How to invest in Cryptocurrency?

Diving into the world of cryptocurrency investments can be exciting, but it’s important to understand the basics before you start.  This guide will walk you through the steps to invest in cryptocurrency, explain the different types of exchanges available, and discuss the differences between custodial and non-custodial wallets.  

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Where to buy Cryptocurrency - Understanding Crypto Exchanges

A cryptocurrency exchange is a platform where you can buy, sell, and trade digital currencies like Bitcoin and Ethereum.  In Australia, you have access to both local and international exchanges, each offering unique features. You need to access an exchange to exchange your fiat currency to cryptocurrency.

Local Australian Centralised Exchanges:

  • Swyftx: Known for its user-friendly interface and excellent customer support, Swyftx is a popular choice among Australians.

  • CoinSpot: Established in 2013, CoinSpot offers a wide range of cryptocurrencies and is considered one of the most trusted exchanges in Australia.

  • Independent Reserve: Designed for high-net-worth individuals, this exchange provides features like an OTC trading desk and a tax estimator to help you manage your investments.

International Centralised Exchanges:

  • Binance: One of the world’s largest exchanges, Binance offers a vast selection of cryptocurrencies and advanced trading features.

  • Coinbase: Known for its ease of use, Coinbase is ideal for beginners looking to make their first crypto purchase.

  • Kraken: With a strong focus on security, Kraken provides a variety of cryptocurrencies and trading options.

Types of Cryptocurrency Exchanges

When choosing an exchange, it’s important to understand the two main types:

Centralised Exchanges (CEX): These are managed by companies that oversee transactions and security. They often offer higher liquidity and more trading pairs. However, using a CEX means you trust the company to hold your funds if you decide to leave it on the exchange.  We always recommend to take self custody of your crypto and move it off the CEX to your own wallet.

Decentralized Exchanges (DEX): These operate without a central authority, allowing peer-to-peer transactions. While they offer more privacy and control over your funds, they may have lower liquidity and can be more complex to use.  They are also not suitable to easily exchange fiat currency to crypto currency.  Some DEX options:

  • Uniswap (Ethereum-Based) – One of the largest DEXs, allowing you to trade ERC-20 tokens with ease.
  • PancakeSwap (Binance Smart Chain) – Great for trading BNB-based tokens with low fees.
  • SushiSwap – A multi-chain DEX offering yield farming and token swaps.

Custodial vs. Non-Custodial Wallets

When buying cryptocurrency on an exchange, it’s important to understand how your crypto are stored. Exchanges can either provide custodial wallets or require you to use a non-custodial wallet.

Custodial Wallets (Exchange-Controlled)

A custodial wallet means the exchange holds your crypto for you. Platforms like Binance, Coinbase, and CoinSpot provide custodial wallets, making it easy for beginners to store and trade assets without managing private keys. However, this also means you don’t have full control over your funds—if the exchange is hacked or restricts withdrawals, your assets could be at risk.

Non-Custodial Wallets (User-Controlled)

A non-custodial wallet gives you full ownership of your crypto. Cold or Hot Wallets like MetaMask, Trust Wallet, and Ledger (hardware wallet) let you control your private keys, ensuring no third party can access your funds. If you’re using a DEX (Decentralized Exchange) like Uniswap or PancakeSwap, you’ll need a non-custodial wallet to make trades directly from your wallet.

Steps to Buy and Invest in Cryptocurrencies within Australia

Now that the basics of purchasing cryptocurrency has been explained, its time to look at the steps to actually buy and invest in some cryptocurrency. The steps as follows:

  • Choose an Exchange: Decide between a local or international exchange based on your needs.
  • Create an Account: Sign up and complete any necessary verification processes.
  • Deposit Funds: Add Australian dollars (AUD) to your account using a bank transfer, credit card, or other accepted methods. Be aware that some bank transfer may take 24 hours to clear as some back hold the funds for 24 hours for security reasons.
  • Buy Cryptocurrency: Select the cryptocurrency you want to purchase and execute the trade. Trades are instantaneous and your cryptocurrency will be in your exchange/custodial wallet in a couple of seconds.
  • Transfer to a private Non-custodial Wallet: For added security, transfer your crypto to a non-custodial wallet where you control the private keys.

By following these steps and understanding the different types of exchanges and wallets, you’ll be well-prepared to make your first cryptocurrency purchase in Australia.

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