Bitcoin is back — and in what seems like for the first time since 2017, new investors are asking how to join the party. Despite the US and China dominating the crypto newsflow, Australia is quietly among countries with the most registered Bitcoin exchanges, placing fifth with nine registered exchanges only behind the US, UK, China, and Singapore.
As more Australians look to make their first foray into crypto, it’s worth considering some nuances that distinguish investing in stocks versus how to buy your first Bitcoin.
Four Step Guide to Buying Bitcoins
- The first step to buy Bitcoin is to create an account on a digital asset exchange. Before you do that, you might find it helpful to do some research on which exchange is right for you based on the following criteria:
o Your country – Seeing as how every country’s government and regulatory agencies treat Bitcoin differently, you may want to find a domestic exchange that is well-versed and widely accepted in your locale. Choosing a domestic exchange may be easiest because they may offer the most convenient payment methods that are available to you. There are quite a few local australian cryptocurrency exchanges.
o Reputability – It goes without saying that you want to trust your money with a trustworthy bank, so naturally you would want to buy Bitcoin with a trustworthy exchange.
o Liquidity – What good is an exchange if it doesn’t have many users? Buyers and sellers provide constant liquidity which is necessary for accurate market prices and tight spreads. With less liquidity, there’s a limited supply and thus off-kilter bid and ask prices.
o Security – Perhaps the most important quality of an exchange is it’s degree of safety. As technology advances and malicious actors become more capable of breaking into accounts to steal funds, security has never been more important. Fortunately, many exchanges have implemented additional security measures and multi-step processes such as 2-Factor Authentication, transaction confirmations, account locks, and more.
o Tradable Assets – Bitcoin is the largest and most popular cryptocurrency but is far from the only one. In fact, as of December 2020 there are roughly 4,000 different crypto tokens. While some exchanges are conservative and only have a few of the largest tokens, others offer hundreds to choose from.
o Payment Methods – One of the biggest pain points for new Bitcoin investors is finding an exchange that accepts their preferred payment method or even just one to which you have access.
o Identity Verification – A common form of identity verification is Know Your Customer/Anti-Money Laundering (KYC/AML) in which an exchange will require users to provide personal identification documents proving who they are.
- Once you’ve found your exchange of choice, you create an account there, storing your login credentials in a safe and secure offline location. Depending on the exchange, you’ll likely be prompted to verify your identity, much like opening a bank account.
- Next, you’ll have to fund your account using your preferred payment method available on the exchange. You’ll need to deposit into your account however much money you plan to buy Bitcoin with. Depending on the exchange, this process may be instant or this may take a few days for funds to be available to trade.
- After you fund your account, you’re ready to buy! Create a new ‘Buy’ order corresponding to your available funds and submit the purchase order!
Bitcoin Exchanges in Australia
Like any country, Australia has a collection of Bitcoin exchanges that are either geographically native or Australia-friendly. Some of the most critical components of a high-quality exchange (as covered above) are high operability, security, legal compliance, liquidity, funding options, tradable assets, low fees, and responsive customer service. Here are some popular bitcoin and cryptocurrency exchanges in Australia:
- IndependentReserve (Low fees, High Security, Insured)
- Swyft (Simple UI, Trading Features)
- CoinJar (Easy to use, Mobile app)
- CoinSpot (Large selection, Many deposit methods, Friendly UI)
- eToro (Native Wallet, Copy and Trade)
- DigitalSurge (Large selection, Responsive Customer Support, Multiple payment methods)
Bitcoin Regulations in Australia
In 2018, the Australian Transaction Reports and Analysis Centre (AUSTRAC) implemented further regulations around cryptocurrency exchanges. These require exchanges operating in Australia to register with AUSTRAC, institute “Know Your Customer” compliance (KYC) to identify and verify all users, compile records, and comply with government AML/CFT reporting obligations. Accordingly, Australian regulatory bodies made it clear that unregistered exchanges with potential malicious intent will be subject to criminal charges and financial penalties.
Beyond cryptocurrency exchanges, ICOs are also being heavily scrutinized: 2017 Australian Securities and Investments Commission (ASIC) guidelines suggest that an ICO’s natural structure (security or utility) will determine their legal treatment under general consumer law and the Corporations Act.
Frequently Asked Questions about Buying Bitcoin
Is Bitcoin Legal in Australia?
Bitcoin was officially deemed legal in 2017 by the land down under, with the Australian Taxation Office (ATO) declaring it an asset and thus subject to capital gains tax. Australia has been relatively progressive in enacting a cluster of proactive cryptocurrency regulation. As a matter of fact, the government of the state of Queensland, Australia even invested in a crypto tourism start-up as a measure to increase tourism in the province.
Do I have to pay taxes on Bitcoin transactions?
Per the Australian Tax Office, Australians are subject to capital gains tax on any profitable disposals of Bitcoin. However, this comes in two forms:
Investment: This means that if the proceeds of your Bitcoin disposal exceed that of your cost basis, the difference between the two prices qualifies as the capital gain (or capital loss), for which you may be taxably liable. Capital losses may be used to reduce tax liabilities on capital gains made later in the tax year.
Personal Use: Per the ATO, if a capital gain is the result of disposing of a crypto asset that is a personal use asset, certain capital gains (or losses) may be disregarded. If the Bitcoin disposal is part of a business you own, the gains made on disposal may be assessable as ordinary income as opposed to a capital gain.
This is not financial advice.
Is It Safe to Invest in Bitcoin?
Bitcoin is a speculative asset and with it comes risks of price volatility and loss of money, much like stocks or other investment assets. This is increasingly so for Bitcoin as it is newer and therefore there is less liquidity in this niche market. However, the crypto space has matured rapidly over the last few years and, compared to just five years ago, buying Bitoin has never been easier or more safe. Ask anyone who has been into crypto before 2017 and they will explain how much of a ‘wild west’ crypto used to be before SEC oversight, Know Your Customer/Anti-Money Laundering regulations, venture capital-funded exchanges, etc.
The entire space has done a 180 degree turn since then, and in 2020 alone legendary investors like Paul Tudor Jones, Stan Druckenmiller, and multinational tech behemoths like PayPal and Square have invested hundreds of millions of dollars in Bitcoin to date. Anecdotally, this suggests that major institutional investors and tech companies have done their due diligence on Bitcoin and come to the conclusion that it is indeed safe to entrust with huge sums of their own money.
What is the Safest Way to Buy Bitcoin?
The safest way to buy Bitcoin is through a regulated fiat to crypto exchange that requires identity verification. Once you find an established and reputable exchange that displays its permits and has been trusted by the community for some time, verify your identity, link a payment method to your account, and deposit funds if necessary to your account.
What is the Minimum that can be Invested in Bitcoin?
There is technically no minimum investment in Bitcoin as the digital currency is highly divisible by up to eight decimal places, allowing for exchange of as little as a fraction of a cent. Whereas fractional shares have only recently become publicly accessible in traditional stock market platforms, one of Bitcoin’s strongest properties has been its divisibility, allowing investors to buy partial, even micropurchases of Bitcoin.
This has become especially valuable as the price rose back near the 2017 all-time highs, leaving many retail investors unable to afford one whole Bitcoin. Crypto exchanges or investing platforms typically require a nominal minimum transaction value of $1 – $2 or sometimes as up to $10.
What is the Cheapest Way to Buy Bitcoin?
The absolute cheapest way to buy Bitcoin is directly through peer-to-peer which involves no intermediary exchange or payment platform. Other than finding a trustworthy local buyer or seller, the next cheapest way to Bitcoin is through an online crypto exchange. While you may have to pay a small exchange fee, it may be worth it for the convenience of transacting any amount of Bitcoin for any price at any time of your choosing without having to coordinate with another individual, let alone leave your house. Exchanges vary in fee pricing but are generally less than 1% with some as little as 0.1%.
What forms of Payment can be used to Buy Bitcoin?
Gone are the days where you could only buy Bitcoin through a cryptocurrency exchange. As more buying options become available by the day, buying Bitcoin through your payments platform of choice is finally becoming a reality.
- PayPal – PayPal joined the party in late 2020 as the largest global payments platform to offer crypto services as well. Users can buy, sell, or store up to four cryptocurrencies directly through the PayPal website: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. PayPal’s crypto service is currently only available to users in the US only though.
- POLi – This was a common payment method to buy Bitcoin, but most Australian and New Zealand exchanges disallowed POLi support. This was due to Bitcoin purchase transactions being reversed after connected bank claims of over fraudulent activity. A few exchanges still support POLi, but it has become much less popular as most regional banks may automatically deny or reverse any POLi Bitcoin transactions.
- Osko – Osko has emerged as one of the most commonly accepted payment methods for depositing funds to buy Bitcoin. It allows for near-instant payment transfers to a PayID, which is a unique string of characters that links back to your bank account. Conveniently, you don’t need to remember your BSB and account number, just provide the mobile number or email address and send funds accordingly. It’s supported by prominent exchanges such as Independent Reserve and CoinSpot, as well as most banks.
- PayID – A universal payment identifier, is part of the New Payments Platform run by BPay that enables a free, open protocol that allows for interoperability between any payment network or currency intended to allow instant transfers between Australian banks. It’s been integrated by an impressive list of platforms as well as most Australian exchanges.
- eWay – eWay is one of Australia’s leading providers of online ecommerce payment solutions for credit cards. eWay processes secure credit card payments for merchants, primarily transacted online. At this time, there is no platform or facility that supports buying Bitcoin with eWay.