The short answer is: Yes, you can buy and sell a fraction of a Bitcoin (BTC).
To understand how to do this, we need to dive into how this blockchain-based currency operates in the first place.
How Bitcoin Can Be Divided
Bitcoin can be divided and bought and sold in fractions because that was precisely how it was designed to operate.
Bitcoin was designed to be a currency. That means Bitcoin needs to be able to purchase goods and services accurately to the price of the good or service, which sometimes does not cost a whole Bitcoin.
A single, whole Bitcoin has come to be thousands, if not tens of thousands of dollars. This digital currency’s current price is nearly USD 20,000 at the time of this writing.
If Bitcoin could only be used to purchase things that cost tens of thousands of dollars, it would be a pretty useless currency. This was anticipated by the creator of Bitcoin (who remains anonymous or at least pseudonymous), who designed Bitcoin to be able to be divided into smaller units at prices accessible to beginner investors.
Just as the dollar can be divided into a hundred cents, or as the British pound may be divided into a hundred pence, Bitcoin can be divided into fractional shares that you can purchase with a debit card or credit card on a Bitcoin exchange.
In fact, unlike the dollar, which can only be divided down to the cent, or the British pound, which can only be divided down to the pence, 1 Bitcoin can be divided down to a “satoshi,” which is 0.00000001 of a Bitcoin (eight decimal places).
Examples
So, for example, if we assume a single Bitcoin to be around $20,000, we can see that a single satoshi of a Bitcoin will amount to approximately 0.0002 dollars or 0.02 cents.
This greater division means that Bitcoin is, at least for now, safe from becoming so overvalued to become useless for smaller purchases. Bitcoin is not likely to lack the ability to purchase smaller goods soon, so this cryptocurrency investment remains accessible for first-time investors.
Buying and Selling Fractions of Bitcoin
Now, this means for the investor that you can buy only fractions of a Bitcoin without needing to have ample funds to buy a whole Bitcoin on the cryptocurrency market.
Whether you are not so sure about this cryptocurrency, are just not willing to put all your eggs in one basket, or are just a little tight on money, you can purchase Bitcoin without emptying your bank account.
Because the denominations of Bitcoin extend to the eighth decimal place, you can own Bitcoin — as little or as much of it as you want.
Where Can I Buy or Sell a Small Amount of Bitcoin?
Well, almost anywhere you can buy or sell Bitcoin, you will be able to buy or sell a fraction of Bitcoin.
Most trading platforms allow for the purchase of fractions of Bitcoin along with other crypto coins, and they even incorporate and help to manage your crypto wallet, which holds your currency for you.
There are many opinions all over the internet on which crypto exchange is truly the best, but most major trading platforms will be able to serve your needs.
Luckily, the price of bitcoin won’t vary from platform to platform, so no matter where you choose to buy crypto, you still get the “best deal” thanks to the power of blockchain technology.
Some Factors To Consider in Crypto Trading
You should consider a couple of factors before you start trading fractions of Bitcoin. Because the trading platforms, the crypto exchanges, need to make money from your trades to be in business, they will have some rules and fees that you will need to take into account.
Trading Fees Eat Up Profit
Firstly, you need to remember that even though you may be able to invest only a couple of dollars, or even cents, into Bitcoin to test the waters, the cryptocurrency exchanges will attach the market price to a trading fee.
This trading fee could be a flat price or a percentage of your trade, but one way or another, you need to remember that each time you make a trade, a portion of your money goes to the trading platform that facilitates your needs. That means it’s not going into your Bitcoin wallet.
This also means you should factor your trading fee into your investment plan. Even though you may be spending a couple of dollars on the Bitcoin fraction itself, you may be blowing an even larger amount on the trading fee.
For example, even though you have bought five dollars worth of Bitcoin, you might also spend an equivalent of five dollars in trading fees. Even if your owned fraction of the Bitcoin were to appreciate by a dollar, you would be losing four dollars.
You need to choose either a platform that minimizes your trading fees or buy enough of the coin so that the trading fees’ losses do not overwhelm the gain you make from appreciating your cryptocurrency.
Deposit and Withdrawal Limits and Fees
Another factor to consider is the deposit and withdrawal limits that the crypto exchange may set on your investments.
Some exchanges may limit how much money you can deposit into your account and lower limits on how much you need to deposit at a time. With these limits, the crypto exchanges can encourage traders to invest more and regulate their platform’s effectiveness.
Similarly, limits may be set on withdrawals such that you can only withdraw a certain number of dollars at a time. Once again, the exchanges are trying to keep the money in the system so that they might encourage further trades and also preserve more liquidity on their side.
There are also fees attached to deposits and withdrawals. Usually, withdrawals are more burdened with fees than deposits, so investors are less inclined to withdraw their money from the exchange.
With all these limitations, investors must weigh their options and consider how these fees may take away from their profit margin.
They might not want to move money to and from their exchange account if the fees are large enough. It may not be worth investing only a small portion of your money while losing a large chunk of that money you just deposited due to fees.
Taxes
Perhaps the most unavoidable are taxes. Smaller portions of your cash invested in cryptocurrency may be attractive. Still, if you give a significant amount of your revenue to the government, you might lose more money than you gain.
It is necessary to read up on how your taxes may contribute to your investments’ volatility and understand recent government regulations changes.
Conclusion
Bitcoin, being created as a currency, was designed to be divided. The essential feature of a functional currency is to be useful in making purchases.
Sometimes, purchases can be relatively small. In those cases, a crucial feature of the currency is its ability to be divided into smaller bills and coins. In cryptocurrency, that division is possible to a smaller degree than in other government-backed fiat currencies.
As a result, the investor can trade these smaller denominations of Bitcoin, even down to the eighth decimal place.
However, investors ought to weigh their options and consider diligently the benefits and losses of making such trades by looking at how the different fees imposed by the crypto exchanges and the taxes imposed by the government will impact their earnings.
If you’re interested in more crypto information and investment solutions, contact us at Sarson Funds.
Sources:
Who Is Satoshi Nakamoto? | Investopedia
Crypto Denominations: Satoshi Values & Wei to Ether | Gemini
Best Crypto Exchanges Of October 2022 | Forbes Advisor
Want to Buy Bitcoin? You Don’t Have to Spend $57,401 to Invest | Nasdaq
Cryptocurrency Taxes: A Guide To Tax Rules For Bitcoin, Ethereum And More | Bankrate
