How to Buy Cryptocurrency for Beginners

Upbeat music plays throughout.

Narrator: If you've only invested in stocks, bonds, or funds, and you're interested in buying Bitcoin, ether, or another cryptocurrency, you're in the right place.

I'm David Brunner, and I'm on Schwab's Trade Desk, and I'm going to show you one strategy for opening a position in cryptocurrency.

Maybe you're bullish on the growth potential of the cryptocurrency ecosystem. Or you're into the idea of a decentralized form of payment and the diversification it can bring to your portfolio. Maybe it's blockchain technology.

Whatever the reason, we're going to prepare you to buy your first cryptocurrency. We'll also walk you through how to evaluate and choose a cryptocurrency, how to figure out how much to buy, and then how to actually place an order on Schwab.com. Before we do all that, keep in mind, this is a particularly volatile asset that has unique risks and may not be right for every investor.

Many investors trade crypto on a purely speculative basis. We'll focus instead on passive investors with a long-term approach.

Let's start by defining what a cryptocurrency is.

In a nutshell, cryptocurrencies are digital assets that can be used for electronic payments or as a store of value. Bitcoin is by far the biggest and is frequently the baseline when talking about this asset class. It established blockchain technology, which is a type of ledger most cryptocurrencies use to track transactions. Bitcoin's blockchain is maintained by a global computer network that verifies transactions by solving complicated cryptographic math problems. There are different blockchains used by different coins, like the Ethereum network and its native ether cryptocurrency; it uses a different blockchain validation method than Bitcoin.

So… why invest in crypto? Well, for starters, cryptocurrencies can be bought and sold like many assets, and—on a really basic level—you stand a chance to profit if you're able to purchase and then sell at a higher price. Cryptocurrency prices, like most other securities, rise and fall with changing supply and demand.

Another major draw is diversification. Over the past 10 years, the price of Bitcoin and ether appeared to have essentially no correlation with major equity indexes or bond indexes. Having investments that don't rise and fall at the same time can help you manage losses, but there's no guarantee this will continue.

In theory, they could also work as a potential hedge against inflation. Bitcoin and ether have historically had a low correlation with inflation measures like the Consumer Price Index, though again—there's no guarantee this will continue. Bitcoin also has a fixed supply unlike traditional currencies, such as the U.S. dollar. But crypto assets aren't physical currencies, they're not backed by major central banks, most don't provide any cash flow or dividends, and, of course, they're not without risk.

In fact, they're a notoriously volatile asset with fluctuations that could lead to rapid and significant losses. There's also opportunity for fraud or scams. The Federal Trade Commission has reported on fake websites that look like opportunities "for investing in or mining cryptocurrencies" but are in fact, "bogus."

Another major risk is the lack of recoverability. If you hold crypto in a so-called self-custody wallet, where you—not a financial institution—control access to your funds, you'll need to save a private key. But that can be forgotten, lost, or even stolen. If you lose your private key, you may never be able to retrieve your wallet. At Schwab, we manage this for you to mitigate that risk. One last thing before we dig into the strategy—in order to buy crypto assets at Schwab, you need to be approved and have a crypto account. If you don't, you'll still be able to purchase crypto exchange-traded products, but you won't be able to buy crypto directly. You can find other Schwab education on how to open and fund your crypto account on schwab.com/learn.

There are four essential decisions when it comes to buying a cryptocurrency, and they're likely decisions you've faced before: WHAT to buy, WHEN to buy, HOW MUCH to buy, and then WHEN to sell. If you're a novice investor, it may be better to start your investing journey with a more traditional asset class like stocks. If you're committed to cryptocurrencies, let's start with that first decision—how to decide what to buy.

Unlike more traditional assets, there aren't a ton of fundamentals to consider—no products made, no services rendered. Despite all that, Bitcoin and other cryptocurrencies have seen tremendous growth both in terms of price and market participation. While Schwab only offers a limited number of cryptocurrencies, there are hundreds—and more pop up all the time. Whether you're considering Bitcoin, ether, SOL, Dogecoin, or one of the many, many others—remember…they are not all the same.

You can compare a coin's overall supply, which determines its scarcity and affects its supply and demand. You can also look at its investment thesis, which can be found on each coin's respective website and contains a multitude of information that can help you glean what conditions might need to occur for each asset to increase in value. For example, both Bitcoin and Ethereum are blockchain networks, but Bitcoin focuses on being a sound asset—in other words, it resists inflation and devaluation—and it can facilitate the exchange of goods and services. Ether is different. It shares some of the same principles but introduces additional functionality.

The Ethereum blockchain, launched in 2015, allows for more complex transactions than Bitcoin's. Specifically, it enables smart contracts and decentralized, secure, autonomous apps. A smart contract is one that is stored on a blockchain that uses "if-then" logic to automatically execute when certain criteria are met. This doesn't necessarily make it better than Bitcoin, just different. The bet on ether is that Ethereum will become and remain the dominant infrastructure for a growing number of blockchain-based applications. That could fuel demand and drive up its value.

For the purposes of this video, we'll use Bitcoin simply because it's the largest and most widely recognized cryptocurrency, but you'll need to decide for yourself which you feel more comfortable investing in. They're not interchangeable, so keep an eye on their overall value. For example, memecoins may be much cheaper than Bitcoin or ether, but that doesn't mean they'll grow more. Bitcoin has been the primary cryptocurrency that has consistently increased in value.

Ok, now that we've evaluated the cryptocurrency, it's time to decide WHEN we might want to buy. There are a few different methods for entering long-term positions. Some investors use a method called dollar-cost averaging where they invest a fixed amount at regular intervals regardless of price until they've fully invested the target amount. Other investors use a lump-sum method and invest the entire amount at one time. Some attempt to "buy the dip," or invest when the price is experiencing a short-term drop to attempt to scoop some up at a discount. Remember, attempts at timing the market aren't typically ideal, especially when trading an asset class as volatile as crypto. Given Bitcoin's volatility, dollar-cost averaging may be a more effective approach to actually build up a portfolio. Buying at different times can "average out" the price you pay over time, and it can make building up your holdings more systematic and less emotional. It also allows you to invest gradually as money becomes available.

When it comes to determining how much to buy, first figure out how much portfolio risk you're willing to take on. If you're relatively bullish, you may want to add a bit more to this allocation. Or if you're tepid and just want to get a taste, you may want to do a bit less. For this example, let's say I want to devote half a percent of my $500,000 portfolio to Bitcoin. That would be $2,500. Remember, never invest more than you're prepared to lose, and that adding a volatile asset like Bitcoin will generally increase your portfolio's volatility.

For simplicity, we'll show you a single, lump-sum transaction on Schwab.com, but if you want to use dollar-cost averaging to build up this position over time, it would look a little different. For example, I might choose to invest $625 per quarter until I reach my targeted $2,500 investment.

Now, let's dig in and make this real. I'll open Schwab.com and walk you through how to actually place an order to buy Bitcoin.

For this example we're using Bitcoin, so I'll type in BTC/USD. You'll notice my account has automatically switched to my crypto account, and the strategy is automatically set to Crypto.

If you've placed other trades on Schwab.com, the order ticket is very similar to a stock trade. You'll see the symbol, its current price, places to choose an order type, and timing. Now let's walk through actually placing the trade.

We'll leave the action set to buy, but then you'll see a toggle that says Coins and Dollars. This gives you the choice to specify whether you want to buy a specific quantity of crypto or a certain dollar amount. For this video, we'll use dollar amount. We've already done the calculation, so we know I want to invest $2,500 in Bitcoin, so I'll type in that amount. You'll notice that as I type, the Estimated Quantity in the lower right updates in real time. Based on the price of one Bitcoin at the time of filming, the $2,500 I want to invest is equivalent to approximately 0.04 Bitcoin.

For this trade, I'll choose a limit order. This is based on the current price of one coin, so even though I'm buying only a fraction of a coin, this limit order will lock me in to a specific price. Like traditional securities, a market order will simply send the buy order for the best available current price, which could be higher or lower than the current quote.

The time in force of crypto is a little different than traditional assets. All limit orders will be good till canceled, and all market orders will be immediate or cancel.

Good till canceled, which you may be familiar with, is a trade that will hold until you cancel it or until 180 days pass. Immediate or cancel is an order type that will execute your order immediately and then cancel any unfilled portion of your order.

For this order, it'll be good till canceled. Then I'll hit Review Order. I'm buying $2,500 of Bitcoin, and I can see the Estimated Fee broken down right here. This all looks good, so I'll hit Place Order.

Now let's go back to our order status to make sure our order was filled. And…it looks like it did.

One important thing to note about crypto at Schwab…When you buy cryptocurrency, you own it. You'll be able to see your crypto account balances in your account positions. Charles Schwab Premier Bank is the custodian of your digital assets in your Schwab crypto account. In short, this simply means Schwab and its sub-custodial partners are responsible for keeping your crypto safe.

Ok, so we've got some Bitcoin in our account. Let's talk about when to sell, our last big question. For this discussion, we'll focus on selling as part of rebalancing. Rebalancing means buying and selling assets to keep your portfolio in line with your risk tolerance. As assets grow, an allocation you set years ago can shift if left unattended, especially with an asset as volatile as crypto. For example, if you invested 50/50 in stocks and bonds in 2009 and left it alone for 10 years, the stock portion would've grown to be more than 70% of the portfolio, leaving it open to more potential risk. Cryptocurrencies have the potential to jump around even more quickly, so keeping an eye on your allocation will be important. Rebalance your crypto holdings however frequently you rebalance your other assets.

To sell a portion of your holdings, you'll follow very similar steps to buying. Let's say I want to sell a little to bring my overall holding down closer to $2,000. I'll select this little menu here next to BTC/USD. From here, I'll select Sell. This will open the trade ticket, where I can follow the same steps I used to buy. I'll set a dollar amount I want to sell, follow the rest of the steps, and then review and place my order.

And that's it. Those are the basics you need to place your first crypto trade. There's a lot more you can learn—and we're here to help. Head to schwab.com/learn to learn more about crypto.

On-screen text: [Schwab logo] Own your tomorrow^®