Strategic Bitcoin Investment: Long-Term Commitment

Bitcoin is a risky investment with high volatility and is generally only recommended for investors with a high-risk tolerance, who are in a strong financial position, and can afford to lose some or all of their investment.

Bitcoin is a decentralised cryptocurrency with a finite supply, which is why its value is derived from its payment system and store of value.

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

Before investing in Bitcoin, it is important to understand the risks involved and never invest more than you can afford to lose.

How to buy Bitcoin

There are several ways to buy Bitcoin, each with its own advantages and disadvantages. Here are some of the most common methods:

Cryptocurrency Exchanges:

You can purchase bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, Crypto.com, and eToro. These platforms offer a variety of cryptocurrencies and carry different fees and consumer protections, so it's important to research before choosing one.

Traditional Stockbrokers:

Robinhood was the first mainstream investment broker to offer Bitcoin trading, and it doesn't charge any fees for Bitcoin trades. Other options include Webull, TradeStation, and Fidelity. However, the choices among traditional brokers that offer Bitcoin are still limited.

Bitcoin ATMs:

Bitcoin ATMs function like regular ATMs but allow you to buy and sell Bitcoin. They are often placed in locations such as convenience stores. Be sure to check the fees and have a plan for where to send your Bitcoin after purchase.

Bitcoin Exchange-Traded Funds (ETFs):

As of January 2024, the SEC has approved spot Bitcoin ETFs, which track the price of Bitcoin and can be traded on major exchanges. This makes it easier for traditional investors to access Bitcoin through their brokerage accounts.

Peer-to-Peer Money Transfer Apps:

Apps like PayPal, Venmo, and Cash App allow users to purchase, store, send, and sell Bitcoin directly within the apps. Some crypto apps and games also allow users to buy and sell digital assets using third-party services like MoonPay.

Regardless of the method you choose, it's important to have the necessary information on hand, such as your Social Security number and bank account details. It's also recommended to avoid taking on credit card debt to fund your Bitcoin purchase due to the associated risks and high fees.

Once you've purchased Bitcoin, you'll need to store it in a digital wallet. You can choose between a hot wallet, which is connected to the internet and offers faster transactions, or a cold wallet, which is offline and provides extra security.

How to store Bitcoin

There are several ways to store Bitcoin, each with its own pros and cons. Here are some of the most common methods:

• Hardware wallets: These are small devices, similar to a USB drive, that store your private keys offline and are considered one of the safest options for storing Bitcoin. Examples include the Ledger Nano X and Trezor Model T. They can be connected to your computer or mobile device when you need to access your funds.
• Paper wallets: This involves printing out your private and public keys, usually as QR codes, and storing them in a safe place. While this method provides offline storage, it is less user-friendly and may be more prone to damage or loss.
• Mobile wallets: These are applications that allow you to store and access your Bitcoin on your smartphone. They are convenient for sending or paying with crypto but may be less secure than hardware wallets. Examples include the BitPay Wallet.
• Desktop wallets: These are programs that reside on your computer or laptop. They are not considered the safest option as they are connected to the internet and may be vulnerable to hacking.
• Web-based wallets: These are wallets hosted by a web service, where your private keys are stored by a third party. While convenient, they are not secure as they are susceptible to hacking.
• Custodial wallets: In this case, a third party, such as an exchange like Coinbase, stores your private keys for you. While this option is convenient, especially for beginners, it does come with a higher risk of hacking and theft.

When choosing a storage method, it's important to consider your individual needs and risk tolerance. For example, if you plan to actively trade Bitcoin, a hot wallet (connected to the internet) may be more suitable, whereas for long-term storage, a cold wallet (offline storage) is generally recommended. Additionally, it's always a good idea to back up your wallet and enable two-factor authentication for added security.

Bitcoin's risks and potential rewards

Bitcoins Risks and Potential Rewards

Bitcoin is a risky investment with high volatility and is generally recommended only if you have a high-risk tolerance, are in a strong financial position, and can afford to lose some or all of your investment.

Potential Rewards

Bitcoin has historically offered the potential for high returns. Its value comes from its finite supply, store of value, and payment system. It is decentralised, although many people choose to trade and store Bitcoin on centralised platforms.

Bitcoin has the potential to be a non-correlated asset, similar to gold. This means it may not follow the trends of other assets, like stocks. However, while Bitcoin has had moments of non-correlation with the S&P 500 in the last decade, it has yet to prove itself as a truly non-correlated asset.

Risks

The price of Bitcoin can fluctuate dramatically. In 2022, it fell more than 75% from its all-time high. Crypto markets trade 24/7, and dramatic dips can happen at any time. Crypto exchanges don't have circuit breakers, which automatically pause trading when prices fall too quickly, as traditional financial exchanges do.

Transactions are irreversible. People have lost millions of dollars of Bitcoin because they lost or forgot their wallet credentials.

Crypto exchanges lack basic consumer protections, like insurance protection from the Securities Investor Protection Corp. and the Federal Deposit Insurance Corp., found in traditional financial products.

Bitcoin is extremely volatile, and investors must be prepared for big downturns. While Bitcoin has recovered many times, there is a possibility that it could go to zero, for example, if several crypto platforms fail and there is a massive sell-off.

Bitcoin's price volatility

Bitcoins Price Volatility

Bitcoin is considered a volatile asset. Volatility is a measure of how much the price of a financial asset varies over time. The volatility of Bitcoin is measured by how much its price fluctuates relative to the average price in a given period. The more volatile an asset, the more people will want to limit their exposure to it.

Bitcoin's volatility can be attributed to the speculative nature of the cryptocurrency industry. Crypto investors bet on Bitcoin's price going up or down to make profits, which causes a sudden increase or decrease in its price.

Bitcoin's value has ranged from about $25,000 to about $70,000 within the past year. In 2022, it fell more than 75% from its all-time high. A decline in 2018 lasted about a year, and there were drops of 50% or more in 2021 and again in 2022.

Volatility increases the cost of hedging, which is a major contributor to the price of merchant services. If Bitcoin volatility decreases, the cost of converting into and out of Bitcoin will also decrease.

Bitcoin's daily volatility can be calculated using the following formula:

> Bitcoin's daily volatility = Bitcoin's standard deviation = √(∑(Bitcoin's opening price – Price at N)^2 /N).

For a general timeframe volatility calculation, you can use the formula:

> √timeframe * √Bitcoin's price variance.

Bitcoin's investment value

Bitcoins Investment Value

Bitcoin is a risky investment with high volatility and should be considered only if you have a high-risk tolerance, are in a strong financial position, and can afford to lose some or all of your investment.

How to Invest in Bitcoin

There are several ways to invest in Bitcoin, including:

• Cryptocurrency exchanges
• Traditional stockbrokers
• Bitcoin exchange-traded funds (ETFs)
• Peer-to-peer money transfer apps
• Bitcoin ATMs

How to Store Bitcoin

Bitcoin can be stored in two types of digital wallets: hot wallets and cold wallets. Hot wallets are stored by a trusted exchange or provider in the cloud and are generally faster for transactions. Cold wallets are small, encrypted portable devices that are considered more secure but make transactions take longer.

Risks and Rewards of Investing in Bitcoin

Bitcoin's value comes from its finite supply, as well as its store of value and payment system. Its price can go up, but it can also go down significantly. It is important to note that Bitcoin is a speculative investment and does not generate any income like interest or dividends. Its price is highly volatile, and there is a possibility that it could go to zero if several crypto platforms fail. Additionally, Bitcoin is not insured by the Securities Investor Protection Corporation (SIPC) like traditional stock brokerage accounts.

Tips for Investing in Bitcoin

• Never invest more than you can afford to lose.
• Use dollar-cost averaging by making small, recurring purchases on a set schedule.
• Research and stick to established cryptocurrencies like Bitcoin and Ethereum.
• Understand the technology behind Bitcoin and blockchain networks.
• Stay up-to-date on relevant legal cases, regulatory developments, and legislative proposals related to crypto.
• Use crypto indicators like moving averages and relative strength to inform decision-making.
• Maintain a diversified portfolio and do not overexpose yourself to crypto.

Frequently asked questions