Content of the material
- Other ways to invest in cryptocurrency
- The “Risks” Of Becoming A Bitcoin Millionaire
- What to Watch Out for After You Invest in Bitcoin
- How to make money by investing in bitcoin
- Factor #3: Timing
- Is My Bitcoin Purchase Protected by SIPC?
- Step 5: Manage Your Bitcoin Investment
- What Are the Steps for Purchasing Bitcoin?
- Should I invest in bitcoin?
- What Do You Need to Invest in Bitcoin?
- Do You Know How To Invest in Bitcoin Safely?
- 3. Purchase Your Bitcoin
- Is It That Simple?
- The Rig Problem
- The Free Capital Problem
- The Portfolio Balance Problem
- The Time Problem
- How to Invest in Bitcoin: Different Methods
- Purchasing Standalone Bitcoin
- Greyscale’s Bitcoin Investment Trust (GBTC)
- Amplify Transformational Data Sharing ETF (BLOK)
- Bitwise 10 Private Index Fund (BITW)
- Factor #5: Diversification
- Step 1: Choose a Crypto Exchange or Platform
- For Most Beginners: Coinbase
- For Aspiring Advanced Traders: Binance.US
- For a Crypto Credit Card: BlockFi
- What is the best way to invest in Bitcoin?
Other ways to invest in cryptocurrency
While investing directly in cryptocurrency may be the most popular way to do so, traders have other ways to get into the crypto game, some more directly than others. These include:
- Crypto futures: Futures are another way to wager on the price swings in Bitcoin, and futures allow you to use the power of leverage to generate massive returns (or losses). Futures are a fast-moving market and exacerbate the already volatile moves in crypto.
- Crypto funds: A few crypto funds (such as the Grayscale Bitcoin Trust) also exist that allow you to wager on the price swings in Bitcoin, Ethereum as well as a few other altcoins. So they can be an easy way to buy crypto through a fund-like product.
- Crypto exchange or broker stocks: Buying stock in a company that’s poised to profit on the rise of cryptocurrency regardless of the winner could be an interesting option, too. And that’s the potential in an exchange such as Coinbase or a broker such as Robinhood, which derives a huge chunk of its revenues from crypto trading.
- Blockchain ETFs: A blockchain ETF allows you to invest in the companies that may profit from the emergence of blockchain technology. The top blockchain ETFs give you exposure to some of the key publicly traded companies in the space. But it’s important to note that these companies often do much more than crypto-related business, meaning your exposure to cryptocurrency is diluted, reducing your potential upside and downside.
Each of these methods varies in its riskiness and exposure to cryptocurrency, so you’ll want to understand exactly what you’re buying and whether it fits your needs.
The “Risks” Of Becoming A Bitcoin Millionaire
Even if you had invested in Bitcoin way back then, it would have taken nerves of steel to hold onto it through the year. Looking at the historical BTC chart, you’d have had to survive and hold through several periods where your investment lost nearly 50% of its value within the period of a few weeks.
What to Watch Out for After You Invest in Bitcoin
Bitcoin is risky and volatile. The price rises and falls very quickly and sometimes with little notice. A Twitter message by Elon Musk or a negative message from a government official could be enough to send Bitcoin’s value into a tailspin.
While Bitcoin and other cryptocurrencies may be a reasonable asset to hold in your investment portfolio, don’t invest more than you can afford to lose, and consider keeping cryptocurrency as a relatively small portion of your overall investments.
If you time it right and sell your Bitcoin for a profit, it’s also important to note that Bitcoin sales are taxable. So put enough cash aside to cover your tax bill if you expect significant capital gains taxes after a profitable cryptocurrency sale or exchange.
How to make money by investing in bitcoin
Like any investment, making money depends on what price you buy and sell an asset for. If you sell when its price is higher than you bought it for, you will make money.
If you sell for a lower price than you bought it for, you will lose money.
For example, if you had invested in bitcoin at the start of:
- 2020 and sold on 31 December 2020, you would have made a 300% profit
- 2018 and sold on 31 December 2018, you would have made a 73% loss
Bitcoin is extremely volatile so the trick is not to panic and crystallise your losses by selling when its value inevitably falls. This is the same with all investments.
Factor #3: Timing
I bet you’ve heard much more about cryptocurrencies when Bitcoin’s price was booming, as opposed as to when it’s declined or stabilized. This is because of people and media alike have a natural tendency to follow existing trends.
But do you know that the cryptocurrency market is made of repeated market cycles? These market cycles often last for 1 to 2 years. Prices surge fast, creating bubbles. BIG bubbles. And then, these bubbles burst badly.
This is why timing is crucial in cryptocurrencies. It can completely change your journey and the way you’ll look at it.
As a result, when deciding how much you should invest in Bitcoin, look at where we’re at now in these market cycles, and you are going to find the best way to invest in Bitcoin.
To find out this information, open the global market chart of CoinMarketCap. Look at it closely, and answer the following questions:
- Are we close to the market all-time high?
- How long since we experienced a market bull run?
The closer we are from the market’s all-time high both in terms of price and time, the least you want to invest. On the other hand, if the current price is $5,000 and the highest price was $20,000 two years ago, then it should be a better time to invest in Bitcoin right now.
Don’t get me wrong: even though we’re in the middle of price surges, it’s not a bad idea to invest money in cryptocurrency right now, because it gets you started. The timing should only change your entry approach and lower/increase the amount you had in mind initially.
Is My Bitcoin Purchase Protected by SIPC?
No, your bitcoin purchase is not protected by SIPC. At certain exchanges, like Coinbase, fiat balances in individual accounts may be FDIC-insured to the tune of $250,000 per account.
Step 5: Manage Your Bitcoin Investment
Your final step to becoming a bona fide bitcoin trader is to know when to buy, sell or hold — or as crypto stans say, HODL (see below).
For lack of a better idea, there’s nothing wrong with a buy-and-hold strategy. Timing the stock market is tricky, and by comparison, bitcoin’s behavior is less predictable than a pig on LSD. So “timing” a bitcoin trade just right can be extremely difficult — even a lesson in futility. You may simply want to hold until you need to sell for a large cash purchase, like a home down payment or emergency bill.
I’ll leave you with this: the original forum post from 2013 where the legendary term “HODL” (hold on for dear life) originated. The drunken diatribe perfectly encapsulates why so many crypto traders have adopted a buy-and-hold strategy — they truly believe in the promise, potential and skyward performance of bitcoin.
What Are the Steps for Purchasing Bitcoin?
The process to purchase bitcoin consists of four steps: choosing a venue or exchange to place your order, selecting a payment method, and ensuring safe storage for your purchased cryptocurrency. Depending on the type of venue chosen in the first step, there might be additional steps involved in the process. For example, if you purchase the cryptocurrency through Robinhood you might need to factor in additional costs for an online wallet and custody of your bitcoin because it does not offer these services.
Should I invest in bitcoin?
Bitcoin is extremely volatile. If you are willing to take the risk, first make sure you understand what you are investing in and have a crypto investment strategy.
Also make sure you aren’t investing simply because you have a fear of missing out. There are a number of questions you should ask yourself before getting involved:
- Do I understand what I am investing in and how bitcoin and the crypto market work?
- Am I happy with the level of risk?
- How much more expensive is it now compared to a few months ago? If so, why am I wanting to buy a thing because its price is higher? Where else in my life do I do that?
- Is there any evidence to suggest prices could rise even higher?
- If I buy it now with a view to sell it for even more later, who do I think will buy it from me for that higher price and why?
- If an asset is so great, why was I not interested when it was much cheaper?
- Have I convinced myself that I am in some way “in the know?”
If you don’t have answers to these questions, it’s probably not a good idea to invest. If you do buy bitcoin, make sure you aren’t putting money you need on the line. Read more about cryptocurrency tips (and mistakes to avoid).
If you are new to investing and want to know more about the general principles and how to get started, check out our guide here.
What Do You Need to Invest in Bitcoin?
You don’t need very much to invest in Bitcoin! You only need the following:
Personal identification documents
Bank account information
A secure internet connection
Keep in mind—if you’re going to be purchasing coins through a stockbroker, you may not need to supply your personal information or financial information because your stockbroker will likely have all that on record.
Do You Know How To Invest in Bitcoin Safely?
If you’re new to cryptocurrency investments, you should be pretty careful since the market is very volatile, and you can end up losing your money quickly. Here are some tips to be on the safer side:
- Research: Make sure you learn all you need to know about cryptocurrency exchanges before you select one. You can also talk to experienced investors through online forums, especially those on Reddit.
- Diversify: Investing in Bitcoin seems like a lucrative move since the currency has spiked exponentially in the past few years. Still, you should not put all your money in one cryptocurrency. Instead, diversify your investments so that your money is more durable to shifts in the market.
3. Purchase Your Bitcoin
Once you have linked your wallet to the exchange, you must select the number of Bitcoins you want to purchase. One Bitcoin costs about $40,000, making it difficult for everyone to purchase a round-number amount.
You can buy the cryptocurrency in fractions, allowing you to purchase exactly the amount you want.
Is It That Simple?
Can you start investing in cryptocurrency with what amounts to some spare change left over from your paycheck? The short answer is yes, at least technically, but there are some problems and complications that you’ll need to consider.
The Rig Problem
If you have a sufficiently powerful computer, you can set up a rig to mine cryptocurrency on your behalf; instead of investing in crypto, you can generate the resources yourself. There are just a few problems with this idea. GPUs and other necessary computer components tend to be very expensive for starters, compromising your potential profitability. Crypto mining is also highly competitive and energy-intensive. This means you may end up spending more on electricity than you make generating cryptocurrency. Unless you know what you’re doing, you’re probably better off buying and selling crypto on the market.
The Free Capital Problem
To start, you’ll need to think about the free capital problem. You can purchase $20 of Bitcoin right now, but if you don’t have $20 to spare, that’s not going to do you much good.
Small scale transactions like the one above shouldn’t be a problem for anybody. But, if you’re living paycheck to paycheck or if money is inordinately tight, you might struggle to save up enough to build momentum.
There are several ways to handle this. For example, you could pick up a second job or a side gig to make some extra money. You could move to a cheaper location or cut expenses that are no longer relevant to you. Even taking advantage of online discount programs could be enough to scrape together an amount of money that allows you to begin cryptocurrency investing.
The Portfolio Balance Problem
Another caveat is just because you can invest in cryptocurrency doesn’t necessarily mean you should. Cryptocurrency is an uncertain investment wrought with volatility and regulatory complications. There’s never a guarantee that any cryptocurrency will increase in value or even hold its value. And, many new cryptocurrencies entering the scene end up being flagged as scams.
If you’re interested in protecting your investment and maximizing your long-term gains, you shouldn’t invest all your money in cryptocurrency, especially if you don’t have much money to spare. Even the riskiest investment portfolios in the world should have only a minority stake in cryptocurrency, with the remainder of their principal allocated to assets like stocks and bonds. Keep this in mind if you’re trying to build wealth.
The Time Problem
There’s also a problem related to investment time horizons and the potential return of your investment. Many people who delve into cryptocurrency are excited about the notion of turning a $1,000 investment into millions of dollars in wealth.
While this is possible, it’s unlikely, and to the extent possible, it will take a long time to unfold. For example, even if you saw an average return of 10% per year, it would take 73 years to turn $1,000 into $1,000,000.
How to Invest in Bitcoin: Different Methods
There are several different ways to invest in Bitcoin, both directly and indirectly.
First, you can invest in a company that utilizes Bitcoin technology. Although Bitcoin is a risky investment, plenty of companies sell successful products that incorporate Bitcoin and blockchain technologies. You can find several exchange-traded funds (ETFs) that include shares from various blockchain-related companies, like the Amplify Transformational Data Sharing ETF (BLOK). You’re not directly investing in cryptocurrency but in corporate stocks of companies that utilize Bitcoin. It’s safer, and most ETFs in this category outperform the market.
Second, you can participate in Bitcoin mining. Bitcoin mining is simply allowing your computer to be used as a node for the public ledger. It’s a topic worthy of its own blog post, but you should know that Bitcoin miners are rewarded with actual Bitcoin for their contributions. You could receive free Bitcoin without actually ever purchasing it.
Outside of what was just discussed, let’s take a look at some of the most popular ways people are investing in Bitcoin today and what they mean for investors.
Purchasing Standalone Bitcoin
The most obvious Bitcoin investment strategy is purchasing standalone Bitcoin. Buying Bitcoin directly from an app like Coinbase allows investors to take “physical” ownership of the asset. That’s an important distinction to make, as Coinbase allows investors to actually buy Bitcoin and store it in their own encrypted wallets. In doing so, investors will simultaneously gain access to the asset’s price performance and use it as a currency to make subsequent transactions. Owning standalone Bitcoin isn’t all that different from owning any other currency, less the incredibly volatile swings in value.
It is important to note that not every online platform or application allows investors to own standalone Bitcoin. Online trading platforms like Robinhood, for example, allow people to invest in Bitcoin, but they do not go as far as to let investors own Bitcoin (or its respective keys). Whereas Coinbase grants investors the “keys” to their own Bitcoin holdings so that they may transfer the assets to their own wallets, Robinhood does not. As a result, investing in Bitcoin on Coinbase will allow investors to own the asset and treat it like a currency. On the other hand, Robinhood investors can only take advantage of the price movements in their accounts and can’t transfer holdings to an encrypted wallet. Investors who intend to purchase standalone Bitcoin need to know their trading platforms’ limitations before committing capital to any cryptocurrency.
Greyscale’s Bitcoin Investment Trust (GBTC)
Founded in 2013, Greyscale’s Bitcoin Investment Trust has become a leader in the cryptocurrency industry. In becoming a trusted name in a rapidly growing sector, Greyscale emphasized democratizing Bitcoin for the masses. While Bitcoin is already decentralized, Greyscale gives more people more access to the up-and-coming digital currency. More specifically, Greyscale is an investment platform on the capital market that builds transparent, familiar investment vehicles for a growing asset class with unlimited upside.
Greyscale owes its current success to making Bitcoin more accessible to everyone. In fact, Greyscale helped bridge the gap between the informed and the uninformed. To do so, Greyscale made it easier than ever to invest in Bitcoin. For example, Greyscale allows investors to hold Bitcoin in certain IRA, Roth IRA, and other brokerage and investor accounts.
Amplify Transformational Data Sharing ETF (BLOK)
As its name suggests, the Amplify Transformational Data Sharing ETF is an exchange-traded fund traded on the stock market. Investors may purchase shares of BLOK on the secondary market and increase their exposure to Bitcoin. More specifically, however, BLOK is an actively managed ETF that specializes in blockchain technology. That means fund managers constantly seek out businesses that focus on blockchain technology and investing in them. Therefore, anyone investing in BLOK is invested in a basket of blockchain technology companies. While BLOK may not give investors access to standalone Bitcoin, it does give them access to the companies which use blockchain and its transformational data-sharing technologies.
Bitwise 10 Private Index Fund (BITW)
An investment in the Bitwise 10 Private Index Fund is an investment in the Bitwise 10 Large Cap Crypto Index. For those unfamiliar with the Bitwise 10 Large Cap Crypto Index, it tracks the return of the 10 largest cryptocurrency assets on the market. Therefore, investors who buy shares in this particular fund will be investing in the 10 largest “crypto-assets,” as measured and weighted by free-float market capitalization. When the assets perform well, investors will realize gains proportionate to the shares they own.
Factor #5: Diversification
Diversification is a technique any mature investor uses to reduce the importance of luck. It means you will not only invest in cryptocurrencies but also allocate your capital to different investment vehicles, such as real estate, stocks, gold.
You can also leave some of your money at your bank to earn a small interest rate.
All in all, don’t put all your eggs in your cryptocurrency basket. It would be like playing roulette martingale. You’ll win, and win, and win, but when you lose, you lose everything.Diversification also applies to your cryptocurrency portfolio. Find out the 10 Best Cryptocurrencies To Buy Right Now
Step 1: Choose a Crypto Exchange or Platform
Your first step of course will be to choose where to buy your crypto.
Like USD, bitcoin is the same no matter where you “withdraw” it from. Therefore, your primary considerations will be safety, convenience and fees.
We’ve published a whole story on the best crypto exchanges, but to help narrow your search, here are my top three picks for beginners.
For Most Beginners: Coinbase
- Pros: Extremely user-friendly; a publicly traded company; earn free crypto with Coinbase Learn.
- Cons: High trading fees; can’t control wallet keys.
Coinbase is a household name for crypto buying for a reason. It’s not only the first crypto exchange to go public; it’s also the softest landing pad for crypto beginners.
Coinbase knows that crypto investing can be a little intimidating, so it designed its buying process to be as streamlined as possible. You pretty much just sign up, attach a payment method and — boom — buy crypto like it’s Amazon.
Plus you can earn free crypto by watching short training videos on Coinbase Learn.
The chief drawback to Coinbase is that it charges higher-than-average fees: up to $2.99 per transaction plus a spread fee of around 0.50% between purchase and sale prices.
But due to convenience, safety and customer service, many traders stick with Coinbase for the long haul. Find out why in our Coinbase Review.
For Aspiring Advanced Traders: Binance.US
- Pros: Low trading fees; both simple and advanced dashboard options; lots of altcoins.
- Cons: Not quite as beginner friendly as Coinbase; under more scrutiny.
Binance.us is the “lite” version of Binance, which is the world’s largest cryptocurrency exchange by volume. Binance.us exists to navigate the red tape of U.S. regulations. And while it may not have all of the features and altcoins (non-bitcoin cryptos) of its international parent, it’s a compelling rival to Coinbase in its own right.
The platform’s chief advantage is its low fees: just 0.5% for instant buying and selling. You can lower your fees even more if you use Binance’s proprietary crypto, BNB, to cover the fees.
Binance.us is also an excellent exchange for beginners to grow into. It offers both simple and advanced dashboard options as well as a greater selection of altcoins than does Coinbase.
The downside to using Binance.us is that the platform is currently attracting regulatory scrutiny. That’s not uncommon for crypto exchanges but it’s something to keep an eye on nonetheless.
So if low fees and wide selection are appealing to you, Binance.us is a compelling choice.
For a Crypto Credit Card: BlockFi
- Pros: Offers a crypto credit card, regulated in the U.S.
- Cons: Limited selection of cryptocurrencies.
BlockFi is a cryptocurrency platform that’s licensed and regulated in the U.S. Not only can you purchase crypto through BlockFi, but you can also get crypto-backed loans.
The platform also offers a two-factor authentication wallet with no rehypothecation of the crypto assets, meaning it’s not used as collateral for other loans.
And you can also get a crypto credit card through BlockFi. The BlockFi Rewards Visa® Signature Credit Card earns 1.5% back in crypto on every purchase that’s made with the card and 2% after you’ve reached $50,000 in annual spending. Find out more in our BlockFi Review.
What is the best way to invest in Bitcoin?
The best way to invest in Bitcoin may vary based on your goals. Some speculators may be happy with an account that makes investing in bitcoin easy, even if it requires higher fees. Some may want to buy and HODL ("hold on for dear life"), aiming for long-term appreciation, while others prefer frequent trades to capture profit from smaller day-to-day price fluctuations. Start by understanding your goals, and then you can pick the right exchange and Bitcoin strategy for you.