Have you realised yet how complicated it is to buy your own bitcoin?
You need to open a wallet, check its security, manage your hot and cold storage, ensure your hardware is up to date, make sure your Wi-Fi is secure, store your recovery codes, and manage your private key backups, in case of death.
If you invest any serious amount of money in bitcoin without considering these, you could wake up one day and see your crypto has vanished, and the life-changing wealth potential with it.
But if you’re an investor who wants ‘done for you’ service, investing in bitcoin becomes very simple, secure, and safe for the long term. If that’s appealing to you, keep reading because by the end of this article you will know:
- How to buy bitcoin without learning to trade, opening a wallet or buying hardware.
- The difference between a managed account and managed fund.
- How to make sure your investment manager has top security.
- Buying small amounts vs large amounts of bitcoin and why it matters.
- The difference between buying one currency vs a model portfolio.
- How the transaction process works, when you place trades with a desk.
How To Buy Bitcoin Without Opening A Wallet or Learning To Trade
If you want to buy bitcoin, without doing it yourself, you have a couple of options. The first step is to choose between managed accounts or managed funds.
Managed Accounts vs Managed Funds
A managed fund pools investors’ funds together in a single account. This is typical of a hedge fund.
A managed account allows investors to own their assets in their own account, and an advisor manages it on your behalf.
Here’s a diagram to show the difference.
Buy Bitcoin In A Managed Account
A managed account provider has similar technology as a stock broker account, but for crypto. The best part of a managed account is how security is all done for you so you don’t to learn to trade.
Invest In Bitcoin With A Managed Account Provider
Portfolio managers use the strategy of a managed fund, but deliver them in your own private account. Hence the term, managed account. They’re less cost than a fund, and you keep direct ownership of the assets. If it’s a good investment strategy, you stand to gain.
When you buy bitcoin through a managed account, you usually get a wealth portal or account management section where you can log in and see your assets 24/7.
The best way to get started with a managed account using a proven strategy is to check out the Digital Asset Dividend Account.
Buy Bitcoin Through A Crypto Broker
A crypto broker is like a stockbroker, but for crypto. This differs from a managed account, because the broker will only buy or sell the currency you tell them to.
Technically, you still have an account they manage, but the name ‘managed account’ refers to when a portfolio manager uses a strategy in your account for you, not just executing trades you tell them to.
A crypto broker is ideal if you want to buy a single coin and not think about much else. A great broker is Caleb and Brown in Melbourne.
Buy Bitcoin With A Stock Broker
You can now get exposure to bitcoin through your stock trading account with products like Grayscale Bitcoin Trust.
Grayscale has listed their trust on a stock exchange, which is great, because all you need to do is buy and sell like you would a normal stock.
Understand, Grayscale bitcoin trust has a 2% management fee, which is steep. And the product doesn’t pay dividends…
If you want to open your own stock broking account, I recommend Interactive Brokers.
Invest In Crypto With Your Retirement Account
If you're in the United States, you can use our Crypto IRA Service to invest in bitcoin or other cryptocurrencies in your retirement account. If you're in Australia, you can also invest through a Self Managed Super Fund.
Investing In Bitcoin Managed Funds
A managed fund is where investors pool funds together and controlled by an investment manager. There’s nothing wrong with managed funds, as long as you’re getting value out of them.
The biggest benefit is knowing the value of your time. A managed fund is the complete ‘done for you’ solution to invest in a strategy. You must do due diligence on the fund, to make sure it’s legitimate.
Crypto managed funds suffered from poor security in the past because institutional grade security only became available in 2020. Now, they're secure, but you must do your due diligence to check they use the strongest security.
If you don’t, you risk losing your investment. In the past, it was common for people to pool money into someone’s personal account. Don’t do this. Often it’s a scam.
Fraud and scams were very rampant in the early days of crypto, and still are widespread today. Make sure you check out the list of bitcoin scams currently known.
If you’re considering a managed fund now, check if they use a fund administrator, who is a third party, and who controls the deposits and withdrawals. This way you’ll know your funds are safe and won’t disappear into thin air when you send it.
Security Checks Before You Buy Bitcoin With A 3rd Party
If you want to buy bitcoin through a managed account provider, here’s how you can check out their security.
Remember, managing your own security is biggest mistake I see people make. But it doesn’t mean you can ignore security, you still need to know the basics of what to look for.
If you want to learn from the mistakes of managing your own crypto, check out Investing In Cryptocurrency With 100k Or More.
Custody and Security
Custody refers to the safe keeping of your assets. When you pay for custody, it means you pay for your assets to be secured. Think of it like a vault underground, where you can hold physical gold. You’ve got to pay for the vault operator.
I recommend managed accounts or brokers who work with the Fireblocks platform.
Multi-Party Computation Technology (MPC)
In the world of crypto and finance, security is key. In the past, wallets were prone to hacking because they all had a single point of failure, private key management.
Multi-Party Computation, or MPC technology, doesn’t require a private key. Therefore, the private key is no longer the weakest link.
This eliminates the single point of failure of other types of security.
MPC works by multiple parties performing mathematical computations without one party ever revealing its secret to the others.
You have the latest security if your account uses MPC technology.
It looks like this:
Multi Layer vs Single Layer Security
Layered security, in context to crypto, means having multiple levels of security to protect your assets.
Single Layer Security is where there’s just one level of protection, like a username and a password. It’s like having one key to open every door in a building.
In the world of cyber security, with billions of dollars worth of crypto at stake, this just isn’t good enough.
Multi Layer Security requires security checks at each layer of the technology, as opposed to one security check for the entire stack.
It’s like an enormous building where every door has a different key, rather than one key for the entire building.
When you use multi layered security, it reduces hacking because it multiplies the work, cost and coordination needed to hack an account.
A typical multi layer cyber security model looks like this.
Are They Registered With Authorities?
Your managed account provider should show they are working towards regulation.
The cryptocurrency industry doesn’t have a regulatory body yet, so you won’t find a licence number. But you can look for a registration with the money laundering watchdog in your country. In fact, they will struggle with large transfers without this.
For example, in Australia, the regulatory body who monitors financial transactions is Austrac.
For example, Viva’s custodian has a registration with Austrac, so there’s no limit on deposits, withdrawals, or transfers for our client accounts.
When you choose a broker or managed account, make sure you can get your money in and out without issues. It’s well known that banks treat crypto as high risk transactions.
Buy Small VS Large Amounts Of Bitcoin
If you buy a small amount, use a broker or an online exchange. It’s super easy.
If you’re buying a sizeable amount, then check if provider you’re going to use has as a professional trading desk, called and Over The Counter (OTC) desk.
Brokers without an OTC desk can only transact in the public market. Just like you would if you were doing it yourself on your computer.
But an OTC desk has access to large blocks of trades, not in the open market. As a result, you can get better prices on large trade sizes.
Sometimes a broker is also an OTC desk, depending on the experience of the broker. Bottom line, you want to work with someone who has access to an OTC desk.
Should You Buy Bitcoin Or A Model Portfolio?
A model portfolio is when your investment manager has a pre-defined strategy to invest in. This strategy, compared to owning a single asset, can produce more returns for less risk.
Investment managers also use model portfolios to collect dividends from institutional lending because of the bulk buying power. You can’t do this in a personal account on your own.
A single instrument, like bitcoin, always has more volatility than a portfolio with diversification.
Model portfolio’s get higher returns for the same risk.
If you don’t want to spend hours doing investment research, use a model portfolio.
Mistakes People Make Buying Bitcoin
If you want to see the mistakes of buying bitcoin yourself, make sure you read, Investing In Cryptocurrency With 100K Or More.
The most common mistake when buying bitcoin through a third party is not asking about their security.
You must check if their technology infrastructure uses multi layer security and if you control your assets or not.
You do not want to work with a provider who is simply getting access to your private keys in order to manage your holdings because they could take your money and disappear.
How It Works When You Buy Bitcoin Through A Trading Desk
When you place a trade through a trading desk, it’s very simple.
1 Open And Fund Your Account
This step is obvious and is all done online.
2 Instruct What And How Much To Buy
When you open a managed account, it’s likely your portfolio manager will already know what you’re planning to buy because in your sign-up process, you’ve chosen a specific portfolio.
But if you’re instructing a crypto broker, you need to tell them what currencies you’re looking to buy, and how much.
3 Receipt Of Purchase
You’ll get a receipt after they confirm your purchase and the assets are settled in your account. This is via email or direct message.
4 Monitor Your Portfolio
You’ll monitor your portfolio in your wallet, or wealth portal where you can see your balance. When you need to engage with the trading desk again. This is where you will find all your reports and balances.
To buy bitcoin without doing it yourself, you’ll need to choose between a managed account, or a managed fund portfolio.
Crypto brokers do execution, and you’ll need to instruct them on what to buy and how much.
Managed account portfolios use pre-defined strategies to produce lower risk and higher returns. This is the lowest cost option with the highest level of service.
Managed funds are fine, as long as you do your due diligence on the fund because there are a lot of scams out there.
Your investment manager should have access to a trading desk so you can get the best pricing and execution.
When you select a managed account, make sure you look for multi layered security and use of MPC technology to manage private keys.
If you want the optimal portfolio of bitcoin and Ethereum with a high paying dividend, check out the Digital Asset Dividend Account.