Getting Started with Bitcoin
2019 Update: things have changed since I originally wrote this article, and some of this information is not entirely accurate; for instance, there are "Taker" fees now. Much of the process is below will still work, for the most part.
Hey! Don't invest more than you can afford to lose. Bitcoin can swing +-20% in a few hours. It recently swung from $11,500 to $8,600 back to $10,000 in a day. Then only a few days later it spiked to $19,600 at noon, then dipped down to $13,800 by morning. No one can predict or time the highs and lows (don't try). Maybe tomorrow it will be worthless. Don't rely on this money. Know something about Short and Long term Capital Gains and how those may affect your taxes. Oh, and please pay your taxes.
Now let's get to it...
Signing up: You'll be signing up for an account at a site named Coinbase. USD held within Coinbase is FDIC insured, just like your bank. This means that any USD you transfer to Coinbase is backed by the same FDIC guarantees of your current US bank. One of the major differences is that Coinbase is likely more secure than your bank, as it was built from the ground up with current security technologies and best practices.
When you sign up, use this link: https://www.coinbase.com/join/59d658e8a4c4150111e3e854. You don't have to use this link, but if you do, we'll both get $10 USD for free!
Because Coinbase is just like a US bank, you must verify your identity. This is the hardest part of investing in Bitcoin. You will need to prove that you are you, just like any other bank.
First investment (and a free $10!): Now that you are signed up and logged in, set up your bank account within Coinbase on the
Accounts tab. Once that is set up head to the
Buy/Sell tab. Select
Bitcoin, select your Payment Method, and then enter an amount of exactly $100. On the right you'll see how much bitcoin you'll buy and the fees for using Coinbase. Finally click
Why $100?: Ok. So, why exactly $100? $100 is the amount with the lowest fees that still gets you the free $10.
Once you click the
Buy Bitcoin button (and any follow any confirmation steps) it will take about a week for the order to go through. Congrats on your investment!
We aren't quite done though. Next, we want to gain more control over our investment, for that we'll want to use Coinbase Pro, which I'll explain below. You can skip the remaining steps if you don't plan on buying/selling quickly and you don't care to set up a "Stop Limit".
Coinbase Pro: You'll now want to sign up for Coinbase Pro. Coinbase Pro and Coinbase are the same company, so you can already log in at https://pro.coinbase.com/ using your Coinbase account. The difference between the two is that Coinbase handles all buys/sells for you, and charges a fee to do so, in Coinbase Pro, you manage this part, and there are almost no fees (if you follow my instructions).
Now let's transfer that $100 worth of Bitcoin into Coinbase Pro. In Coinbase Pro, make sure
BTC/USD is selected at the top of the left panel, then click the
DEPOSIT button in this panel. Select the
Coinbase Account tab, then choose
BTC Wallet as your
Source. Make sure your entire
BTC Amount is entered in the
Amount field, then click
Deposit Funds. Now your BTC is in Coinbase Pro!
If you'd like to buy more bitcoin go back to the
Deposit screen within Coinbase Pro, select the
Bank Account tab, select your bank account, then enter the amount of USD you want to transfer into Coinbase Pro. Click
Deposit Funds (and then complete any confirmation steps). In about a week your USD will be available in your Coinbase Pro account and you can buy some more bitcoin (and now with no fees if you follow my instructions below!).
"But wait," you say, "if it takes a week to get money into Coinbase Pro, aren't I missing out on potential profit? It makes sense just to pay the Coinbase fees so I can get bitcoin at a lower price!" Well, you could be right -- or completely wrong and bitcoin could go down by next week. Do what makes sense for you (you can even wire money over!). I watched the market for several weeks with money already in Coinbase Pro before I felt comfortable actually buying, so avoiding the fees made sense to me since I wasn't in huge a rush to buy.
Once you have your USD in Coinbase Pro it's time to buy some more bitcoin. To do this: make sure
BTC/USD is selected in the top left, select the
Limit tab in the left panel. Then make sure the
Buy option is selected (it should be colored green). Next, in the
Limit Price field, enter the price at which you'd like to buy bitcoin. Then, click on your USD balance amount shown at the top of this same panel. This will pre-fill the amount of bitcoin you can buy at the price you specified (yes, this is a really odd way of accomplishing this). Do not touch the settings in the
Advanced options unless you know what you're doing (hint: if you are reading this you don't know what you're doing). Now click
Place Buy Order. If someone is willing to sell to you at the price you specified, which could take a little while (or never if you set a value that is too low), you'll be awarded your new shiny bitcoins! If no one wants to sell to you (because your price is too low) you can cancel the buy order within the
OPEN ORDERS panel of Coinbase Pro and then try again.
Mitigating losses: Now that you own bitcoin you'll want to make sure a huge drop in value doesn't drain you dry; this is a volatile market that could suddenly drop 80%, after all!
Head back over to Coinbase Pro, make sure
BTC/USD is selected, select the
STOP tab, select
SELL (it'll turn red), in the
Amount field, enter the amount of BTC you'd like to sell if the market does begin to drop. In the
Stop Price field, enter the bitcoin trade value at which you'd like to trigger a sell order. If you'd like to sell if bitcoin's value goes below $11,000, enter $11,000 here. Next, expand the
Advanced section and enter the price at which you'd like to sell your bitcoin if the Stop Price is reached. I set this price about 2% lower than my Stop Price. The more bitcoin you own, the greater the difference between the Stop Price and the Limit Price should be, as this will help ensure than your sell order goes through entirely (as it is possible for someone to only take part of your sell order).
Note that Stop/Stop+Limit Orders may be subject to a "taker" fee of up to 0.25%, depending on the order book when your sell order goes in. Unfortunately, you can't control if this happens. I've had Stop Limit Orders go both ways, and a friend had half his sell order take fees, while the other half did not.
There are risks with a Stop Limit Order. The first is that your Stop Price could be hit (maybe because it's set too high?), your sell order then goes on the order book and someone takes it, and then the value of bitcoin goes back up and you miss out. The third is that the market could decline so quickly that no one takes your sell order at your limit price and you end up losing money anyway.
The third risk could be prevented by not specifying a Limit Price. This means that you are willing to sell at the current market price (determined by other buy/sells). Again, if the market price declines sharply you might end up selling at a value much lower than you'd prefer.
If bitcoin's value rises significantly you can go in and adjust your Stop Limit Order. Doing this will help ensure you'll get some return on your investment, even during a large market dip.
Ok. That's all for today! If I know you personally let me know if you have any questions or need any help.