To buy cryptocurrency, first you need to pick a broker or a reputable crypto exchange. While both avenues allow you to buy crypto, there are key differences between them to keep in mind.

What Is a Cryptocurrency Exchange?

A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Exchanges often have relatively low fees, but they tend to have more complex interfaces with multiple trade types and advanced performance charts, all of which can make them intimidating for new crypto investors.

Some of the most well-known cryptocurrency exchanges are Coinbase, Gemini and Binance. While these companies’ standard trading interfaces may overwhelm beginners, particularly those without a background trading stocks, they also offer user-friendly easy purchase options.

A host of Australian-based exchanges, such as CoinSpot, Independent Reserve and BTC Markets, allow users to purchase a range of cryptocurrencies with AUD, including through bank transfers, in some instances, or via BPAY. Make sure you investigate trading and transaction fees, and research the Australian-based exchange. Is it secure and does it include support? Does it offer a wide variety of coins for trading? What are the terms and conditions? And most importantly: is cold wallet storage available. As the failure of FTX recently highlighted, ensuring your coins are kept off-line may be the only sure-fire way to ensure your investment is safe.

Australian crypto exchanges must be registeredwith AUSTRAC, and comply with Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) legislation. However, this requirement has more to do with preventing criminal syndicates from laundering money; it does not imply your coins will be protected. Cryptocurrency is not regulated by the financial watchdog, ASIC, although this could change in the near future under plans by the Australian Government.

The convenience of exchanges also comes at a cost, as the beginner-friendly options charge substantially more than it would cost to buy the same crypto via each platform’s standard trading interface. To save on costs, you might aim to learn enough to use the standard trading platforms before you make your first crypto purchase—or not long after.

What Is a Cryptocurrency Broker?

Cryptocurrency brokers take the complexity out of purchasing crypto, offering easy-to-use interfaces that interact with exchanges on your behalf in exchange for a fee. Caleb & Brown is an example of a well-known crypto brokerage in Australia.

Others claim to be “free” while making money by selling information about what you and other traders are buying and selling to large brokerages or funds or not executing your trade at the best possible market price.

While they’re undeniably convenient, you have to be careful with brokers because you may face restrictions on moving your cryptocurrency holdings off the platform. With some, for example, you cannot transfer your crypto holdings out of your account.

This may not seem like a huge deal, but seasoned crypto investors prefer to hold their coins in crypto wallets for extra security. Some even choose hardware crypto wallets that are not connected to the internet for even more security.

Once you decide on a cryptocurrency broker or exchange, you can sign up to open an account. Depending on the platform and the amount you plan to buy, you may have to verify your identity. This is an essential step to prevent fraud and meet regulatory requirements.

You may not be able to buy or sell cryptocurrency until you complete the verification process. The platform may ask you to submit a copy of your driver’s licence or passport, and you may even be asked to upload a selfie to prove your appearance matches the documents you submit.

To buy crypto, you’ll need to make sure you have funds in your account. You might deposit money into your crypto account by linking your bank account or making a payment with a debit or credit card (watch out for high charges from your card provider with the credit card option – see below).

Depending on the exchange or broker and your funding method, you may have to wait a few days before you can use the money you deposit to buy cryptocurrency.

Here’s one big buyer beware: while some exchanges or brokers allow you to deposit money from a credit card, doing so is extremely risky – and expensive. Not only is taking on debt to buy volatile crypto assets a bad idea, credit card companies process cryptocurrency purchases with credit cards as cash advances. This means they’re subject to higher interest rates than regular purchases, and you’ll also have to pay additional cash advance fees.

For example, you may have to pay 5% of the transaction amount when you make a cash advance. This is on top of any fees that your crypto exchange or brokerage may charge, and these can run up to 5% themselves, meaning you might lose 10% of your crypto purchase to fees.

Once there is money in your account, you’re ready to place your first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum to more obscure cryptos like Theta Fuel or Holo.

When you decide on which cryptocurrency to purchase, you can enter its ticker symbol – Bitcoin, for instance is BTC – and how many coins you’d like to purchase. With most exchanges and brokers, you can purchase fractional shares of cryptocurrency, allowing you to buy a sliver of high-priced tokens like Bitcoin or Ethereum that otherwise cost thousands of Australian dollars to own.

While many reputable crypto exchanges deploy robust security measures in Australia, there are still instances of exchange hacks and security breaches. Many investors still trust third parties, such as an exchange or wallet custodian, to manage their assets. While this can be convenient, if this entity gets hacked, all the assets under management could be stolen.

In the case of non-custodial storage options, where the investor takes control of their assets and stores them using software or hardware options, there are still potential risks that they must consider. You could even lose your investment if you forget or lose the codes to access your account. That’s why it’s so important to have a secure storage plan in place for your cryptocurrencies.

As noted above, if you’re buying cryptocurrency via a broker, you may have little to no choice in how your cryptocurrency is stored. If you purchase cryptocurrency through an exchange, you have more options that may or may not suit you:

• Leave the crypto on the exchange. When you buy cryptocurrency, it’s typically stored in a so-called crypto wallet attached to the exchange. If you don’t 100% trust the provider your exchange partners with or you want to move it to a more secure location, you might transfer it off the exchange to a separate hot or cold wallet. Depending on the exchange and the size of your transfer, you may have to pay a small fee to do this.
• Hot wallets. These are crypto wallets that are stored online and run on internet-connected devices, such as tablets, computers or phones. Hot wallets are convenient, but there’s a higher risk of theft since they’re still connected to the internet. These can be both custodial, meaning the assets are held with a third party provider, or non-custodial, meaning you are in charge of keeping the assets safe.
• Cold wallets. Cold crypto wallets aren’t connected to the internet, making them your most secure option for holding cryptocurrency. They take the form of external devices, like a USB drive or a hard drive. You have to be careful with cold wallets, though: if you lose the key code associated with them and the device breaks or fails, you may never be able to get your cryptocurrency back. While the same could happen with certain hot wallets, some are run by custodians who can help you get back into your account if you get locked out.

While many Australians have bought crypto in recent years, it’s a volatile and risky investment choice. If investing in crypto on an exchange or via a broker doesn’t feel like the right choice for you, here are a few options to indirectly invest in Bitcoin and other cryptocurrencies:

*Crypto assets are unregulated & highly speculative. No consumer protection. Capital at risk.

1. Wait for Crypto Exchange-Traded Funds (ETFs)

Exchange traded funds are popular investments that let you buy exposure to hundreds of individual holdings in one fell swoop. This means they provide immediate diversification and may be less risky than selecting individual investments.

There has long been an appetite for cryptocurrency ETFs, which allow you to invest in many cryptocurrencies at once. The first cryptocurrency ETFs for private investors are rolling out in the Asia Pacific: recently Sydney-based ETF Securities and Switzerland’s 21Shares joined forces to trade Bitcoin on the Cboe Australia exchange. Cosmos Asset Management’s bitcoin feeder ETF has also launched in Sydney.

Over in the US, there are many Bitcoin ETF filings that are awaiting approval from the US Securities and Exchange Commision (SEC). The most recent filing was from the world’s largest asset manager, BlackRock, which was a significant step forward in the recognition of cryptocurrencies as a legitimate asset class.

2. Invest in Companies Connected to Cryptocurrency

If you’d rather invest in companies with tangible products or services and that are subject to regulatory oversight—but still want exposure to the cryptocurrency market—you can buy shares in companies that use or own cryptocurrencies and the blockchain that powers them. You’ll need an online brokerage account to buy shares in publicly-listed companies such as:

• Nvidia (NVDA) This technology company designs and sells graphics processing units, which are at the heart of the systems used to mine cryptocurrency.
• PayPal (PYPL) Already a popular choice for people buying items online or transferring money to family and friends, this payments platform recently expanded to allow customers to buy and sell select cryptocurrencies with their PayPal and Venmo accounts.
• Square (SQ) This payment services provider for small businesses has purchased Bitcoin worth millions of dollars since October 2020. In February 2021, the firm disclosed that Bitcoin made up around 5% of the cash on its balance sheet. In addition, Square’s Cash App allows people to buy, sell and store cryptocurrency.
• MicroStrategy (MSTR) This is a business intelligence software company, which isn’t directly involved with crypto, but is one of the largest holders of Bitcoin and thus, moves in tandem with the value of BTC.

As with any investment, make sure you consider your investment goals and current financial situation before investing in cryptocurrency or individual companies that have a heavy stake in it. Cryptocurrency can be extremely volatile—a single tweet from Elon Musk can make the price plummet or soar—and it’s still a very speculative investment. This means you should invest with caution.

Be aware, too, of bad actors infiltrating the crypto space. As the Australian Government’s Australian Competition and Consumer Commission (ACCC) points out, Australians lost over $205 million to scams between 1 January and 1 May of 2022, with $113 million of those losses related to crypto.

This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class. 

Related: How to Buy Cryptocurrency in 5 Minutes