The Ultimate Guide To Bitcoin Investing For Beginners

Bitcoin is a decentralised digital currency that was created in 2009 by an unknown individual or group of individuals under the pseudonym Satoshi Nakamoto. It is the first decentralised currency that operates without a central bank or single administrator, making it a peer-to-peer electronic currency system.

Since its inception, Bitcoin has rocketed in value from less than $1 per Bitcoin to a high of $69,000. In 2023, it rallied to over $43,000.

If you want to get started with Bitcoin investing, you will need to sign up to a cryptocurrency exchange, such as Coinbase, Binance, Kraken or Gemini, which will allow you to buy cryptocurrency with cash. You will also need a secure wallet to store your Bitcoin, such as a hardware wallet like Ledger Nano X or Trezor.

Choosing a cryptocurrency exchange

• Authenticity and security: The crypto market is prone to scams and fraud, so it is crucial to ensure that the exchange is legitimate and secure. Look for a physical address, transparency, and a good reputation. Check what security measures they have in place, such as two-factor authentication and cold storage options.
• Payment methods: Different exchanges support different payment methods for purchasing cryptocurrencies. Some common options include bank transfers, PayPal, credit cards, and debit cards. Choose an exchange that accepts your preferred payment method, especially if you are a beginner and need to purchase cryptocurrencies with fiat currency.
• Supported coins and tokens: While most exchanges support Bitcoin and Ethereum, there are thousands of other cryptocurrencies. If you want to invest in specific coins or tokens beyond Bitcoin and Ethereum, ensure the exchange supports them. Binance, for example, offers access to a wide range of altcoins.
• Transaction fees: Transaction fees vary across exchanges, and some may have hidden fees. Understand the fee structure, including trading fees and withdrawal fees, to avoid unexpected costs. Some exchanges offer flat transaction rates, while others have more flexible structures.
• User interface and experience: An exchange with a user-friendly interface and good customer service can enhance your trading experience. The platform should be easy to navigate and provide access to various functionalities. However, keep in mind that user experience is subjective, and you may need to try out different exchanges to find the one that suits your preferences.

Some popular cryptocurrency exchanges include:

• Binance: Binance is the largest and most powerful cryptocurrency exchange globally, with a daily trading volume of over $13 billion. It offers access to hundreds of coins and tokens and provides various services such as staking and derivative trading. Binance is available in over a hundred countries.
• Coinbase: Coinbase is a popular exchange, especially in the United States, and is now a publicly listed company. It offers a user-friendly platform, insured custodial wallets, and supports a wide range of cryptocurrencies. Coinbase also has a dedicated platform for professional traders called Coinbase Pro.
• Kraken: Kraken is one of the oldest cryptocurrency exchanges and is well-respected in the crypto community. It provides access to hundreds of cryptocurrencies and allows funding through fiat currencies and other cryptos. Kraken also has a professional trading platform, Kraken Pro, with advanced features and lower fees.
• CEX.io: CEX.io stands out for its excellent user interface, making it a good choice for beginners. It offers a wide range of cryptocurrencies and has highly-rated customer support.

Setting up a Bitcoin wallet

A hot wallet is a wallet that is operated by either your cryptocurrency exchange or by a third-party provider. Some exchanges will automatically provide you with a hot wallet when you open your account. Hot wallets are convenient because you will be able to access your coins through the internet or a software program. However, they are not the most secure form of coin storage. If the hot wallet provider is hacked, your coin information may be at risk.

A cold wallet, on the other hand, is the safest storage method for your coins. It is an actual piece of hardware that stores your coins, usually a portable device similar to a flash drive. Cold wallets typically cost between $60 and $100.

• Electrum: Software that enables you to store your coins on your computer
• Mycelium: A mobile-only app for Android and iPhone users

And some examples of cold wallets:

• Ledger Nano X
• Trezor
• Ledger Nano S
• Paper wallet

If you are only going to purchase small amounts of coin, then you might be fine using a hot wallet with an insured crypto exchange. But if you are going to be trading large amounts of coin, then a cold wallet would be a better option.

When choosing a wallet, it is important to do your research and select a well-recognised wallet that lets you, and only you, keep the seed words. This seed word is the password for your Bitcoin. Even if you lose your phone or hardware wallet, you can recover your Bitcoin using the seed words.

Connecting your wallet to a bank account

Connecting your Bitcoin wallet to a bank account is a straightforward process. Firstly, you will need to select a suitable crypto exchange platform that supports the cryptocurrency in your wallet and the fiat currency you want to exchange it for. For example, if you are based in the US, you may want to exchange Bitcoin for US dollars. Popular platforms include Kraken, eToro, Coinbase, and Bitstamp.

Once you have chosen your platform, you will need to create an account and verify your identity. This usually involves submitting documents for Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. After your account has been verified, you can add your bank account details.

Now you can start exchanging your Bitcoin for fiat currency. On your dashboard, find the "Buy/Sell" or "Deposit/Transfer" option, which will allow you to send cryptocurrency from your wallet to your account on the exchange platform.

Finally, you can withdraw the fiat currency from your exchange account to your bank account. This step will require you to add your banking details, such as your IBAN number or SWIFT/BIC code, depending on the type of transfer you are making.

It is important to note that not all platforms support bank transfers, and some may charge fees for deposits and withdrawals. Additionally, bank transfers usually take longer to process compared to credit or debit card transactions.

Placing your first Bitcoin order

Once you've chosen a crypto-trading service or venue, connected your exchange to a payment option, and funded your account, you can place your first Bitcoin order.

There are several types of orders to choose from, each with its own advantages and disadvantages. Here's a step-by-step guide to placing your first Bitcoin order:

• Market Order: This is the simplest type of order and is perfect for traders who want instant execution and don't want to wait for a target price. When placing a market order, you only need to specify the amount of Bitcoin you want to buy or sell. The price is determined by the current best rates available in the market. A market order will continue to buy or sell the asset at the next best price if it buys or sells all the assets available at one price. This process is called slippage and can result in paying more for an asset than intended.
• Limit Order: This type of order gives you more flexibility with the asset price and amount. You can set a minimum price, and the order will only be executed at that price or higher. Limit orders are best suited for traders who can patiently wait for a price target to be reached. They allow you to either take another trader's open order or place your own open order. However, limit orders might not be executed or may be partially filled, even if the price target is met.
• Stop Order: This type of order is set to buy or sell Bitcoin at the market price once a specific stop price has been reached. It helps traders protect profits and limit losses. A stop order can be a market or limit order. A stop-market order is executed immediately once the stop price is reached, while a stop-limit order gives you more flexibility and allows you to specify a limit price.
• Stop-Limit Order: This advanced order type combines the benefits of limit and stop orders. It is used to minimize risk and secure profits. A stop-limit order has two layers: the stop price, which triggers the order, and the limit price, which is the highest price you are willing to pay or the lowest price you are willing to sell. This type of order will buy or sell the desired asset once the stop price is reached and will continue until the specified amount is filled or the stop price is reached. Any remaining balance will be placed as an open order at the stop price.

When placing your first Bitcoin order, it's important to consider the advantages and disadvantages of each order type and choose the one that aligns with your trading strategy and risk tolerance. Remember to always do your own research and understand the risks involved before placing any orders.

Managing your Bitcoin investments

• Diversify your portfolio: It is important to diversify your investment portfolio to minimise risk. Start with low-risk investments such as government bonds or index funds, then move to medium-risk investments like real estate or corporate stocks, and finally allocate a smaller portion of your portfolio to high-risk, high-reward investments like Bitcoin. This way, you can benefit from the potential gains of Bitcoin while managing your overall risk exposure.
• Start small and invest regularly: If you are new to Bitcoin investing, consider starting with a small amount that you are comfortable losing. For example, investing $10 per week can help you build your Bitcoin holdings over time without taking on too much risk. This approach also helps to average out the price you pay for Bitcoin, reducing the impact of short-term price volatility.
• Choose the right investment strategy: There are several Bitcoin investment strategies to consider, depending on your risk tolerance and investment goals. The "Buy and Hold" strategy involves holding Bitcoin for the long term, riding out the ups and downs of the market. This strategy is based on the belief that Bitcoin will increase in value over time. Another strategy is to trade Bitcoin on short-term volatility, buying when the price dips and selling when it peaks. This approach requires more active monitoring and carries more risk but can potentially deliver faster gains.
• Select a secure wallet: Keeping your Bitcoin in a secure wallet is essential. There are several types of Bitcoin wallets available, including mobile, desktop, web, and hardware wallets. Hardware wallets, such as the Ledger Nano X or Trezor, are considered the most secure option as they store your Bitcoin offline, reducing the risk of hacking. For smaller amounts of Bitcoin, a mobile wallet like Muun or Trust wallet can be convenient for daily use.
• Monitor the market and stay informed: Bitcoin is a highly volatile asset, and its price can fluctuate significantly in response to news and market sentiment. Stay informed about the latest developments in the Bitcoin and cryptocurrency space, including regulatory changes, technological advancements, and market trends. This will help you make more informed decisions about buying, holding, or selling your Bitcoin.
• Consider tax implications: Depending on your jurisdiction, there may be tax implications when investing in Bitcoin. Consult with a tax professional to understand the tax treatment of cryptocurrency in your country and ensure you are complying with any applicable tax laws.
• Review and adjust your investment plan: Regularly review your Bitcoin investment plan to ensure it aligns with your financial goals and risk tolerance. As the market changes, you may need to adjust your investment strategy or rebalance your portfolio. Stay disciplined and avoid making impulsive decisions based on short-term market movements.

Frequently asked questions