How to invest in cryptocurrencies in Australia
If you’re thinking of buying Bitcoin or another form of cryptocurrency, but you’re not sure how, or even if you should, then this guide is for you.
There’s a lot of jargon involved in cryptocurrencies, as well as some strange acronyms like XRP (Ripple).
Bitcoin is the biggest player
Bitcoin is the cryptocurrency people are most familiar with. It was created in 2009 by a person (or persons) known as Satoshi Nakamoto and it’s a decentralised electronic form of cash that works as an alternative to fiat currency.
With Bitcoin, users can transfer their coins or Bitcoin cash to one another without it going through a bank. These transactions are all logged on a public ledger – the blockchain – with Bitcoin “miners” verifying these peer–to–peer transactions and updating the blockchain, which gets longer and more complex with each trade.
While there are only 21 million Bitcoins in existence, people can buy a tiny fraction of each one – down to 0.00000001 BTC.
Quick how-to guide to buying Bitcoin (or other crypto)
Select a Bitcoin wallet
You’ll need to set up a wallet ready to receive your coins. This is all digital, of course. The wallet stores your private keys which you use to get into your public Bitcoin address to sign your transactions.
There’s lots of wallets to choose from, like TREZOR and Nano S, which offer offline storage for keys. Then there’s desktop wallets like Exodus and Electrum, which store the keys on your hard drive.
If you prefer to store your keys on your mobile device, there’s Jaxx and Coinomi, as well as web wallets like GreenAddress.
You can also print out your keys on an actual piece of paper (retro!), but you need to store this somewhere very safe.
Choose an exchange
There are literally hundreds of platforms, but they can be grouped into crypto brokers, trading platforms and P2P exchanges.
You need to compare the exchanges before choosing one you like the look of.
Buying your currency
You do this by making an order through your platform. You’ll need to create an account first and most likely you’ll need to provide full contact information and ID to sign up and be allowed to trade.
Each platform works slightly differently, but in general you’ll enter the amount of currency you want to buy, select your payment method, check out the fees and then hit the buy button.
What are the different payment methods?
There are several ways to buy crypto, including:
- Cash
- Credit or debit card
- PayPal
- Bank transfer, and
- With another cryptocurrency like Ethereum or Litecoin.
How to choose a cryptocurrency exchange
As there’s hundreds of platforms out there, it can be tough to find a safe and easy one. Here’s the main factors you need to look at.
Where is the exchange located?
Australian cryptocurrency exchanges are increasingly regulated and people are made increasingly aware of these laws and regulations. Not all exchanges are based in Australia, however, so check out where your prospects are based and what the regulatory environment is there. If there’s a patchy-looking legal framework there, or the platform doesn’t seem to comply with a decent-looking one, give it a miss.
What security is protecting the crypto exchange?
Look for two–factor authentication and PGP–encrypted emails. Also do a quick news search to see if the platform’s ever been hacked or accused of dodgy activity. Is the currency itself stable and well-regarded? Cryptocurrencies like Tether have had some controversies so be informed and be aware of risks, especially if you are new to it all.
What are the fees for trading cryptocurrencies?
Fees, for things like trades, transactions, deposits and withdrawals, will add to the overall cost of your investment, so make sure your platform has acceptable fees and charges.
What are the transaction limits on cryptocurrency exchanges?
Is there a limit on the amount of the various currencies in your account? Is there a maximum number of trades, withdrawals or deposits you can make in a given time period? These differ between exchanges so look into it before choosing.
What currency can I use to buy Bitcoin? (and other crypto)
Bitcoin and other large cryptocurrencies will have lots of supporting currencies but smaller cryptos may only have a limited number of currencies you can use to buy them.
What customer support is available for crypto buyers?
Ideally customer support should be available at least during Aussie office hours. This could be via several channels – messaging, phone, online chat and email.
Crypto exchange reviews and reputation
Go onto forums and find reviews to see what experiences others have had on various platforms. Pay attention to experienced and longstanding posters.
How to choose an Australian Bitcoin exchange
If you’re in Australia, you can choose either a domestic or overseas–based exchange. Many inexperienced crypto traders prefer to stay “at home”, so here are the pros and cons of domestic exchanges.
The pros
Australian exchanges are tightly regulated and have to comply with AUSTRAC’s AML and CTF reporting obligations.
AUD is a common currency so there’s usually no problem with using it.
You can also use localised payment methods like BPAY and POLi.
Customer support is more readily available.
You get better consumer protection if your funds go missing.
You have more consumer protection in cases of error or fraud.
The cons
You need to provide ID and lots of personal details.
Registration on Australian exchanges can take longer because there’s more verification required.
There are bigger platforms overseas with more liquid currency and also more choices if you want to branch out into other currencies like EOS.
What you need to know before buying crypto
As with any investment, you wouldn’t go into it blindly, so here’s what you need to know about crypto.
It’s volatile
Just a quick look at the price history of many cryptocurrencies, including Bitcoin, will tell you that it can rise and fall a very long way, very rapidly. This is great when there’s an uptick, but what goes up… Cryptocurrency is still a new asset class so we still aren’t quite sure how it behaves, making it risky.
Make sure your security is tight
If you don’t have your private key, you don’t own your currency. You must store your keys safely and never tell anyone else what it is.
No refunds
Crypto transactions can’t be cancelled, so once you’ve sent it to the network, there’s no refunds. Always be careful when sending money – check the address thrice and send once…
There’s no guarantee of anonymity
Not all cryptocurrencies are anonymous. Your details are publicly available for anyone who wants to see them.
We don’t know if Facebook’s Libra currency will be anonymous yet, but it’s worth keeping an eye on.
The taxman is interested
If you’re investing in crypto, then you’ll be taxed on any capital gains you make when you sell it, regardless of the currency you sell it for. If you’re a Bitcoin miner, a crypto trader or similar you still need to report your dealings to the ATO.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.