Smart Bitcoin Investing: Making Money Strategies

Bitcoin has been making headlines for its eye-popping returns, but is it a good investment? Well, it depends.

Bitcoin is a risky investment with high volatility, so it's generally recommended only if you have a high-risk tolerance, are in a strong financial position already, and can afford to lose some or all of your investment. If you're thinking about investing in Bitcoin, it's important to consider the following factors:

- Risk tolerance: The crypto market is very volatile, so you should only invest an amount you feel comfortable losing entirely.

- Profit tolerance: Consider how you would react if your investment grew 20x in a year. Would you make impulsive decisions, or would you remain level-headed?

- Market cycles: The cryptocurrency market is made up of repeated market cycles that usually last 1-2 years. Prices surge, creating big bubbles that eventually burst. Timing your investment in relation to these cycles is crucial.

- Change of mind: Most investors change their minds due to the ever-evolving market. A good strategy is to divide your investment over time (e.g., 3, 6, or 12 months) and adjust the amount invested each period based on market performance.

- Diversification: Diversification is a technique used by mature investors to reduce the importance of luck. Invest in various assets, such as real estate, stocks, and gold, rather than putting all your eggs in the cryptocurrency basket.

While there is no minimum amount of Bitcoin you need to buy, keep in mind that exchange platforms charge fees for buying, selling, and transferring cryptocurrencies. These fees can quickly eat into small investments. As a rule of thumb, it's recommended to invest no more than 10% of your portfolio in risky assets like Bitcoin.

How to buy Bitcoin

There are several ways to buy Bitcoin, including through cryptocurrency exchanges, traditional stockbrokers, Bitcoin exchange-traded funds, peer-to-peer money transfer apps, and Bitcoin ATMs. Here is a step-by-step guide on how to buy Bitcoin:

Step 1: Choose a Crypto-Trading Service or Venue

Select a cryptocurrency exchange that offers the features and cryptocurrencies you want. Popular exchanges in the US include Coinbase, Kraken, Gemini, and Binance. These exchanges offer a range of cryptocurrencies and follow laws that require users to submit identifying documentation.

Step 2: Connect Your Exchange to a Payment Option

You will need to connect your exchange to a payment method such as your bank account, debit card, or credit card. Be aware that using a credit card may incur additional processing fees and interest charges.

Step 3: Place an Order

Choose the type of order you want to place, such as market or limit orders. Decide how much Bitcoin you want to buy, keeping in mind that the price consists of a fee-per-trade and the cost to convert a fiat currency to Bitcoin.

Step 4: Safe Storage

It is important to securely store your Bitcoin in a digital wallet. You can use a hot wallet, which is connected to the internet and offers faster transactions, or a cold wallet, which is offline and considered more secure.

Where to Buy Bitcoin

• Cryptocurrency exchanges: Coinbase, Kraken, Gemini, Crypto.com
• Traditional stockbrokers: Robinhood, Webull, TradeStation, Fidelity
• Peer-to-peer money transfer apps: PayPal, Venmo, Cash App
• Bitcoin ATMs: Available at retail stores like Walmart

How much to invest

The amount you should invest in Bitcoin depends on your financial situation, risk tolerance, and investment goals. Here are some key considerations to help you determine how much to invest in Bitcoin:

• Risk and Diversification: Bitcoin is a highly volatile and risky investment. It's recommended to never invest more than you can afford to lose and to treat it as a small part of a diversified portfolio. Most experts suggest limiting crypto exposure to less than 5% of your total portfolio, with some suggesting even lower allocations of 1-2%.
• Dollar-Cost Averaging: Instead of investing a large sum all at once, consider making smaller, regular investments over time (e.g., weekly or monthly). This strategy, known as dollar-cost averaging, helps to reduce the impact of market volatility and removes the challenge of trying to time the market.
• Financial Situation: Ensure you have sufficient emergency savings and that your basic financial needs are met before investing in Bitcoin. Don't take on credit card debt or compromise your financial stability to invest in Bitcoin.
• Investment Goals: Determine your investment goals and time horizon. Are you investing for the short term or the long term? Do you plan to actively trade, or are you a buy-and-hold investor? Your investment goals will influence how much you allocate to Bitcoin.
• Due Diligence: Before investing, thoroughly research Bitcoin and the cryptocurrency market. Understand the technology, regulatory environment, and competitive landscape. Make sure you fully grasp the risks and potential rewards of investing in Bitcoin.
• Transaction Fees: When investing in Bitcoin, consider the transaction fees associated with different investment methods. For example, purchasing Bitcoin with a credit card may incur additional processing fees and interest charges.
• Storage and Security: If you decide to invest in Bitcoin, ensure you have a secure storage solution, such as a trusted hot wallet or a cold wallet. Take the necessary security measures to protect your private keys and personal information.

Remember, investing in Bitcoin is risky, and the market is highly volatile. It's essential to carefully consider your financial situation and risk tolerance before deciding how much to invest.

Risks and potential rewards

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

Risk tolerance

The crypto market is very volatile, so it is important to only invest an amount that you feel comfortable losing entirely. If you are thinking of investing a large sum of money, be aware that you may be tempted to 'panic sell' at a loss. Selling at a loss can sometimes be the right decision, but only if the decision is rational and not emotional. Keep the amount you invest at a level where it doesn't affect your judgment.

Profit tolerance

If you invest an amount that makes you highly emotional when you lose it, the same will be true when you make gains. This can lead to poor decision-making, such as failing to sell when you have made a large profit.

Market cycles

The cryptocurrency market is made up of repeated market cycles, which often last for 1-2 years. Prices surge, creating big bubbles, and then these bubbles burst. Therefore, timing is crucial when investing in Bitcoin. If we are close to the market's all-time high in terms of price and time, it is best to invest a smaller amount.

Diversification

Diversification is a technique used by mature investors to reduce the importance of luck. It involves allocating your capital to different investment vehicles, such as real estate, stocks, and gold, rather than putting all your eggs in one basket.

Security

A bitcoin wallet or exchange account can be compromised, so it is important to practice safe storage and take the necessary crypto security measures. Transactions are irreversible, and people have lost millions of dollars of Bitcoin because they lost or forgot their wallet credentials. Crypto exchanges also lack basic consumer protections, like insurance protection from the Securities Investor Protection Corp. and the Federal Deposit Insurance Corp., found in traditional financial products.

How to store Bitcoin

Bitcoin can be stored in two kinds of digital wallets: a hot wallet or a cold wallet. With a hot wallet, transactions are generally faster, while a cold wallet often incorporates extra security steps that help to keep your assets safe but also make transactions take longer.

Hot Wallets

Hot wallets are online wallets, or apps on devices such as computers, phones, or tablets. These wallets generate the private keys to your coins on internet-connected devices. The user of a hot wallet isn't the holder of the private key to the cryptocurrency that is held in it. Instead, the exchange wallet is custodial, provided by the exchange. If the exchange is hacked, investor funds are compromised.

Hot wallets are best for small amounts of cryptocurrency or cryptocurrency that is actively trading on an exchange and may be used like a checking account.

Cold Wallets

Cold wallets are not connected to the internet and are, therefore, less susceptible to being compromised. These offline wallets or hardware wallets store a user's private key on something that isn't connected to the internet and come with software that allows investors to view their portfolio without putting their private key at risk.

Cold wallets are the most secure way to store your bitcoin or other cryptocurrencies. They do, however, require technical knowledge to set up.

Custodial vs Non-Custodial Wallets

Custodial wallets are managed by a third party, such as an exchange like Coinbase. In this arrangement, the custodian stores your private keys for you, guaranteeing their safety and sometimes providing insurance on holdings up to a certain amount.

Non-custodial wallets are those you use to store your keys with no one else involved. Non-custodial wallets can also be either hot or cold.

Commercial Non-Custodial Cold Wallets

Commercial cold wallets are also called hardware wallets. Examples include the Ledger Nano X or Trezor Model T. These are usually USB connection-type drives that connect to your device. When used with safety in mind, these commercial storage methods are safer than storing your keys in the wallet on your connected device.

Alternative Non-Custodial Cold Wallets

There are several methods that are safe from hackers and thieves that you can use to secure your bitcoin keys. USB drives can be used just as effectively as a commercial wallet if you encrypt and safeguard them. Disconnect them when they're not being used, store them in a secure place, make a backup, and only use them in one device for one purpose—keeping your keys.

One of the original ways to store keys was to write them down on paper and place them in a safe. This is still a secure method; however, ink can bleed, paper can deteriorate over time or be lost, or someone can steal it. If you choose this method, you should make sure only trusted people have access to the safe and check on the paper periodically.

Security Precautions

• Back up your entire bitcoin wallet early and often.
• Keep your software up to date.
• Use a multi-signature (multi-sig) for transactions.
• Seed phrases act like a master password for your wallet.
• Back up your seed phrase.

Bitcoin's value

Bitcoins Value

The value of Bitcoin can also be influenced by external factors such as the launch of spot Bitcoin exchange-traded funds, which allow everyday investors to buy a stake in Bitcoin on regulated stock exchanges. The approval of these ETFs by the Securities and Exchange Commission lends legitimacy to the industry and can attract renewed investor interest.

When deciding whether to invest in Bitcoin, it is important to consider your risk tolerance and the amount of money you can afford to lose. It is generally recommended to invest no more than 10% of your portfolio in risky assets like Bitcoin.

How to Invest in Bitcoin

There are several ways to invest in Bitcoin, including:

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

Frequently asked questions