The Bitcoin Investment: How Much Should You Risk?

Bitcoin is a popular type of cryptocurrency that uses blockchain technology to store and protect your digital assets. It is a highly volatile asset that is prone to large and fast swings in value, which presents an opportunity for large returns but also poses a tremendous risk.

There is no minimum amount of Bitcoin you need to buy to get started. However, it is recommended to invest a minimum of $50, as exchange platforms charge fees for buying, selling and transferring cryptocurrencies.

Some general guidelines for investing in Bitcoin include:

- Not investing more than 10% of your portfolio in individual stocks or risky assets like Bitcoin

- Understanding your risk tolerance and investment strategy before purchasing

- Diversifying your investment portfolio to protect yourself from marketplace volatility

- Starting small and gradually increasing your investment over time

- Timing the market by buying coins when they are at a low price and selling them when they are at their highest

How much do you need to invest in Bitcoin?

Bitcoin is a very high-risk investment. Its value may rise or fall dramatically in a very short period—even in a matter of hours. It is also a volatile asset that is prone to large and fast swings in value. Therefore, it is critical to learn how to invest in Bitcoin responsibly before making any decisions.

There is no minimum amount of Bitcoin you need to buy to get started. For example, Coinbase allows a minimum Bitcoin investment of $2. However, buying a small amount of Bitcoin is not recommended because exchange platforms charge fees for buying, selling, and transferring cryptocurrencies, which can quickly eat into your investment. It is recommended to invest a minimum of $50.

Most financial experts recommend limiting your crypto exposure to less than 5% of your total portfolio. Crypto is considered a high-risk asset class, so limiting your allocation helps manage overall volatility and risk. If you are new to crypto investing, you may want to start with just 1% to 2%.

Tips for Investing in Bitcoin

• Understand your risk tolerance: Bitcoin is a high-risk investment. Carefully review your risk tolerance before investing. If you don’t feel comfortable investing in volatile assets or only have a small sum of money to invest, you may want to consider other options.
• Diversify your portfolio: Protect yourself from investment losses by diversifying your portfolio. Your primary investments should be low-risk, like government bonds or index funds. Next, consider medium-risk investments, like real estate or corporate stocks. High-risk investments, like penny stocks or Bitcoin, should be your smallest and least-prioritised investments.
• Start small: If you’re unsure, start with a small amount of money that you can afford to lose. This will allow you to get a grasp of how the process works without taking on too much risk.
• “Buy and Hold” Bitcoin: One investment strategy is to hold Bitcoin long-term. This strategy requires investors to weather the ups and downs of Bitcoin price fluctuations without selling.
• Trade Bitcoin on short-term volatility: Another strategy is to ride the ups and downs of Bitcoin, selling at the peaks and buying on the dips. This is a challenging strategy that exposes investors to the most risk.

Factors to Consider When Investing in Bitcoin

• Risk tolerance: The crypto market is very volatile, so only invest an amount of money that you feel comfortable losing entirely.
• Profit tolerance: If you invest an amount that makes you highly emotional when you lose it, the same will be true when you gain. This may lead to poor decision-making.
• Timing: The cryptocurrency market is made up of repeated market cycles that often last for 1 to 2 years. Prices surge, creating bubbles that eventually burst. Therefore, timing is crucial in cryptocurrencies.
• Change of mind: It’s natural to change your mind when confronted with an ever-evolving market. So, before deciding how much to invest, leave room to change your mind in the future. Divide your investment over time—for example, invest a set amount each month.
• Diversification: Don’t put all your eggs in one basket. Invest in a range of different assets, such as real estate, stocks, and gold.

How to buy Bitcoin

There are several ways to buy Bitcoin, including:

• Cryptocurrency exchanges: You can purchase Bitcoin from cryptocurrency exchanges such as Gemini, Kraken, Coinbase, and Crypto.com. These exchanges offer a variety of cryptocurrencies and carry different fees and consumer protections.
• Traditional stockbrokers: A few traditional investment brokers, like Robinhood Crypto, Webull, TradeStation, and Fidelity, offer customers a way to buy and sell Bitcoin.
• Bitcoin wallets: You can buy Bitcoin through Bitcoin wallet apps like the Bitcoin.com Wallet app.
• Brokerages: You can also buy Bitcoin through brokerages like eToro.
• Bitcoin ATMs: These work like normal ATMs, but you can use them to buy and sell Bitcoin. You can find them in locations where normal ATMs are usually placed, such as convenience stores.
• Bitcoin exchange-traded funds (ETFs): On January 10, 2024, the SEC approved spot Bitcoin ETFs, which track the price of Bitcoin and trade over major exchanges. These ETFs started trading on January 11, 2024, and are available through traditional brokerage accounts.
• Peer-to-peer money transfer apps: Cash transfer services like PayPal, Venmo, and Cash App allow users to purchase, store, send, and sell Bitcoin directly through their apps.

When buying Bitcoin, it's important to consider the fees, consumer protections, and security measures offered by each option. Additionally, it's recommended to use two-factor authentication and a strong password when creating accounts for digital wallets and currency exchanges.

How Much to Invest in Bitcoin

The amount you should invest in Bitcoin depends on various factors, including your risk tolerance, profit tolerance, and financial situation. It's generally recommended to invest somewhere between 5% and 30% of your investment capital in Bitcoin, with 5% being very safe and 30% being risky. It's essential to only invest an amount you feel comfortable losing entirely, as the crypto market is highly volatile. Diversifying your investments across different asset classes, such as real estate, stocks, and gold, is also a prudent strategy.

Where to buy Bitcoin

There are several platforms that allow you to buy Bitcoin. Here are some of the most popular options:

Coinbase

Coinbase is a popular and trusted cryptocurrency exchange that allows users to buy, sell, trade, store, and stake various cryptocurrencies, including Bitcoin. It is the only publicly traded crypto exchange in the US and offers advanced trading tools, real-time order books, and charting capabilities. Coinbase also provides a secure crypto wallet, 2-factor authentication, and other security features to protect your assets.

Binance

Binance is another well-known cryptocurrency exchange that offers a wide range of cryptocurrencies, including Bitcoin. It has low fees and is the largest crypto exchange by trade volume, catering to millions of users worldwide. Binance provides various payment options, such as credit/debit cards, bank transfers, and third-party payment channels. It also offers features like NFT trading, staking, and crypto loans.

BitPay

BitPay is a licensed platform that enables users to buy Bitcoin instantly. It offers an app with self-custody storage and a help library for support.

Other Options

Other platforms that allow users to buy Bitcoin include Crypto.com, MoonPay, Kraken, Robinhood, Uphold, and Webull. Each platform may offer different features, payment options, security measures, and geographic availability, so it is essential to research and choose the one that best suits your needs.

Is Bitcoin a good investment?

Bitcoin is a highly volatile and speculative investment. Its value is driven by supply and demand, fear and greed, and its price has been extremely volatile since its inception. Bitcoin's price can go up, but it can also drop significantly. For example, in 2022, it fell over 75% from its all-time high.

Advantages of Investing in Bitcoin

• Bitcoin has historically offered the potential for high returns.
• It is decentralised, meaning it can't be controlled by a single government, central bank, or company.
• It has the potential to be a non-correlated asset, similar to gold, meaning it may not follow the trends of other assets like stocks.
• It is divisible, portable, durable, and uniform.
• It is increasingly being used for legal transactions.
• It is becoming more eco-friendly, with over 58% of bitcoin mining using sustainable electricity in early 2022.

Disadvantages of Investing in Bitcoin

• It is a speculative asset, meaning it doesn't generate any income like interest, dividends, or earnings.
• It is highly volatile, and its price can drop significantly.
• It is not widely accepted as a means of payment.
• Transactions are irreversible.
• Crypto exchanges lack basic consumer protections like insurance protection.
• It is very energy-intensive.
• It is used for criminal activities.
• It is highly centralised among large firms.
• It is susceptible to market manipulation.

Bitcoin can be a good investment for those who can financially handle the risk and volatility. It is important to understand the risks and do your research before investing. It is generally 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.

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:

• Hot Wallets: These are online wallets that can be accessed via computers, phones, or tablets. While they are convenient for small amounts of cryptocurrency or active trading, they are more susceptible to hacking. Examples include applications or software provided by exchanges such as Coinbase, or third-party hot wallet providers.
• Cold Wallets: Cold wallets are offline wallets that are considered more secure than hot wallets. They can be in the form of hardware wallets (e.g. USB-like devices) or paper wallets (printing out private and public keys). Cold wallets are recommended for long-term storage and large amounts of Bitcoin.
• Custodial Wallets: In this case, a third party such as an exchange holds your private keys for you. While this option may be more convenient, especially for beginners, it also means trusting a third party with your crypto. Examples include exchange wallets such as Coinbase.
• Non-Custodial Wallets: With these wallets, you have full ownership and control of your private keys. This option provides more security but also requires more responsibility from the user. Examples include hardware wallets and paper wallets.

When choosing a storage method, it's important to consider factors such as security, convenience, and your level of technical expertise. Additionally, it's recommended to use a combination of hot and cold wallets to balance security and usability.

• Use a strong password and two-factor authentication for your accounts and wallets.
• Regularly back up your Bitcoin wallet to prevent loss due to computer failure.
• Keep your software and operating systems up to date to patch security vulnerabilities.
• Use a recovery seed or phrase to ensure you can recover your crypto if you lose access to your wallet.
• Never share your private keys, recovery phrase, or password with anyone.

Frequently asked questions