A Beginner's Guide To Investing In Bitcoin

Bitcoin is a type of cryptocurrency, a digital asset that functions as a means of exchange, much like the money in our wallets. Unlike fiat currency, which is issued by central banks, cryptocurrencies are typically not issued or controlled by any central authority or government. Instead, they are managed by blockchain technology, a decentralised, distributed ledger that records transactions across many computers, making it difficult to alter or delete previous transactions.

There are several ways to invest in Bitcoin, including through cryptocurrency exchanges, certain traditional brokers, money transfer apps, Bitcoin ATMs, and Bitcoin ETFs.

Before investing in Bitcoin, it is important to consider the risks associated with its high volatility. It is recommended that investors do not allocate a large percentage of their funds to buying Bitcoin and that they only invest what they can afford to lose. Additionally, it is crucial to find a secure place to store your Bitcoin, such as a hot or cold wallet, to protect it from potential hacks or theft.

Choose a crypto exchange

Choosing a crypto exchange is an important step in investing in Bitcoin. Here are some key considerations to help you select the right exchange:

• Reputation and Security: Research the exchange's reputation and security measures. Look for exchanges with a strong track record of protecting user funds and personal information. Go with higher security options, as the more rigorous the account creation process is, the more trustworthy the exchange is likely to be.
• Fees: Understand the fee structure of the exchange. Fees can vary based on transaction size, activity level, or other factors. Some exchanges may offer volume discounts or lower fees for certain types of trades. Be sure to consider how the fees will impact your investing strategy.
• Currency Pairs: Check the range of currency pairs offered by the exchange. If you're interested in trading a specific altcoin, ensure the exchange supports it. Coinbase, for example, offers a wide range of assets but has a more limited number of tradeable pairs.
• Regulatory Compliance: Ensure the exchange complies with regulatory requirements, especially if you're in a highly regulated region like the U.S. Some exchanges may not be licensed to operate in certain jurisdictions, so check their legal status before signing up.
• User Experience: Consider the user interface and features provided by the exchange. Look for an exchange with a user-friendly platform that suits your level of experience. If you're a beginner, opt for an exchange with educational resources and an intuitive trading interface.
• Customer Service: Evaluate the customer service options provided by the exchange. Look for exchanges that offer multiple channels of support, such as live chat, email, and phone support. This can be crucial if you ever need assistance with your account or transactions.
• Withdrawal Options: Check the withdrawal options and fees offered by the exchange. If you plan to move your crypto holdings off the exchange, choose one that allows fee-free withdrawals or has minimal withdrawal charges.

Decide on a payment method

After choosing an exchange, you have to fund your account before you can begin investing in bitcoin. Depending on the exchange, you can fund your account in a few ways. Bank transfers are the most common method, but card payments and payments via a debit or credit card are also usually accepted. Exchanges operating in Australia will typically offer instant AUD deposits using PayID.

Because fees reduce how much money you can invest (and therefore also how much money you have to grow and compound), it makes sense to use electronic transfers from a bank account rather than other methods. In addition, if you use a credit card to buy cryptocurrency, it generally will count as a cash advance and be subject to a higher interest rate than you pay on regular charges. Remember that taking on debt to buy volatile investments is extremely risky.

You can also decide which exchange is right for you by reading a guide to the top exchanges for your country.

How Much to Invest

Once your account is funded, you can place your first order to buy bitcoin. Depending on the platform you’re using, you may be able to purchase it by tapping a button, or you may have to enter bitcoin’s ticker symbol (BTC) and specify the amount you wish to purchase.

That’s because it requires a large upfront investment to buy a single bitcoin now. If bitcoin’s current price was $100,000, for example, you’d need to invest that much to buy a full bitcoin. If you invested less, say $1000, you’d get a percentage, in this case 1%, of a single bitcoin.

Place an order

Once you've chosen a crypto-trading service or venue, the next step is to place an order. Cryptocurrency exchanges have evolved to mimic the same features as their stockbrokerage counterparts. Almost all crypto exchanges offer both market and limit orders, and some also provide stop-loss orders.

Kraken, for example, offers the most order types, including market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders. Exchanges also offer ways to set up recurring investments, allowing clients to dollar-cost average into their investments of choice. For instance, Coinbase lets users set recurring purchases for every day, week, or month.

When placing an order, you'll need to decide on a payment method. Depending on the exchange, you can fund your account via bank transfer, card, or via a debit or credit card. It's worth noting that fees will vary for deposits, and exchanges also charge fees per transaction.

After choosing an exchange and funding your account, you can place your first order to buy bitcoin. Depending on the platform, you may be able to purchase it by tapping a button or entering bitcoin's ticker symbol (BTC) and specifying the amount you wish to purchase. When the transaction is complete, you will own a portion of a bitcoin.

Select a safe storage option

When it comes to storing your Bitcoin, there are two main options: hot wallets and cold wallets.

Hot Wallets

Hot wallets are connected to the internet, which means you can access your Bitcoin quickly. However, this also makes them more susceptible to hacks. Hot wallets are best for small amounts of Bitcoin or Bitcoin that is actively being traded.

There are several types of hot wallets:

• Desktop wallets are programs that reside on your computer. They are not the safest storage method.
• Mobile wallets are programs that are hosted on a mobile device. They are not very secure.
• Web-based wallets are hosted by a web service. They are not secure, as you're letting a third party store your keys.

Cold Wallets

Cold wallets are not connected to the internet, which makes them a much more secure option. Cold wallets are best for long-term storage and for storing large amounts of Bitcoin.

There are several types of cold wallets:

• Hardware wallets are devices similar to USB drives. They are considered the gold standard for protecting large amounts of Bitcoin. They are portable, easy to use, and immune to online hacking attempts. However, they can be expensive and less convenient for quick transactions.
• Paper wallets are a simple and inexpensive way to store Bitcoin. They involve printing your public and private keys on paper. However, paper wallets are susceptible to physical damage, loss, or theft.

When choosing a storage option, it's important to consider factors such as the amount of cryptocurrency you hold, how long you plan to hold it, your technical expertise, and your need for liquidity. It's also crucial to prioritize security, especially for significant amounts or long-term investments.

Manage your investments

Once you've decided to invest in Bitcoin, you'll need to consider how to manage your investment. Here are some key things to keep in mind:

• Day Trading vs. Long-Term Holding: Some investors choose to day trade Bitcoin, attempting to profit from short-term price movements. However, due to the volatility of cryptocurrencies, a long-term investment strategy may be more suitable for patient investors.
• Diversification: Bitcoin can be a valuable addition to your investment portfolio as it offers diversification from traditional assets. However, due to its high risk and volatility, it's important not to allocate a large portion of your portfolio to Bitcoin. Consider how Bitcoin fits into your overall investment strategy and adjust your holdings accordingly.
• Transaction Fees: When buying or selling Bitcoin, transaction fees can vary widely among different exchanges and payment methods. Be sure to consider these fees when making transactions to avoid unnecessary costs.
• Security: Keeping your Bitcoin secure is crucial. Utilize a combination of hot wallets (online wallets provided by exchanges or third-party software providers) and cold wallets (offline encrypted devices) to protect your Bitcoin from hackers and theft. Regularly review your security measures and use strong authentication methods to protect your accounts.
• Tax Implications: Buying, selling, and spending Bitcoin can have tax implications. Familiarize yourself with the tax rules and regulations regarding cryptocurrency transactions in your country to ensure compliance and avoid penalties.
• Emotional Discipline: Investing in Bitcoin can be an emotional rollercoaster due to its volatility. It's important to make investment decisions based on your research and risk tolerance rather than impulsive reactions to market movements.
• Regular Portfolio Reviews: Periodically review your investment portfolio to assess if you need to rebalance your holdings. This may include increasing or decreasing your Bitcoin exposure based on your investment goals and financial situation.
• Stay Informed: The cryptocurrency space is rapidly evolving, with new developments and technologies frequently emerging. Stay informed about news, regulatory changes, and market trends that may impact your Bitcoin investments.

Frequently asked questions