What Is Bitcoin And How Does It Work
The concept of digital money that you use online is not that complicated in itself. After all, most of us will be familiar with transferring money from one online bank account to another.
Bitcoin is a digital asset that operates like normal currency with notable differences. Cryptocurrencies are peer to peer payment methods, without the banks taking a cut with every transaction. There are no physical version of the coins either.
Each bitcoin is created using an encrypted code, which is a string of numbers and letters. The same equation used to create the code is can unlock it .
Other important points about bitcoin:
- Cryptocurrencies, like bitcoin, ethereum and cardano, are a form of payment that uses blockchain technology to send data in cyberspace
- Each bitcoin must be mined
- It is finite: only 21 million bitcoins that can be mined in total
- Cryptocurrencies are decentralised meaning they are not regulated by a financial authority, like a government or central banks
- Most platforms will allow bitcoin purchases using credit cards
Where To Invest In Bitcoin
It is important to assess the best place to invest in Bitcoin for your personal requirements.
For instance, some platforms are geared towards beginners, while others are more suited for large-scale investors that seek high-level trading tools.
With this in mind, when thinking about where to invest in Bitcoin consider the selection of pre-vetted brokers reviewed below.
What You Need To Know Before You Invest In Bitcoin
Bitcoin is an exciting digital currency that began an online currency and digital asset revolution. Bitcoin uses a triple-entry bookkeeping system that powers a decentralized system run by many participating computers around the world, known as miners. Bitcoin was first created in 2009 and reached a peak value of more than $60,000 per coin in early 2021. However, the price is highly volatile compared to other assets, such as stocks and diverse ETFs.
If you move forward and make a Bitcoin purchase, you can choose between storing your Bitcoin in the same exchange account you used to buy the currency or external software, hardware, or paper cryptocurrency wallet. Offline storage with a hardware wallet, known as cold storage, is considered the safest and most secure place to keep your Bitcoin.
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How To Invest In Bitcoin The Bottom Line
Although it has been in the news constantly, Bitcoin is a relative newcomer as an asset class. Because of the developing ecosystem around cryptocurrency, investing in Bitcoin is not as easy as other mainstream assets such as stocks and bonds. Its newness is a double-edged sword, creating high risk and an opportunity for high reward.
Before deciding where and how much to invest in Bitcoin, investors should do their due diligence and understand the trade-offs. Learning more about investing in Bitcoin and the buying process is crucial in setting yourself up for a successful investment for those ready to take the leap.
This article originally appeared on Wealth of Geeks.
Is Your Crypto Strategy A Hedge For Inflation Or A Sideways Stock Market
Its important to understand the impact even a small allocation to crypto may have on your overall investment strategy. While it adds a degree of diversification beyond stocks and bonds, its not a risk mediator. Why? Because crypto is inherently volatile. Its huge price swings are driven solely by fear and greed, rather than by quantifiable business, economic or geopolitical factors.
And once you decide to add it, how do you choose among the hundreds of cryptos out there? Unlike stocks or bonds, theres no formal research available to help you figure out which digital currency offers the best bank for your buck.
Thats why if youre serious about crypto as a long-term strategic investment, you may want to work with a qualified fee-only fiduciary financial adviser who has expertise with digital currencies.
Not only will such an adviser have access to research that makes evaluating cryptos something more than a wild guess, but they also have sophisticated financial modeling tools that can hypothetically illustrate its potential long-term impact on your portfolio under various return scenarios. Keep in mind that none of these models can in any way predict future results.
If you really want to invest in crypto, most financial advisers who have knowledge of crypto recommend that it comprise no more than 5% of your portfolio. And thats only if you have a long time horizon and a moderate to high appetite for risk.
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Security And Risks Of Investing In Bitcoin
When investing in Bitcoin, you should not only take into account the risks of losing your money but also what platform you select for this purpose. Choosing a good crypto exchange is a crucial factor in this process as the platform that lacks safety features and is not regulated by financial institutions cannot recommend secure trading. So, before you trust any information to a trading platform, do careful research and check if the platform has a good reputation in terms of secure trading.
There are plenty of cryptocurrency exchanges, but not all of them are safe and secure. The market is also filled with many scammers and fraud. So, trusting your wallet information or card details to a broker that seems suspicious, does not have a good reputation, and lacks strong security systems, is actually very risky. Your profile can be easily hacked, resulting in your capital loss. Furthermore, suppose the selected brokerage platform is not regulated, and no financial authority oversees the process. In that case, they can hardly compensate for your loss.
Tips For Investing In Bitcoin
If you do decide that you want to try Bitcoin investing, be sure to heed the following tips:
Understand your risk tolerance: As mentioned before, Bitcoin is a high-risk investment, and you should carefully review your risk tolerance before you invest. If you dont feel comfortable investing in volatile assets or only have a small sum of money to invest, you may want to consider other investment options.
Diversify Your Portfolio: The best way to protect yourself from investment losses is to diversify your investment portfolio. Your primary investments should be low-risk, like government bonds or index funds. Next, you should go for medium-risk investments, like real estate or corporate stocks. High-risk investments, like penny stocks or Bitcoin, should be your smallest and least-prioritized investments. Bitcoin is essentially the icing on the cake: the investment that could yield substantial profit but which you could still do fine without.
Start Small: If youre on the fence, start small. Cliff Auerswald, President of All Reverse Mortgage, recommends investing $10 per week. Many people still are unsure about whether or not crypto-currencies will pan out. With all the buzz surrounding crypto, though, many are still interested and dont want to miss out, he says. One of the most effective ways to invest in BTC is to just put $10 a week into it. That way, its not a risk if it doesnt end up panning out but over time, youll have a healthy investment.
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How Much To Buy In Bitcoin
If you want to invest in Bitcoin, the best strategy for investing and how much to invest will again depend on your needs and lifestyle. Your financial advisor will be the best person to talk to.
That said, some people like to use a strategy called . With this strategy, you buy a little at a time every day, week, or month, etc.
Its up to you to decide how frequently and in what quantity to buy. The important thing is to keep the dollar amount the same each purchase. This helps to avoid going all in at a high price. Ask your financial advisor about this strategy if you are curious. There a tons of services that cater to this strategy, including Swan, and
Are There Cryptocurrency Exchange
Given the thousands of cryptocurrencies in existence , its understandable you might want to take a diversified approach to investing in crypto to minimize the risk you lose money.
Multiple companies have proposed crypto ETFs, including Fidelity, but regulatory hurdles have slowed the launch of any consumer products. As of June 2021, there are no ETFs available to average investors on the market.
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How Much Should I Invest In Bitcoin
Bitcoins torrid growth has left more and more people wondering how much they should invest in Bitcoin. Some Bitcoin bulls contemplate whether they should continue investing in general while others are scratching their heads and thinking about how to buy Bitcoin.
Like any asset, Bitcoin comes with its own set of advantages and disadvantages. Keeping these in mind and reviewing your investment goals will help you determine how much you should invest in Bitcoin.
Where To Buy Bitcoin
There are hundreds of websites where you can buy Bitcoin.
I recommend you try a few different exchanges as people have proved to have different tastes when it comes to cryptocurrency investing.
In any case, here are the best exchanges I recommend you start using today if you dont already.
*eToro Disclaimer: Your capital is at risk
For more information about these cryptocurrency exchanges, check out our full article: The 5 Best Ways to Buy Bitcoin.
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Advanced Strategies For Investing In Bitcoin
If you enjoy the Bitcoin marketplace, you can advance your strategy to include Bitcoin futures, decentralized exchanges, and automated trading strategies.
Bitcoin futures, like futures of other commodities, are derivative products with Bitcoin as their underlying securities. Derivatives are typically riskier than investing directly in the underlying security, and that means Bitcoin futures carry an even greater risk than directly buying Bitcoin.
Although it may be riskier and involve a better understanding of cryptocurrencies, another way to buy Bitcoin is through a decentralized exchange. Unlike Kraken or Gemini, which are centralized exchanges, platforms such as Exodus and Bisq allow you to connect with third-party buyers or sellers directly. Exodus does this through its app, whereas Bisq has software that you can run on your computer to give you access to a peer-to-peer network.
While using decentralized exchanges gives you more control over your Bitcoin and trading, it does have a few drawbacks.
Another advanced strategy to buy Bitcoin that may not be suitable for beginner investors is using automated trading. There are many applications or trading bots, such as Cryptohopper, that have algorithms that make trades based on market conditions. Signing up for something like that will let the bot make trades on your behalf to take advantage of small price fluctuationsbut it can be risky.
Bitcoin Prices Will Remain Volatile
Bitcoin prices soared by over 50% in 2021 and touched record highs in November. However, there were several cryptocurrencies that delivered gains of more than 10,000% in 2021. You should understand that despite the widespread adoption of Bitcoin, investing in cryptocurrency remains highly speculative.
So, while cryptocurrencies might continue to deliver life-changing returns, investors stand to lose a significant portion of their capital as well. The ongoing pullback in the cryptocurrency space may also present an attractive opportunity for investors with a large risk appetite.
If we consider historical trends, the worlds leading cryptocurrencies such as Bitcoin and Ethereum should stage a rebound going forward. In fact, no Bitcoin investor has lost money over any four-year period. But the prices of BTC and other digital assets have declined by more than 80% multiple times in the past and Ethereum prices were down close to 95% in 2018.
The risk/reward profile for cryptocurrencies may be attractive but you need to keep your nerve during a bear market that may last a number of years.
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Three: Place An Order
You can buy bitcoin after choosing an exchange and connecting a payment option. In recent years, cryptocurrency exchanges have slowly become more mainstream. They have grown significantly in terms of liquidity and their breadth of features. The operational changes at cryptocurrency exchanges parallel the change in perception for cryptocurrencies. An industry that was once thought of as a scam or one with questionable practices is slowly morphing into a legitimate one that has drawn interest from all the big players in the financial services industry.
Now, cryptocurrency exchanges have gotten to a point where they have nearly the same level of features as their stock brokerage counterparts. Crypto exchanges today offer a number of order types and ways to invest. Almost all crypto exchanges offer both and limit orders, and some also offer stop-loss orders. Of the exchanges mentioned above, Kraken offers the most order types. Kraken allows for market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders.
Aside from a variety of order types, exchanges also offer ways to set up recurring investments, allowing clients to dollar-cost average into their investments of choice. Coinbase, for example, lets users set recurring purchases for every day, week, or month.
Metcalfes Law And Bitcoin High Adoption With Push The Price Up Exponentially
Metcalfes Law is a term coined by Robert Metcalfe that states that the value of a network grows by the square of the size of the network. The idea behind this law is that a networks value is increased as the size of the network increases. For example, approximately 0.7% of the population use Bitcoin so , but if we saw an increase to 2% of the population using Bitcoin, then the value of the network would quadruple , if 4% of the population used Bitcoin then the value would of the network x16 and so on. The value of the network quadrupling would also push the price exponentially there is no limit to what price Bitcoin can hit!
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How Much Should You Invest In Bitcoin To Generate Money
Investing in Bitcoin may appear hard, but it is a lot simpler when broken down into phases. Investing or trading in Bitcoin involves simply an account with a service or an exchange, while additional secure storage measures are encouraged.
A cryptocurrency exchange account, personal identity papers if utilizing a Know Your Customer platform, a secure Internet connection, and a payment method are all required for ambitious Bitcoin investors. It is also advised that you have your own personal wallet separate from the exchange account. This route accepts bank accounts, debit cards, and credit cards as payment options. Bitcoin may also be obtained using specialist ATMs and P2P exchange
What Is The Safest Bitcoin Investment Site
There are hundreds of websites from which you can use to invest in Bitcoin. All of them have their pros and cons, and ultimately, youll have to choose a few based on your preferences.
Most of all, I recommend you try Binance crypto exchange, as people have proved to have success with them, when it comes to crypto investment.
In any case, theres a unique platform known as CoinSwitch, which serves as an aggregator that brings all the prices of crypto-coins from different cryptocurrency exchanges together in one place.
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How Do I Go About Buying Stocks
To buy stock using Cash App Investing:
Stock can be purchased using the funds in your Cash App balance. If you dont have enough funds available, the remaining amount will be debited from your linked debit card. Once the order is filled, you can review your investment under My Portfolio on the Investing tab.
Now How Do I Sell Stocks
To sell stock using Cash App Investing:
The amount of your sale may be automatically deposited into your Cash App balance. Depending on market activity, sales proceeds may take up to 2 business days to be deposited in your Cash App balance.
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Have An Investment Target In Place
Another strategy to consider using when investing in Bitcoin is to have clear targets in place.
- For example, lets suppose that you want to make gains of 75% from your Bitcoin investment.
- If you invest when the price of Bitcoin is $40,000 this means that the digital currency needs to exceed a value of $70,000 per token.
If and when your target is met, you can then elect to sell your Bitcoin tokens back to cash. The most effective way of deploying a target Bitcoin price is via a take-profit order.
For those unaware, take-profit orders which are available at platforms like eToro and Binance, allow you to specify an exact price that you wish to sell your investment.
When this price is triggered by the markets , your chosen broker will automatically close your position.
In addition to take-profits, it is also worth considering a stop-loss order when you invest in Bitcoin. This works in the same way as a take-profit but in reverse.
- For instance, you might decide that the most you are prepared to lose from your Bitcoin investment is 20%.
- If the price of Bitcoin stands at $40,000 at the time of the investment, you would need to set your stop-loss at $32,000.
- If the specified price is triggered, then the broker will automatically close your position.
Ultimately, by placing both take-profits and stop-losses, this means that you dont need to constantly check the price of Bitcoin, as your chosen broker will close your trade when one of your orders is triggered.