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How To Buy Bitcoin In The US

Last Updated January 5, 2024 2:59 PM
Andrew Kamsky
Last Updated January 5, 2024 2:59 PM

Key Takeaways

  • In the US, buying, selling, and trading cryptocurrencies is legal without specific federal law, guided by national agency recommendations.
  • Bitcoin’s divisibility allows for purchases in any amount, with Satoshi being the smallest unit, providing flexibility in minimum investment.
  • Leading US exchanges such as Kraken, Bitstamp, Uphold, and Coinbase offer unique features catering to different needs and preferences.
  • Bitcoin can be sold in the US via exchanges, but it’s essential to consider capital gains tax on any profits.

Buying, selling, and trading cryptocurrencies in the US is entirely legal. Even though no specific federal law governs crypto assets, Federal agencies have provided guidelines for exchanges and hodlers. 

It remains unclear whether the Securities Exchange Commission (SEC)  or the Commodity Futures Trading Commission (CFTC)  is responsible for regulating the cryptocurrency market. Despite this regulatory uncertainty, carrying out cryptocurrency transactions is legal.

Can One Buy Bitcoin in the US?

Yes. An individual is legally allowed to purchase Bitcoin (BTC) in the US through an online exchange or a Bitcoin ATM. Online exchanges such as Coinbase make it simple to purchase Bitcoin with a credit card, debit card, bank transfer, or bank wire. 

What Is The Lowest Amount Of Bitcoin One Can Buy?

Investors interested in cryptocurrency and Bitcoin can purchase as little Bitcoin denominated in any FIAT valuation. Why? Bitcoin is divisible, much like traditional currency, and its smallest unit is known as a Satoshi, which is one hundred millionth of a single Bitcoin. High divisibility makes buying a fraction of a Bitcoin possible to suit any budget. 

When using cryptocurrency exchanges in the US, one can specify the amount of Bitcoin or cryptocurrency in USD that a person wishes to spend. The exchange will calculate the equivalent amount of Bitcoin to receive.

Crypto Exchanges In The US

Some notable exchanges operating in the US include Kraken, Bitstamp, Uphold, and Coinbase, each with different offerings to investors and speculators. Kraken is known for its security, Bitstamp for its user-friendly platform, Uphold for its trading versatility, and Coinbase for its beginner-friendly user-interface, despite higher fees. However, Coinbase and Kraken have faced legal challenges from the Securities and Exchange Commission (SEC) 

In June 2023, Coinbase was sued by the SEC for operating as an unregistered broker, exchange, and clearing agency and for issues related to its staking-as-a-service program. Coinbase has since contested these allegations, seeking dismissal of the lawsuit. 

Similarly, in November 2023, Kraken was charged by the SEC for operating without proper registration, leading to risks for investors. Both cases highlight the ongoing regulatory challenges and complexities faced by major crypto exchanges in the U.S., implying that once these exchanges are used to purchase cryptocurrency in the U.S., it is a good idea for investors to self-custody any crypto holdings in a non-custodial wallet.

Steps To Buy Bitcoin In The US

In the US, to ensure a secure experience when purchasing Bitcoin or other cryptocurrencies, the following five steps may help understand the process:

Choose An Exchange

The individual should begin by selecting a cryptocurrency exchange. It might benefit the individual to prioritize security and reputation when choosing which exchange to use. The individual should consider the user interface, trading fees, and the pool of cryptocurrencies available for purchase.

Verify Identity

The individual must undergo the Know Your Customer (KYC) process for identity verification. KYC typically requires bank account information, a driver’s license or passport, proof of residency, and a current photo. In the US, regulated and secure exchanges are legally obligated to collect this information.

Purchase Bitcoin Or Other Cryptocurrencies

Once the exchange account is authorized, the individual will transfer fiat currency into the exchange to fund the account. Once the account is topped up, the investor can immediately purchase Bitcoin or other cryptocurrencies at the spot market rate or set limit orders at specific price levels. 

Store Bitcoin

After purchasing Bitcoin, individuals can consider various storage options, each with a balance of security and convenience. For those prioritizing security and personal control over crypto investments, non-custodial wallets like Ledger and Trezor are a good option. These cold wallets allow users to hold crypto directly, aligning with the principle of “not your keys, not your crypto.” 

When investors manage the private keys of the non-custodial wallets they use to store crypto, users protect said investments from potential exchange fraud and maintain full control over the digital assets, ensuring a higher level of security when storing cryptocurrency holdings.

Manage Bitcoin

After acquiring cryptocurrency, one may hold it, stake it (to earn interest), explore DeFi or NFTs, or use it for transactions. The decision on how to manage the crypto lies with the individual.

Cost-Effective Methods To Purchase Cryptocurrency And Top Up Crypto Exchanges

In the US, purchasing cryptocurrency through credit and debit cards on exchanges is convenient but often incurs higher fees. More cost-effective alternatives include using wire transfers to top up crypto exchange accounts, despite their longer processing times. It’s important to consider the different withdrawal fees charged by different crypto exchanges in the US. 

When transferring crypto to a personal wallet, network fees specific to each cryptocurrency, such as Bitcoin or Ethereum, apply and should be included in the total cost calculation. Fees that are inherent to the blockchain network of each cryptocurrency will vary based on the network’s congestion and transaction complexity at the time of the transfer of cryptocurrency.

How To Sell Bitcoin In The U.S.

Just as it is possible to purchase Bitcoin in the U.S., it is also possible to sell it using a crypto exchange. Assuming the individual wishes to sell coins in cold storage, firstly, one needs to transfer the Bitcoin from one wallet to the other. Once transferred to the exchange, the Bitcoin or other cryptocurrency will be seen on the exchange. 

At this point, the crypto can be sold at the current market value. After the sale, one can withdraw the proceeds to a financial account linked to the exchange. However, it’s important to remember that in the U.S., profits from selling cryptocurrency are subject to taxes, similar to capital gains in other investment scenarios like the stock market.

Can Bitcoin Be Used To Purchase Other Cryptocurrencies In The US

Yes. In the US, Bitcoin can be used to purchase other cryptocurrencies, such as Ethereum. While buying crypto with fiat currencies like USD often involves more regulations, including KYC procedures, using Bitcoin for such transactions tends to be more straightforward. 

The initial acquisition of cryptocurrency with traditional currency is typically the most challenging part of entering the crypto market in the US, due to stricter regulatory requirements and processes. Once individuals own cryptocurrency, exchanging it for other digital currencies becomes considerably easier. 

Do You Have To Pay Tax On Bitcoin?

In the U.S., Bitcoin and other cryptocurrencies are treated as property for tax purposes, according to the Internal Revenue Service (IRS) . Any gains or losses from buying, selling, or exchanging Bitcoin are subject to capital gains tax.

If you hold Bitcoin for more than a year before selling or using it, any profit will be taxed at lower rates as a long-term capital gain. Profits are taxed as short-term capital gains for holdings sold or used within a year, which align with your regular income tax rate.

Do You Have To Report Bitcoin Transactions To The IRS?

Yes, in the United States, an individual is required to report Bitcoin and crypto transactions  to the Internal Revenue Service (IRS). 

The IRS has been increasingly focusing on cryptocurrency transactions in recent years, so maintaining accurate records and reporting all Bitcoin-related activities on your tax returns is crucial to remain compliant with U.S. tax laws.

Conclusion

Exchanges like Kraken, Bitstamp, Uphold, and Coinbase offer varied features catering to investor needs. The process involves choosing an exchange, undergoing KYC for identity verification, and purchasing, storing, and managing Bitcoin or other cryptocurrencies. While credit and debit cards offer convenience, they may incur higher fees than alternatives like wire transfers. 

Additionally, selling Bitcoin in the U.S. is subject to capital gains tax. Despite regulations associated with traditional currency transactions, Bitcoin can be used to purchase other cryptocurrencies in the crypto market. This overview underscores how an investor can buy Bitcoin in the U.S.

FAQs

Can one buy Bitcoin in the USA?

Yes, buying Bitcoin in the USA is legal and straightforward. It can be purchased through online exchanges like Coinbase or Bitcoin ATMs, using various payment methods such as credit cards, debit cards, bank transfers, or wires.

What’s the minimum Bitcoin purchase amount?

Bitcoin’s divisibility allows for purchasing fractions tailored to any budget. The smallest unit, a Satoshi, is one hundred millionth of a Bitcoin. The desired investment amount in USD can be specified on exchanges, and the exchange will calculate the corresponding Bitcoin amount.

What are the best crypto exchanges in the USA?

The top crypto exchanges in the USA include Kraken, Bitstamp, Uphold, and Coinbase. Kraken offers robust security and a variety of cryptocurrencies, Bitstamp is user-friendly, Uphold facilitates diverse asset exchanges, and Coinbase is ideal for beginners due to its simplicity, though fees are slightly higher.

How can one sell Bitcoin in the USA?

Selling Bitcoin in the USA is as feasible as buying it. Bitcoin needs to be transferred from the wallet to an exchange and then sold at market value. The funds can then be withdrawn to a linked financial account. Still, it’s important to remember that cryptocurrency sales in the USA are subject to capital gains tax, similar to stock market investments.

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