Asif is a cryptocurrency enthusiast and journalist who's been writing on the subject since 2014. He also has a keen interest in social engineering and cybersecurity. When not busy writing about cryptocurrency, he can be found reading books and listening to music. He holds an M.Sc in Life Science and an MBA in Finance & Banking.
Bitcoin is a news maker any day around the globe. Are you keen to invest in Bitcoin? Perhaps you’re late to the cryptocurrency craze, or maybe you’re trying to diversify your income and want to add some crypto to your portfolio.
Maybe you'd just like to get up to date with digital currency. It’s also possible you’re hoping the bull market of early 2021 will repeat itself, since prices have been volatile, or maybe you just really believe in cryptocurrencies and want to help the community by investing in it.
Regardless, you want to buy BTC, but you don’t know where to begin. Many websites will talk about keys and nodes and blockchains and the technical side of digital currencies - so it's easy for none of it makes sense for you.
Luckily, we have a guide for the uninitiated.
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What is Bitcoin?
Bitcoin is the name of the very first cryptocurrency and the blockchain technology that manages it. Cryptocurrencies are virtual currencies, made to work only digitally while offering greater security and anonymity when making transactions.
These tokens and coins are highly regarded by their communities, where many members believe they’re the future of the global economy.
However, they also require a higher level of understanding of technology to be used, as opposed to fiat currencies where just knowing how to add and subtract is usually enough.
Bitcoin saw popularity as a news subject in late 2017 when its price, which had been steadily rising since launch in 2009, broke the 10k USD mark.
This made the currency incredibly popular, with investors around the world scrambling to purchase some. That run of popularity was short-lived, however, since sometime in January 2018, prices stopped rising, and by March that year, a price crash brought the currency down to $6,000 per token.
Never the less, the digital currency rode the wild crypto market waves and found significant wind in its sails as Covid-19 brought the world's economies to a standstill.
At the start of the pandemic (and as a major exchange went public) Bitcoin soared to over $60,000 - only to fall off again into the middle of 2022.
If one thing's for sure, there are plenty of highs and lows to come for digital assets yet - and the thrill of a wild market only seems to add to Bitcoin's mystique.
4 Things You Need to know before investing
No Way to Predict the Market
There is one main thing you need to know about Bitcoin, and cryptocurrencies in general, before you invest: There is no way to predict market behavior.
Experts were saying in late 2017 that by late 2018 a BTC token would be worth $50,000. By late 2018, however, the BTC price was much closer to $5,000 than the predicted value.
Experts were wrong, because you can’t predict currency values accurately – particularly long-term values.
It's Different Then the Stock Market
The second thing you must know is that the cryptocurrency market isn’t very different to the stock market. There are more than a few similarities both in how prices flow and how they are traded.
Prior experience in the stock market is certainly helpful when investing in crypto – however, the stock market is often easier to predict than the crypto market.
The stock market moves based on facts, and usually it’s affected by press releases and quarterly reports. The crypto market moves mostly based on popularity and hive mind, while also shifting very quickly – tokens have gained or lost huge chunks of their value within a day just because a celebrity tweeted their name.
Most People are HODLRs
A third important point about Bitcoin is that most people “using” it are actually just holding it. While there is a market for Bitcoin transactions, it is tiny in comparison to the number of tokens that are parked.
More than 70% of BTC tokens are, in fact, parked –and most of them belong to a minority of users. If any of those users decided to cash out, the market would immediately crash hard.
Won't be the World Currency
The last thing to know about BTC is that, although it is popular, it’s not likely to become the de facto currency any time soon.
Cryptocurrencies will likely become mainstream over the next decade or two, but BTC might not be leading the charge.
How to Buy Bitcoin?
Bitcoin isn’t something you can just search for on Amazon and order a few (and if you see any such offers, don’t fall for them – they’re scams!)
Rather than buying them from a shop, you must buy it from a crypto exchange. When you find one you like, you'll need to set up a cryptocurrency exchange account.
A crypto exchange is an online business that works much like a stock exchange, only for crypto currencies. Some of the most popular ones are:
Top 3 Best Exchanges for Buying Bitcoin
Coinbase boasts having the highest number of users of any dedicated crypto exchange. It has been around for a long time and prides itself as one of the major players in the market – a warning or recommendation from Coinbase can make or break a token.
eToro started out as a stockbroker, but recently it has added a proper crypto exchange to its business lines. It’s one of the safer crypto exchanges, as it follows US rules and regulations.
Many people, particularly those who have experience with online stock trading, start here because of the familiarity and implicit trust of the website.
This ad promotes virtual cryptocurrency investing within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in most EU countries, no EU protections & not supervised by the EU regulatory framework. Investments are subject to market risk, including the loss of principal.
Binance is indeed a relatively young exchange that quickly grew to handle the largest amount of crypto per day on earth.
While it isn’t big on legality and user verification, it has a stainless record when it comes to the security of the crypto it holds, such that even when hacked users haven’t lost their money.
Binance is also constantly trying to help the crypto community grow, either by partnering with other companies or hosting IEOs for newer blockchains.
Depending on the exchange you choose, the payment methods available to you will change. In general, there are three types of cryptocurrency exchanges: crypto only, fiat only, and mixed.
Crypto-only exchanges will only offer to exchange your cryptocurrency for other cryptocurrencies. Fiat-only will only let you buy or sell Bitcoin in exchange for fiat.
Mixed exchanges, which are gradually becoming more popular, allow you to do both. Most large exchanges work on a crypto-only method, although not all of them do. eToro and Binance, for example, allow credit card purchases.
However, eToro requires a lengthy verification process before you can purchase and you can only make large purchases, while Binance will only let you buy Bitcoin with your credit card – if you want to cash out later on, you’ll have to move your crypto to another exchange.
Most crypto exchanges only accept fiat payment from your bank account - usually via wire transfers. It’s rare for an exchange to accept credit or debit cards, and even rarer for an exchange to take PayPal or any local payment methods.
In some ways, one of the bigger hurdles between people and cryptocurrencies is precisely finding convenient ways of buying and selling them.
How to store Bitcoin
There are several ways you can choose to store your Bitcoin and other digital assets. Some of these are safer than others, but safer methods are also often more difficult to use or require more tutorials.
Generally, four methods are considered valid for storing your crypto.
Holding crypto in your exchange
Most exchanges come with a cryptocurrency wallet where the tokens you’re holding with them are kept. Depending on the exchange, you’ll have a certain degree of freedom to use said wallet or not – and this is an important detail if you’re planning on using your BTC rather than just holding it.
Some exchanges, like Coinbase, are known for banning people if they use their wallet to send payments to merchants, they consider seedy or immoral, so be warned about that.
If you’re going for a high-rated exchange, keeping your crypto stashed with there isn’t a bad idea. Large exchanges, like Binance or Coinbase, keep most of the crypto in offline cold storage, so even the most massive of hacks won’t be able to steal it.
On top of that, large exchanges are often insured against hackers, making it impossible to lose your crypto to a hacker. Binance was famously hacked in 2020 and, while the news headlines splashed the scandal, no customers of the exchange lost anything.
One important thing – Exchanges will refund your crypto if they get hacked due to a flaw in their system. If you’re just using a weak password that somebody else guesses, you’ll be on your own.
Keeping an online Bitcoin wallet
The least safe of all three methods is also a pretty safe one – just not as good as others. Keeping your currency in an online wallet means having instant access to your crypto on any device, with the benefits and risks that come with it.
When you keep your crypto “online” you’re using a third-party wallet, essentially making yourself vulnerable to that company.
If you’re using a well-known provider that shouldn’t be a problem, but the risk of a hack will still be there. For maximum security, you should look at offline solutions.
Keeping a PC/Mobile wallet
This method requires installing a software in your PC or mobile gadget from where you can access the crypto. Only the authenticated device can access that wallet, since the private key is stored in the device.
As such, these keys make it impossible for a hacker to access your funds unless they hack into or steal your computer. They’re very safe – but there’s an even safer way.
Hardware, offline, or cold storage wallet
This last method is the safest, foolproof one. When you put your crypto in an “offline wallet” you create a key or encrypted file that contains the only access credentials to your crypto wallet.
That key is then put on a device, written down, or encrypted somewhere. Anyone who wants to access the crypto must know the basic credentials and access the file, along with the device that houses it.
This is the safest way to store your crypto, since it’s impossible to have it stolen unless somebody physically steals it from you – and even then, they’ll still need the access pin to be able to move the crypto.
Naturally, being the safest, it’s also the most cumbersome way to store your crypto since it depends on physical media.
Managing your Cryptocurrency Investments
Now that you have bought crypto and stored it, you need to come up with a plan regarding what you’re going to do with it and how you’ll handle your investment.
There are plenty of experts out there touting their own Bitcoin investment strategy - but they boil down to the same things:
Should you invest for the short-term or long-term?
This is the first important choice you’ll have to make:
- Are you in the market for the short or long term?
- Are you expecting returns quickly or in the long run?
The answer to this question will determine how much you invest, when you invest, and when you jump out. It might even affect your choice of an exchange.
If you’re in for the long term, there’s not much of a problem: Just pick a relatively calm time in the market to buy your Bitcoin.
If you can wait until the price bottoms in one of the many recurrent swings, even better. Then, it’s a matter of sitting and waiting for the next bull market to sell.
Since you’re not in a hurry, you can actually wait for the prices to peak. Things get tricky if you’re in it for the short term. In that case, buying Bitcoin and waiting months, or perhaps years, for the investment to pay off isn’t an option.
You’ll then have to carefully pick when to join the market and when to leave. Ideally, you’ll keep yourself informed about what’s going on in the crypto sphere and make the purchase when news of a price surge emerges.
It’s going to be riskier than long-term investing, but if done right, it’ll yield a good profit in short time. Flipping is also an option – one we’ll talk about later.
Don’t invest what you can’t lose...
This is basically the golden rule of investing. No market is ever safe, and no investment is ever guaranteed to return a profit.
The crypto market is particularly volatile, which means you could make thousands of dollars on a small investment… or lose it all.
As a rule of thumb, take your crypto investments as a game of chance. You might win, you might lose, and in the end, it’ll depend on the roll of a dice.
There are things you can do to minimize losses, like being attentive to the market or setting stop orders. This will enable you exit the market when prices crash, and reap some gains as prices rise
4 Best Bitcoin Investing Strategies
Now, investing isn’t just buying today and selling whenever. You can do that, sure, but good investors know how to read the market and how to play it too.
Here are a few common strategies investors use.
Using Bitcoin as Part of Your IRA
Since IRA means individual retirement account, it makes sense to give it a look here. A common strategy these days is having part of your investment portfolio for your IRA in Bitcoin.
This means having investments in both cryptocurrencies and regular stocks or real estate. Having a varied portfolio makes it much more difficult for any market crashes to wipe your savings, since you’ll be putting your eggs not only in different baskets, but in entirely different buildings.
This has grown to be a rather popular choice, with more and more financial advisors offering crypto as part of their retirement plans.
Most experts in IRAs do recommend diversifying one’s investments, particularly towards crypto.
Another common method of making a profit in the crypto (or the stock) market is by flipping assets. This method is risky, since it requires ability to read the market and to know what short-term changes there might be.
There are two ways to flip tokens. The less extreme one is the old adage of buy low, sell high. This is a mid-to-long term method, but it can yield profits with relative simplicity as long as you stick to tokens that aren’t likely to suddenly become worthless and, of course, buy when they’re low.
For example, anyone who bought Bitcoin in 2019 when prices dropped to nearly $3,000/token should be considering cashing out now that it’s above $30,000.
But the thing about flipping tokens is that market’s ups and bottoms in the crypto world come unannounced. This calls out that you set points where you’ll either cash out or jump out, while riding both crests and valleys all along.
The second method is called day trading. This practice is closed related to FOREX investments in that it consists in buying tokens early in the day and selling them in the really short term – usually before that day is over.
Earnings are minimal, but they can add up – however, you’ll need a large amount of money to invest for this to work. A way to obtain this money is through leveraging, which is our next point in the list…
Leveraging and Arbitraging
Leveraging as an activity usually comes together with day trading. Since most people don’t have huge amounts of money to trade, it’s a common practice to get a loan for this specific purpose – called leveraging.
When you get leverage for investing, you usually put a part of the money yourself – let’s say, for example, you have $1,000 to invest.
You try to get some leverage on it and get an exchange like Bitmex to offer you 10x leverage, raising your amount to $10,000. You’re then allowed to invest that money, on the condition that earnings will be shared AND you must jump out if values go down and your initial amount is lost.
So, let’s imagine you buy BTC at $10,000, and stick to it. If the value goes up to $12,000 on that day, you sell by closing, give your leverage some of the earnings, and make a profit.
However, if the price goes down instead of up, you have to sell once it hits $9,000 – because that’s the amount you owe to your day trading partner or exchange.
In other words, when leveraging, you get to trade large amounts of somebody else’s cash, with the provision that you take the whole of the risk if things go south.
Do note that leveraging and day trading, when performed on the stock market, are highly regulated in the US.
Due to this, some exchanges that offer day trading services don’t allow US residents to partake in them. Arbitraging, on the other hand, consists of taking advantage of price difference between one cryptocurrency exchange and another.
Crypto prices aren’t a single standard – the reported prices are usually the average among many currency exchanges. So when you see that BTC is selling for $10,000 on Coinbase, while Binance is buying it for $10,200, you buy up a bunch of BTC on Coinbase, move them to Binance, and sell.
Arbitraging is a really risky activity in the crypto market, however, because of how quickly the market moves. While in the example the Binance price could go even higher while you purchase Bitcoin and move your tokens, it could also go lower – leading you to lose money.
As such, it’s better attempted with cheap cryptocurrencies where the risk is much lower.
Exchange Trading Bitcoin
Last, we have a small but nonetheless meaningful tip: Many exchanges offer you bonuses for joining them. The bonuses can be either a small amount of crypto, a preferential price, or a percentage extra on what you buy – either way, they give you good deals.
These are token pre-sales, usually hosted with the aim of raising funds for a blockchain project. It’s a risky endeavor, since many tokens end up DOA (dead on arrival), but if the project delivers, you’ll be the lucky owner of a new, valuable token, at a discount.
Just make sure to take a proper look at the project and its place in the market – since many crypto projects launch without really having a market to begin with.
Pros & Cons of Investing in Bitcoin
The pros and cons of crypto investing could well be taken from a list of pros and cons of stock investing, with just a few added notes.
Investing in cryptocurrencies is currently a very risky endeavor. No currency is ever safe, as every single token has seen wild price swings – so you might be happy today thinking you’ve made a profit only to have it, and part of your initial investment, wiped out tomorrow.
As such, it’s the kind of market you need to be on top of at all times, and where limit orders are extremely important. While you can go to sleep at night knowing your shares in Netflix won’t lose value overnight, that’s not the case for cryptocurrencies, since crypto markets work 24/7/365 and they’re extremely volatile.
However, there are good things to consider. First, the crypto market can offer you much larger earnings in the short and mid-term than the stock market or other investments.
But also, cryptocurrencies are semi-liquid in that you can actually spend them if you wish. There aren’t many places to spend them right now, but as cryptocurrency adoption grows, so will places that accept them.
Many people have lost lots of money investing in Bitcoin – but many people have also made millions doing the same. The market is unpredictable, and there’s a degree of luck in investing, but if you do your homework and learn the market before jumping in, you’ll stand a chance at making a profit – with some luck, a huge profit.
Should You Really Invest in Bitcoin?
What the guide presented here shows us is that cryptocurrency trading is a viable way to make money. While Bitcoin has kept atop the charts to date, it also represents more than 52 % of the total crypto market capitalization.
Learning the ropes of Bitcoin investing will put you in the best stead to minimize your losses and ramp up your gains.
Coinbase is a secure platform that makes it easy to buy, sell, and store cryptocurrency like Bitcoin, Ethereum, and more.