How to Invest in Bitcoin
Since its creation in 2009 by an unknown programmer (or group of programmers) using the pseudonym Satoshi Nakamoto, Bitcoin has more than doubled in value on a yearly basis. Despite experiencing huge losses in 2018, it came back stronger than ever and remains one of the most profitable assets over the past decade.
Most recently, Bitcoin has begun to attract interest from financial institutions around the world as it continues to prove itself as the future of digital money. The industry has evolved a lot over the past decade and is now made up of a highly professional group of individuals who are at the cutting edge of technology.
Yet despite a decade of innovation, most people still don’t know how to invest in Bitcoin. Well, there are actually several different methods, which we will explore below.
Table of Contents
The most simple way to invest in Bitcoin is, obviously, buying some of it. However, while advancements in the field have improved a lot recently, most people still don’t know where to start.
The first and most important thing to ask yourself is – how much can I afford to spend? Never spend more than you can afford to lose. Just like with many other assets such as stocks and bonds, Bitcoin is volatile and there is no guarantee it’s value will hold.
Once you have decided on a safe amount to invest, you’ll need to find an online exchange where you can purchase Bitcoin. This process used to be quite complex but these days it can be as simple as ordering a book off Amazon. Some of the most popular and easy to use online exchanges include Coinbase, Paxful, and Coinmama. All these platforms accept credit card payments or bank transfers, making it simple to buy Bitcoin with funds from your bank account.
Depending on what country you live in, you may or may not be able to use certain exchanges, so you’ll need to shop around and find one that works for you. Almost all platforms are available to citizens of Europe, while in the U.S. many are restricted.
If this is your first time investing in Bitcoin, select an exchange which provides you with a free digital wallet. This is where your Bitcoin is stored online and can only be accessed by you. Most sites with good security offer two-factor authentication (2FA), which provides greater security but requires the use of a third-party app on your mobile phone.
As you progress and learn more about how to invest in Bitcoin, you can upgrade to more advanced wallets like the Trezor or Ledger hardware wallet. These are physical wallets that resemble a USB stick and are far more secure than online wallets because they are almost impossible to hack.
Always do research and read reviews on the exchange and wallet provider you choose to use, as there are several scams operators that exist within the industry. Coinbase, Copay or Uphold all provide trustworthy online wallets.
For long-term storage of Bitcoin it is also possible to use a ‘paper’ wallet. This is quite literally an encrypted code printed out on a piece of paper which should be stored in a home safe or safety deposit box. The encrypted code can be scanned by a QR code reader which will access and release your Bitcoin from the blockchain ledger. This method is unconventional and usually only used by long-term investors with large amounts of Bitcoin.
Best time to buy?
Before buying it is a good idea to do some market research and see where the price currently is. If the price has been increasing a lot in the past week it may be best to wait and see if it goes down. The best time to buy is when the price has been decreasing for a few days consecutively – this is called a dip. The price may continue to dip for a bit after you buy – don’t freak out! If history is anything to go by, it will eventually go back up again.
Long term investors don’t check the price of Bitcoin every day – they simply buy the asset and leave it to mature over time. Unless you plan to get involved in day trading, you needn’t worry about small fluctuations in the price. However, it is a good idea to keep up-to-date on developments within the industry. As you learn more, you will begin to notice events that could precipitate a drop or rise in price. Using these movements to your advantage is the way to really profit from your investment.
Mining is a more advanced way to invest in Bitcoin and involves some initial capital in order to purchase the required equipment. Gone are the days when a miner can simply plug some graphics cards into a computer and start making daily profits. Nowadays, mining Bitcoin requires a huge investment and a room full of ASICs hardware miners and air conditioners just to turn a minor profit.
However, it does offer a decent way to earn some passive income once all the setup is complete. At present, the difficulty involved in mining Bitcoin makes it unaffordable for most individual users but it may become more profitable again next year after the Bitcoin halving event which automatically reduces difficulty.
It is also possible to invest in a ‘cloud’ mining company like Hashflare or Genesis. This means rather than buy your own equipment, you pay an online company to mine for you and you receive a dividend of the profits. While this method has grown in popularity recently, there is some dispute as to exactly how profitable it can be.
Trading cryptocurrency, like with any asset, is quite advanced and not suggested as an entry-level method for people looking for how to invest in Bitcoin. Once you have spent a considerable amount of time researching the market and the underlying technology then you can consider looking into trading.
A professional trader can make a lot of money in a day but can equally lose just as much. It’s a risky business that requires knowledge, time, dedication and balls of steel. However, it can also be a lot of fun – as long as you stick to the golden rule: Never invest more than you can afford to lose!
There are several popular and trustworthy cryptocurrency trading platforms, including Binance, Bittrex, Bitfinex, Kraken and Coinbase Pro. These platforms allow you to transfer cryptocurrency from your wallet to the site easily and trade directly with the market, which is the safest method. They usually provide tools such as limits and stop-loss to ensure you don’t lose too much if a trade goes south.
As a newbie trader, avoid risky derivative products such as CFD’s and binary options – while they may offer big returns, the vast majority of traders lose money on them.
Learning how to invest in Bitcoin is not as complicated as some people might think. Anyone with an internet connection and a credit card can get involved in as little as five minutes. However, the real key to good long-term investing is solid research and understanding a bit about the technology.
Follow these rules to stay on top of your game:
- NEVER invest more than you can afford to lose.
- Always reviews about an exchange or wallet provider before choosing one.
- Use a provider with two-factor authentication (2FA) and never give out your password.
- Don’t panic-check the price every day, it’ll only exhaust you emotionally.
- Keep on top of new developments in the blockchain and cryptocurrency industry.