Should You Use eToro to Buy Bitcoin?

Buying Bitcoin for the first time? Find out if eToro's a good way to do it.

eToro is a popular international stock broker that allows U.S. customers to trade cryptocurrencies. If you're looking to buy Bitcoin, it may be a good option -- depending on where you live and what your priorities are. Here are some questions to take into account.

1. Is it easy to use?

For beginner investors, eToro's platform is not as intuitive as other options on the market. For example, if you want to just buy Bitcoin, eToro doesn't offer the kind of simple instant buy feature you'll find with many other exchanges.

It does offer a practice trading account so you can experiment with fake money and test out different investment strategies. And the eToro academy has some useful information. But it is patchy, and several stories haven't been updated recently.

To open an account with eToro, you complete a questionnaire about your risk tolerance, income, and level of financial knowledge.

2. How easy is it to deposit and withdraw money?

Comparing cryptocurrency exchanges can be frustrating because they all have different fee structures and deposit/withdrawal options. There are a couple of ways to deposit U.S. dollars with eToro -- including credit and debit cards and bank transfers -- and all of them are free, which is unusual.

However, eToro charges 0.5% on crypto transfers up to a maximum of $50, meaning you pay to move your tokens off the exchange. Non-U.S. customers also have to pay a $5 withdrawal fee when they withdraw money. And there's a $10 a month inactivity fee for people who haven't accessed their account in a year.

3. What are the trading fees?

Trading fees vary depending on the cryptocurrency you buy. For Bitcoin, eToro charges a spread of 0.75% -- so to buy $500 worth of BTC, you'd pay $3.75 in fees. Given that eToro does not charge you to deposit money, this is pretty competitive.

However, the fees for other cryptocurrencies can be more expensive. At 5%, Tezos (XTZ) is the most expensive, but fees on other popular coins hover between 1.9% and 3.9%. This is not super expensive, but you'll find cheaper options on our list of top cryptocurrency apps and exchanges.

4. How secure is it?

eToro says it follows the highest standards in protecting customer assets, but its website is light on details. Several top exchanges tell users about the specific measures they take -- such as what security audits have been carried out, or that they require employee background checks.

In contrast, eToro says it can't share more information for security reasons. It does keep most crypto assets offline in cold storage, which makes it difficult to hack. And it also says it keeps client funds in a segregated account, giving some protection in the event that eToro goes bankrupt. U.S. customers who keep dollars on eToro have additional FDIC insurance against platform failure, though this does not apply to any crypto assets.

What's disappointing is that eToro does not carry additional third-party insurance on crypto assets. Given that a number of cryptocurrency exchanges have been hacked, some platforms that want to keep your Bitcoin extra safe take out specific insurance against crime such as hacks.

5. What coins does it support?

eToro supports around 30 cryptocurrencies for U.S. customers. If you're only interested in buying Bitcoin, you won't need a platform that offers a wide variety of coins. However, if you do want to branch out into altcoins (any crypto that isn't Bitcoin), you'll find several popular tokens, though the range is still relatively limited.

6. Can I earn interest?

eToro does not give customers the option to earn interest on Bitcoin. Certain exchanges do this through lend/earn products that use the interest earned on decentralized loans to pay competitive rates to investors.

It does, however, let customers stake a handful of coins. Without getting too technical, here's how staking works: Certain tokens pay rewards to investors who are willing to "stake" -- i.e. tie up their coins -- and contribute to the wider security of the network. Bitcoin can't be staked.

7. Does it operate in my state?

One limitation to be aware of is that eToro does not operate in all U.S. states. If you live in Delaware, Nevada, Minnesota, Tennessee, New York, or Hawaii, you'll need to look for another exchange.

eToro is available in over 100 countries, but the services and fees differ from country to country. American customers cannot trade stocks on eToro, and advanced options, such as leverage trading, are not available in the U.S.

8. Are there additional features?

One big eToro attraction is its "copy trading" feature. Users can follow traders they like and even automatically copy their trading moves. It's easy to look at the gains or losses of individual traders and -- with a $200 minimum -- mimic the trading decisions of investors you admire. Be careful who you follow though -- traders who make high profits may do so by taking more risks.

Should you use eToro to buy Bitcoin?

If you're only looking to buy Bitcoin and hold it, two aspects of eToro are concerning: the monthly inactivity fee, and the lack of details about security. You can mitigate this to some degree by moving your funds to an eToro wallet, but there are other -- easier -- options out there. Check out our list of cryptocurrency reviews for more alternatives.

The copy trading and practice account are both interesting features for those who want to broaden their crypto investments. But copying someone else isn't a substitute for researching individual cryptos and making your own informed decisions.