Over the last several years, Bitcoin has become increasingly popular amongst today’s investors. During that same time, there’s been a lot of debate about Bitcoin and other cryptocurrencies – its proponents argue that it’s the future of currency and investing, while its detractors argue that it’s a risky investment option that may not generate big returns.
But for those who have understood its value, you may be asking “how to invest in Bitcoin?” Below, we go over some tips and strategies for investing in Bitcoin, in addition to the various ways you could begin investing in the cryptocurrency market’s market leader.
What is Bitcoin?
Bitcoin was created by a programmer or possibly even a group of programmers, under the alias “Satoshi Nakamoto.” But the real creator(s) of Bitcoin is still unknown to this day.
It is a decentralized digital currency that can be bought, sold, and exchanged directly without an intermediary like a bank. Satoshi originally described the need for “an electronic payment system based on cryptographic proof instead of trust.” as a result of the 2008 Great Financial Crisis and the financial world’s reliance on banks as intermediaries of all financial transactions.
The idea was to disintermediate the banks from financial transactions, and create a peer to peer payment system that did not rely on third party confirmation. This way, the banks did not need to be involved in each and every transaction.
How to Invest in Bitcoin?
Purchasing a Bitcoin is simpler than you might think, here’s our proposed 5 steps to invest in Bitcoin:
1. Join a Bitcoin-Supported Exchange
2. Get a Bitcoin Wallet
3. Connect Your Wallet to a Bank Account
4. Place Your Bitcoin Order
5. Make Use Of Your Bitcoin
Step 1: Join a Bitcoin-Supported Exchange
First, you’ll need to determine where you want to make a Bitcoin purchase – which brings you to (centralized) cryptocurrency exchanges for the most part. There’s no official “Bitcoin” company since it is an open-source technology, but there are several different exchanges that facilitate Bitcoin transactions. A few popular choices are:
Coinbase: A very popular crypto exchange that insures losses in the event of a security breach or fraudulent transfers.
Binance: Founded in 2017, Binance is a crypto exchange with a strong focus on altcoins.
Kraken: This San Francisco-based exchange allows you to invest in Bitcoin using various currencies from around the world.
Gemini: Launched in 2015 by Cameron and Tyler Winklevoss, Gemini offers services for casual and veteran Bitcoin investors with different user interfaces and fee structures for both.
Bitfinex: The longest-running cryptocurrency exchange that’s optimized for advanced traders and lenders.
Step 2: Get a Bitcoin Wallet
When you purchase a coin, it’s stored in a “wallet,” which is where all your cryptocurrencies are stored. There are two types of wallets you can get: a “hot wallet” or a “cold wallet”.
A hot wallet is a wallet that is operated by either your cryptocurrency exchange or by a provider. Some exchanges will automatically provide you with a hot wallet when you open an account with them. In any case, hot wallets offer convenience since your coins are easily accessible through the internet or a software program. Some notable hot wallets are:
- Electrum: Software that enables you to store your coins on your computer.
- Mycelium: A mobile-only app for Android and iPhone users.
However, hot wallets are not the most secure form of coin storage. If the hot wallet provider is hacked, then your cryptocurrencies may be at risk as well. If security is of utmost importance to you, a cold wallet would be the safest storage mETHod for you.
A cold wallet is an actual piece of hardware that stores your coins, usually, a portable device that’s similar to a flash drive. Most cold wallets cost between $60 to $100. Some popular cold wallets are:
- Trezor
- Ledger Nano
If you are only going to purchase a small amount of Bitcoin, then it might be fine to use a hot wallet with an insured crypto exchange. But if you’re going to be purchasing a large amount, then a cold wallet would be more suitable and well worth your investment.
Step 3: Connect Your Wallet to a Bank Account
Once you’ve obtained your wallet, you’ll need to link it to your bank account. This enables you to purchase and sell cryptocurrencies in your exchange.
Step 4: Place Your Bitcoin Order
Now you’re ready to purchase Bitcoin. Your cryptocurrency exchange will have everything you need to buy. The question is, how much Bitcoin should you purchase?
Coins like Bitcoin generally cost thousands of dollars, but exchanges often allow you to buy fractions of a single coin. As such, your initial investment could be as low as $25.
However, it is still important that you carefully determine your risk tolerance and review your investment strategy before investing in Bitcoin, or any cryptocurrency for that matter.
Step 5: Make Use Of Your Bitcoin
After you’ve purchased your Bitcoin, you can:
- Use it to make online transactions
- Hold it for a long period in the hopes that it’ll appreciate in value
- Perform day trading with it – that is, the buying and selling of Bitcoin with other Bitcoin owners that can be facilitated on the cryptocurrency exchange
Is Bitcoin a Good Investment?
Here’s one of the most commonly asked questions about Bitcoin: is Bitcoin a good investment?
Well, the real answer is no investment is inherently “good” or “bad.” It depends entirely on your risk tolerance, your investment strategy, and your financial goals. Before you consider Bitcoin as an investment, you should carefully consider your own goals and determine what you want to accomplish in your investment activities, as they will help you figure out whETHer Bitcoin is the right investment option for you.
How to Invest in Bitcoin: Different METHods
There are also 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 Bitcoin without actually 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 ownership of the asset. That’s an important distinction to make, as Coinbase allows investors to actually buy Bitcoin and store it in their non-custodial wallets.
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 a custodial wallet. Investors who intend to purchase standalone Bitcoin need to know their trading platforms’ limitations before committing capital to any cryptocurrency.
Disclaimer: BitKan is not affiliated with Coinbase in any way.
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, they have 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 gain their exposure to Bitcoin in this way. 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 invest in them.
Therefore, anyone investing in BLOK is invested in a basket of blockchain technology companies. And 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.
Tips For Investing In Bitcoin
If you do decide that you want to invest in Bitcoin, we have outlined a few guidelines to aid you in your cryptocurrency investing journey:
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 don’t 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 typically 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 you’re 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 don’t 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, it’s not a risk if it doesn’t end up panning out – but over time, you’ll have a healthy investment.”
Closing Thoughts
Bitcoin is the cryptocurrency market leader that’s ever-growing in popularity and may thus attract a new wave of retail investors everyday. Investors in Bitcoin have to note that it is a highly volatile asset that’s prone to large and fast swings in value. And while this presents an opportunity for large returns, it also poses a tremendous risk at the same time.
Thus, it is critical that you learn how to invest in Bitcoin responsibly before making any rash decisions. A great way to learn how is to refer to the section above on tips for investing in Bitcoin, such as to diversify your investment portfolio to protect yourself from marketplace volatility.
