How To Invest In Fractions Of Bitcoin

Bitcoin is a cryptocurrency that has experienced some dramatic price swings since its inception in 2009. It first entered the mainstream consciousness in 2017, and its value has continued to fluctuate since then. Bitcoin is created or mined by computers that process and legitimise transactions in the currency. It is possible to invest in fractions of a Bitcoin, as the currency can be divided into 100 million smaller units known as satoshis. This means that you can invest in Bitcoin without having to make a large financial commitment. There are several ways to buy Bitcoin, including through cryptocurrency exchanges, trading apps, and traditional brokers. However, it is important to carefully evaluate the costs, security, and potential risks associated with each option before making any investment decisions.

Bitcoin wallets and security

Bitcoin wallets are a vital component of the cryptocurrency's infrastructure, allowing users to store, send, and receive Bitcoin. Wallets can be hot or cold, each offering distinct advantages and disadvantages in terms of security and convenience.

Hot Wallets

Hot wallets are software-based solutions that run on internet-connected devices, such as desktop or mobile wallets. They are typically downloaded from official websites or mobile app stores. While hot wallets are convenient for frequent transactions, they are also more susceptible to hacking attempts. It is crucial to employ robust security measures, such as strong passwords, two-factor authentication, and private key protection.

Cold Wallets

Cold wallets, on the other hand, are offline storage solutions that are not connected to the internet. Examples include hardware wallets, paper wallets, and laptops without network adapters. Cold wallets are considered more secure than hot wallets since they are not directly accessible to hackers. However, they may be physically stolen, and there is still a risk of losing the device, the wallet, or the password.

Security Considerations

Regardless of the wallet type, there are several security measures that Bitcoin owners should implement:

• Use reputable and trusted wallet providers to reduce the risk of fraud or security breaches.
• Enable two-factor authentication to add an extra layer of security when accessing your wallet.
• Create strong and unique passwords for your wallet, different from those used for other accounts.
• Avoid storing large amounts of Bitcoin in hot wallets or custodial wallets to minimize potential losses in case of a breach.
• Regularly back up your wallet data and seed phrases to ensure you can recover your Bitcoin if needed.
• Be cautious of phishing attempts and fake websites that try to trick you into revealing your private keys or seed phrases.
• Diversify your Bitcoin holdings across multiple wallets or providers to reduce the impact of a potential breach.

By following these guidelines and staying vigilant, Bitcoin owners can enhance the security of their holdings and mitigate the risk of theft or loss.

Exchanges and brokers

Yes, you can buy fractions of Bitcoin, also known as satoshis, on any exchange. Many exchanges have no minimum purchase amount, although some require a minimum deposit of around $25 to fund your account.

Fidelity

Fidelity is one of the world's largest brokers and is considered an excellent choice for passive investors looking to hold Bitcoin long-term. Trading costs for crypto are based on a bid-ask spread of 1% of the execution price, and you can trade as little as $1 worth of crypto in your Fidelity account.

Robinhood

Robinhood Crypto allows users to trade Bitcoin and several other cryptocurrencies with zero commissions and no markups or markdowns. However, it offers limited investment choices and charges a $5 monthly fee for data and research.

EToro

EToro is a great option for traders seeking zero-commission stock and ETF trades, an efficient platform, and access to copy trading. eToro's crypto offering includes hundreds of currency pairs, and you can buy and sell Bitcoin (the underlying asset) on its platform. However, eToro does charge a conversion fee of 0.1%, set to market rates, and there are minimum withdrawal amounts and fees for each cryptocurrency type.

Interactive Brokers

Interactive Brokers offers both the underlying crypto assets, including Bitcoin, and cryptocurrency futures traded on US regional exchanges. The company is well-capitalized, regulated in the US and many other jurisdictions, and has over $370 billion in client equity. It doesn't mark up the underlying spread, making it one of the most affordable brokers for crypto trading.

Coinbase

Coinbase is one of the largest regulated cryptocurrency companies in the world and caters well to both retail and institutional clients. It offers a user-friendly platform and reasonable fees, although getting fast customer service can be challenging due to its large number of customers.

Bitcoin ETFs

A spot Bitcoin exchange-traded fund (ETF) is an investment vehicle that allows ordinary investors to benefit from Bitcoin's price movements. They are a more accessible and regulated way to invest in Bitcoin through brokerage accounts. Investors pay management and brokerage fees for these investments.

The Securities and Exchange Commission (SEC) approved the first Bitcoin spot ETFs in January 2024, three years after the first Bitcoin futures ETFs were approved. The first 11 Bitcoin spot ETFs began trading on January 11, 2024, following a successful lawsuit by ETF issuer Grayscale.

Spot Bitcoin ETFs are exchange-traded products (ETPs) that hold Bitcoins in a secure digital vault, managed by registered custodians. This type of ETF mirrors the price of Bitcoins in the crypto market. The ETF buys Bitcoins from other holders or through authorised cryptocurrency exchanges, and the tokens are stored in a digital wallet, often using multiple layers of security, including cold or offline storage to reduce the risk of hacking.

The ETF then issues shares corresponding to the number of Bitcoins it holds. These shares are available on traditional stock exchanges, and the share price generally reflects the prevailing market price of the currency. Shares track the price of Bitcoin as closely as possible, and the ETF occasionally rebalances its holdings by buying or selling tokens.

Spot Bitcoin ETFs offer several advantages, including convenience, liquidity, regulatory oversight, and potential tax benefits. They provide a more straightforward way to invest in Bitcoin, as each share of the ETF corresponds to a specific number of Bitcoins held. They also enhance the liquidity of the Bitcoin market by providing more buyers and sellers, which can lead to more stable prices and less volatility.

However, there are also risks associated with spot Bitcoin ETFs, including the volatility of Bitcoin prices, regulatory uncertainty, security risks, management fees, and tracking errors.

• Franklin Templeton Digital Holdings Trust (EZBC)
• Bitwise Bitcoin ETF (BITB)
• VanEck Bitcoin Trust (HODL)
• Ark 21Shares Bitcoin ETF (ARKB)
• IShares Bitcoin Trust (IBIT)
• Fidelity Wise Origin Bitcoin Fund (FBTC)
• WisdomTree Bitcoin Fund (BTCW)
• Invesco Galaxy Bitcoin ETF (BTCO)
• Valkyrie Bitcoin Fund (BRRR)
• Hashdex Bitcoin ETF (DEFI)
• Grayscale Bitcoin Trust (GBTC)

In addition to spot Bitcoin ETFs, there are also Bitcoin strategy ETFs that attempt to track the price of Bitcoin indirectly by investing in Bitcoin futures or Bitcoin mining stocks. These funds' returns are more likely to deviate from Bitcoin's returns due to their indirect nature.

Crypto stocks

Yes, you can invest in fractions of Bitcoin. A single bitcoin is made up of 100 million smaller units called satoshis. Many exchanges have no minimum purchase amount, although some will require a minimum deposit of around $25 to fund your account.

Now, onto crypto stocks. Crypto stocks are stocks that offer exposure to cryptocurrency prices. These include stocks in semiconductor, brokerage, and payment companies. Some of the most trending crypto stocks include Advanced Micro Devices (AMD), Coinbase Global (COIN), and Nvidia (NVDA). Other popular crypto stocks include Paypal Holdings (PYPL), Block (SQ), and Visa (V).

Some of the top-performing crypto stocks with a "Strong Buy" analyst rating consensus include:

• Nvidia (NVDA)
• Block (SQ)
• Riot Platforms (RIOT)
• Microstrategy (MSTR)
• Paypal Holdings (PYPL)
• Coinbase Global (COIN)
• Beyond Inc (BY)
• Marathon Digital Holdings (MARA)
• Silvergate Capital (SI)

Bitcoin as an inflation hedge

Bitcoin has emerged as an intriguing option for those seeking an inflation hedge. Its design, characterised by a fixed supply of 21 million coins, safeguards it from the inflationary pressures that traditional currencies face. By nature, Bitcoin cannot undergo dilution through inflation, making it enticing to investors. The cryptocurrency's decentralised architecture also means it cannot be manipulated or controlled by central banks and governments, adding a layer of security for investors.

Bitcoin's price appreciates under inflationary pressures, confirming its inflation-hedging property. This was particularly evident during the COVID-19 pandemic, where Bitcoin's price dynamics shared commonalities with gold, a traditional safe-haven asset. However, unlike gold, Bitcoin's price does not always act as a safeguard against financial uncertainty. During periods of heightened uncertainty, Bitcoin's price tends to decline, indicating that it may not offer the same level of stability as traditional safe-haven assets.

The unique design of Bitcoin doesn't guarantee its viability as an inflation hedge in every circumstance. Its value is driven primarily by market demand and supply, with no tangible asset backing it up. This can lead to volatile price movements, which may pose a risk for investors who need to liquidate their holdings in times of market stress. For example, between late 2017 and early 2018, Bitcoin's price dropped from nearly $20,000 to just above $3,000.

Additionally, Bitcoin's relatively short history compared to traditional investment vehicles like gold means its performance in diverse economic scenarios is not yet fully understood. Its behaviour during inflationary periods remains largely untested, and the long-term trajectory of its price is uncertain. The regulatory landscape surrounding cryptocurrencies is another critical factor, as legal and regulatory uncertainties can impact their value and liquidity.

Despite these considerations, Bitcoin has potential as an inflation hedge due to its fixed supply and decentralised nature. However, its inherent volatility, regulatory uncertainties, and short historical record compared to traditional hedges add a level of risk. Therefore, when considering Bitcoin as part of an inflation-hedging strategy, it is crucial to approach it with careful research and incorporate it into a diversified portfolio.

Frequently asked questions