Big Coin Investment: A Beginner's Guide To Crypto Profits

Bitcoin is a cryptocurrency that has become increasingly popular among investors. It was created to solve some of the major flaws in the cryptocurrency market, such as the fraudulent duplication of coins. It uses blockchain technology, which is a coding mechanism that disperses a single code over thousands of different computers. This makes it harder for hackers to access the code.

There are several ways to invest in Bitcoin, including through crypto exchanges, investing in companies that utilise Bitcoin technology, and participating in Bitcoin mining. However, it is important to note that investing in Bitcoin is very risky due to its high volatility. Before investing, individuals should carefully consider their risk tolerance, investment strategy, and financial goals.

Choosing a Bitcoin exchange

• Goals: First, know what you are looking to accomplish. For example, is the goal to simply invest for the long term, or to trade in and out of positions regularly?
• Regulations: Different exchanges comply with different laws and regulations, based on their locations, practices and offerings. Some exchanges have Know Your Customer (KYC) and Anti-Money Laundering (AML) practices, requiring participants to submit personal information. Many also ban customers in certain countries.
• Security: Each exchange has its own security methods. Check to see if the exchange offers two-factor authentication (2FA). Google Authenticator, Authy and Yubikey are three common avenues for 2FA as they offer better security than mobile text-based 2FA.
• Fiat compatibility: At some point, you will likely require a fiat-compatible exchange, allowing you to transfer national currencies (USD, CAD, etc.) into the crypto world for trading use, and out of the crypto world to cash out profits. Some exchanges have different fiat options, compatible with specific banks, and some do not.
• Trading options: Derivatives exchanges frequently offer leverage trading, meaning traders can borrow funds for trades based on the amount of money they hold on the exchange. Multiple exchanges offer anywhere from 1x to 100x leverage.
• Volume: Trading platforms vary based on the number of participants using them at any given time, and the amount of each asset being traded. If a trader is looking to sell 100 BTC, they will likely be unable to do so on a low-volume exchange as there may not be enough sellers at the listed market price.
• Price: Asset prices vary across multiple exchanges. Crypto assets might trade higher or lower on one exchange versus another due to participant location, volume and other factors. Noting these discrepancies can factor into choosing an exchange, especially when altcoins are concerned.
• Coins and tokens: Top digital assets such as Bitcoin, Ethereum (ETH) and Litecoin (LTC) are widely available on most crypto exchanges. Other smaller cap coins and tokens, however, may not be available on certain exchanges.
• Fees: Most exchanges charge a small fee for each trade. These fees vary based on the platform, and are usually based on a percentage of each trade. Some exchanges also have withdrawal fees and limits.
• User experience: This criterion is very important to your success as a cryptocurrency trader or investor. An exchange with an intuitive interface and good user experience makes it easier to trade the cryptocurrencies available.

Getting a Bitcoin wallet

To start investing in Bitcoin, you'll need to get a Bitcoin wallet. A crypto wallet is a place where you can securely store your cryptocurrency. There are several types of crypto wallets, each with its own advantages and disadvantages. Here are some options for getting a Bitcoin wallet:

Hosted Wallet

Hosted wallets are the most popular and easy-to-set-up type of crypto wallet. When you buy crypto through an app, such as Coinbase, your cryptocurrency is automatically stored in a hosted wallet. This is similar to how a bank holds your money in a checking or savings account. The main benefit of a hosted wallet is that if you forget your password, you won't lose your crypto. However, a drawback is that hosted wallets don't currently provide access to all the features available in the crypto space. To set up a hosted wallet:

• Choose a platform that you trust, prioritising security, ease of use, and compliance with government and financial regulations.
• Create your account by entering your personal information and choosing a secure password. It is recommended to use two-step verification or two-factor authentication (2FA) for added security.
• Buy or transfer crypto to your account. Most platforms allow you to purchase crypto with a bank account or credit card, or you can transfer existing crypto to your new wallet.

Self-Custody or Non-Custodial Wallet

A self-custody wallet, like the Coinbase Wallet, gives you complete control over your crypto. With non-custodial wallets, you are responsible for storing and safeguarding your password, which is often referred to as a "private key" or "seed phrase". If you lose or forget this password, you won't be able to access your crypto. To set up a non-custodial wallet:

• Download a wallet app, such as the Coinbase Wallet.
• Create your account. Unlike hosted wallets, non-custodial wallets do not require you to share any personal information, not even an email address.
• Write down your private key and keep it in a secure location. This is typically presented as a random 12-word phrase, and it is crucial for accessing your crypto.
• Transfer crypto to your wallet. Non-custodial wallets usually don't allow you to buy crypto with traditional currencies, so you'll need to transfer crypto from another source.

Hardware Wallet

A hardware wallet is a physical device, similar in size to a thumb drive, that stores your private keys offline. Hardware wallets are more complex and costly than software wallets, but they offer enhanced security. Even if your computer is hacked, your crypto will remain secure. However, this advanced security makes hardware wallets less convenient to use. To set up a hardware wallet:

• Purchase the hardware from a well-known brand, such as Ledger or Trezor.
• Install the necessary software. Download the software from the official company website and follow the instructions to create your wallet.
• Transfer crypto to your wallet. Hardware wallets typically don't support the purchase of crypto with traditional currencies, so you'll need to transfer crypto from another source.

When choosing a Bitcoin wallet, consider your needs and preferences. If you prioritise simplicity and ease of use, a hosted wallet might be best. If you want full control over your crypto and access to advanced features, a non-custodial wallet could be preferable. For maximum security, especially if you're storing large amounts of Bitcoin, a hardware wallet may be the right choice.

Connecting your wallet to a bank account

Choose a Cryptocurrency Exchange

Firstly, you need to select a cryptocurrency exchange platform. Popular options include Coinbase, Kraken, Gemini, and Binance, each offering various features and cryptocurrencies for trading. These platforms enable you to buy, sell, and hold cryptocurrencies. When creating an account, ensure you use two-factor authentication and a strong, unique password.

Connect Your Exchange to Your Bank Account

After setting up your exchange account, it's time to link it to your bank account. Most exchanges allow you to connect your bank account directly. You may need to provide personal identification information, such as a driver's license or Social Security card. The process is similar to setting up a typical brokerage account.

Understand the Fees

It's important to note that fees vary for deposits and transactions via a bank account, debit card, or credit card. Additionally, some exchanges charge fees per transaction. Be sure to review the fee structure of your chosen exchange to understand the costs associated with using your bank account for cryptocurrency purchases.

Alternative Payment Methods

While connecting your bank account is a common method, you can also use a credit or debit card to fund your cryptocurrency purchases. However, using a credit card may result in additional interest charges, and some exchanges do not allow this method due to processing fees and fraud risks.

Safe Storage

Once you've connected your bank account and made your cryptocurrency purchases, ensure you store your crypto securely. You can use an exchange wallet, but for larger or long-term holdings, it's recommended to use a personal wallet, also known as a "hot wallet." These are typically apps on your phone, computer, or tablet.

For even greater security, consider a "cold wallet," which is not connected to the internet and is therefore less susceptible to being compromised. Hardware wallets, such as USB drives, are a popular choice for storing your private keys offline.

Regulatory and Security Considerations

When connecting your wallet to your bank account, always use reputable and well-known platforms to reduce the risk of fraud and security breaches. Additionally, be aware of the regulatory and tax status of purchasing cryptocurrency in your region. Cryptocurrency is treated as property by the IRS, and transactions may be subject to capital gains taxes.

Placing your Bitcoin order

Once you have chosen a cryptocurrency exchange, you will need to establish an account and verify your identity. Before you can buy any crypto, you will need to fund your exchange account with another currency, such as US dollars.

You can then decide which cryptocurrency you want to buy and place a buy order. You can choose to place a market, limit, or stop order.

A market order will execute immediately at the best available current market price. Market orders cannot be cancelled because they are filled immediately.

A stop order lets you specify the price at which the order should execute. If the cryptocurrency falls to that price, your order will trigger a sell.

A limit order lets you set a minimum price for the order to execute—it will only execute at this price or higher. Limit orders are only fulfilled if the designated price is reached, and even then, execution is not guaranteed.

After your purchase is complete, you will need to store your cryptocurrency in a digital wallet. This can be hosted by either the cryptocurrency exchange or an independent wallet provider.

Managing your Bitcoin investments

Bitcoin is a highly volatile investment option, and managing your investments is crucial to navigate the cryptocurrency market successfully. Here are some essential tips for managing your Bitcoin investments:

• Monitor Market Trends and Regulatory Changes: The cryptocurrency market is influenced by various global factors, including technological advancements, market sentiment, and economic events. Staying updated with the latest trends and regulatory changes is vital for making informed investment decisions.
• Regularly Track the Performance of Your Holdings: Utilize platforms like Kriptomat that offer user-friendly interfaces and comprehensive performance analytics tools. These tools help you monitor how your Bitcoin investment is performing over time, enabling you to make more informed decisions.
• Adapt Your Strategy: The cryptocurrency market is highly dynamic, and it's essential to adjust your investment strategy in response to market changes. Regularly reviewing your portfolio and rebalancing your holdings can help maximize your Bitcoin investment's potential.
• Consider Diversification: While Bitcoin is a popular investment option, its extreme volatility underscores the importance of diversification. Consider allocating your investments across various cryptocurrencies or exploring other investment options to spread your risk.
• Security and Storage: Storing your Bitcoin in a secure wallet is essential. You can choose between a hot wallet, which is provided by crypto exchanges or software providers, and a cold wallet, which is an offline encrypted device. Regularly back up your wallet and consider additional security measures such as two-factor authentication.
• Long-Term Investment Strategy: Bitcoin's value has historically increased over time, despite short-term volatility. Consider a long-term investment strategy, such as buying and holding, to take advantage of potential long-term gains.
• Dollar-Cost Averaging (DCA): This strategy involves investing a fixed amount in Bitcoin at regular intervals, regardless of the price. DCA helps mitigate the impact of volatility by averaging out the cost over time.
• Day Trading and Short-Term Strategies: If you have a solid grasp of market nuances and are comfortable with risk, you can explore day trading or swing trading. These strategies involve buying and selling Bitcoin within the same day or holding it for a few days to a few weeks to capitalize on expected market shifts.
• Tax Implications: Remember that investing in Bitcoin and other cryptocurrencies may have tax implications. The IRS treats cryptocurrency as property, and any gains from selling or using it to purchase goods or services are generally taxable. Consult with a tax professional to understand your specific tax obligations.
• Risk Management: Investing in Bitcoin carries substantial risks, including market volatility and regulatory changes. Always assess your risk tolerance and financial goals before investing. Never invest more than you are comfortable losing, and consider diversifying your portfolio to mitigate risk.

Frequently asked questions