocurrencies – and the technology that powers them – are part of a winning formula. According to Eric, the worst possible thing you can do as an investor is sit on the sidelines while this trend takes hold.
But for many investors, entering the crypto space is like stepping into a complicated new world. And you might be wondering where to start...
In today's Masters Series – originally published as a special report for Crypto Capital subscribers – Eric explains what you need to do in order to convert some of your U.S. dollars into bitcoin... and how you can easily exchange your bitcoin for one of the hundreds of other cryptos in the world...
If You're Ready to Start Buying Cryptos, Read This First
Crypto exchanges are an integral part of the crypto-asset ecosystem. They let you convert cash into bitcoin, and bitcoin into one of the hundreds of other cryptos out there.
These exchanges vary tremendously in terms of user-friendliness, security, regulatory protection, number of cryptos they trade, and whether they support the dollar-to-crypto conversion or not.
In my experience, the best way to understand exchanges is to break down the exchange ecosystem into two key objectives...
Objective 1: Convert U.S. dollars (or fiat currency) into bitcoin, the digital "reserve currency."
Objective 2: Convert bitcoin into other crypto assets.
This essay is all about the two main types of crypto exchanges you need in order to achieve the two objectives above. The two types of exchanges I'll be covering are...
- Crypto-fiat exchanges
- Crypto exchanges (Bonus: Integrated-exchange wallets)
First, we want to convert U.S. dollars (or other fiat currency) into bitcoin.
The most common way to do this is by opening an account with a crypto-fiat exchange. These are exchanges that allow you to deposit currency and convert it to bitcoin.
Now, because these exchanges are taking cash from you and holding it on your behalf, opening an account requires some due diligence by the exchange. It's a similar level of diligence that you would expect when opening a bank account or a brokerage account.
Crypto-fiat exchanges need to conduct know-your-customer ("KYC") and anti-money laundering ("AML") checks on you for their internal compliances. Expect the exchanges to ask for your full legal name, address, banking details, and a form of identification.
The specifics of the documents required will vary based on where you live. Generally, you should expect to provide a good-quality scan of a valid passport or driver's license and in some countries, proof of address, like a utility bill.
You'll also be asked to set up two-factor authentication ("2FA") using your mobile device. I strongly encourage you to always use 2FA on crypto-related sites.
After you've set it up, the process works like this...
Every time you log into the site, you'll first enter your username and password. Then, you'll open your 2FA app (Google Authenticator and Authy are the market leaders) to get a randomly generated code. You'll need to enter that code on the website.
This ensures hackers can't access your account without having access to your username, password, and mobile device.
Now, no one-size-fits-all crypto-fiat exchange exists. Everyone has different needs.
Personally, I have used Gemini and Kraken, and to a lesser extent, Coinbase. Of those, I would strongly recommend Gemini and Coinbase, as some beginners find Kraken's user interface confusing.
San Francisco-based Coinbase is one of the longest-running and most well-liked exchanges, so that and Gemini are my top two picks for converting your cash into both bitcoin and Ethereum.
You'll notice in the table that these crypto-fiat exchanges support between five and 30 cryptos. But more than a thousand cryptos exist.
How do we access those? We go to a crypto exchange.
Unlike crypto-fiat exchanges, crypto exchanges weren't designed initially to handle any fiat currencies like dollars or euros. These exchanges are often "crypto to crypto" only (though some are set up to offer limited support for debit cards or bank transfers).
You need to open an account with a crypto exchange, and fund it using bitcoin or another crypto.
These exchanges trade cryptos in pairs just like currency trading. Cryptos, for the most part, trade against bitcoin. The following image is taken from an exchange called Binance. You'll see a list of some cryptos, and they are all priced against bitcoin (BTC)... However, we are seeing a growing number of exchanges starting to offer more trading pairs priced in USD.
There are hundreds of crypto exchanges globally. And because these exchanges don't connect directly to the banking world, they have fewer regulatory requirements. That means they are open to residents of almost every country and are quicker to set up.
The downside is less government oversight, which means we don't like leaving much money on these exchanges at any given time. You should generally not use these exchanges for storing your cryptos.
With crypto exchanges, you may still need to provide some KYC and AML information, like a proof of address and ID.
Many of these exchanges limit the amount of crypto you can withdraw every day, depending on how much KYC information and how much security (like 2FA) you have provided. On some exchanges, you may be allowed to withdraw more crypto if you choose to provide identity documents.
Finally, to exchange cryptos, you can also use integrated-exchange wallets.
Integrated-exchange wallets (like Exodus) are multi-asset wallets that also have direct crypto-to-crypto exchange integration. This allows you to exchange cryptos from within your wallet without having to open an account with an exchange.
Exodus provides a user-friendly way of storing cryptos in a wallet and exchanging them.
Here's a screenshot from my Exodus wallet. You'll see I have the bitcoin wallet open, and you'll see some transactions going in and out.
If you look to the left of my transaction history, in the second column, you'll see that Exodus contains a range of other wallets for around 15 different cryptos.
I can also use the "exchange" function to easily exchange my bitcoin to Ethereum, for example. When I do this, my bitcoin will be sent to an exchange, and I'll receive Ethereum back into my Ethereum wallet in Exodus, as you can see in the image below.
I highly recommend wallets with integrated exchanges for folks who are just starting out.
They are easy to use, they support a lot of my Crypto Capital recommendations, and they are a great way to ease yourself into this completely new asset class. However, please note that integrated exchanges often charge higher fees than other exchanges for offering convenient, safe transactions... and the list of cryptos they offer can be limited.
So in conclusion, crypto-fiat exchanges are the on-ramp from fiat to bitcoin. But these exchanges typically support a limited number of cryptos.
In order to access the hundreds of other cryptos out there, you need to use a crypto exchange like Binance or an integrated-exchange wallet like Exodus.
Please be aware that it can take a few days to get these exchange accounts open, particularly the crypto-fiat exchanges. These exchanges are dealing with a lot of new account opening requests, so you will need to be patient.
But once your accounts are open, you'll be ready to enter the world of crypto.
Good investing,
Eric Wade
Editor's note: Bitcoin is booming – and more investors are piling into cryptos every day. But if you've been holding back, Eric says you could be running out of time...
Last Wednesday, Eric hosted a special event to detail where he believes bitcoin is headed this year. Plus, he looked beyond the most well-known crypto to reveal what he sees next for the rest of the space... He even revealed the details of a handful of under-the-radar cryptos that he believes have massive upside potential right now.
If you missed Eric's presentation, it's not too late... You can still hear his important message for a limited time. Click here to watch the free replay.