The Small Investor's Guide To Bitcoin

Bitcoin is a cryptocurrency, a form of electronic money that uses cryptography to secure and validate transactions. It is a decentralised digital currency without a central authority, such as a government or bank, in charge of it. This makes it attractive to those who are wary of traditional currencies and financial institutions. However, it is also highly volatile and subject to dramatic fluctuations. For this reason, it is considered a risky investment. Nonetheless, it is possible to invest in Bitcoin with small amounts of money. Apps such as Relai allow people to invest in Bitcoin with as little as €10. Other platforms such as Coinbase allow a minimum Bitcoin investment of $2, although it is not recommended to invest such small amounts due to the fees involved.

Choose a crypto exchange

For most people, the best place to buy Bitcoin is on a crypto exchange. These are online platforms dedicated to facilitating trades in cryptocurrency, usually by offering trading pairs (e.g. USD to Bitcoin) and matching buyers with sellers.

There are hundreds of crypto exchanges to choose from, and people have different tastes when it comes to investing. eToro is one of the best exchanges for buying cryptocurrency. Robinhood is a more general trading platform that may be better suited to inexperienced traders as it is more user-friendly than the average crypto exchange. However, the major downside is that many don't let users withdraw their bitcoin.

New investors should check the fees charged by exchanges, as these can vary quite widely. They should also check for the minimum account balance required by their chosen platform, as certain exchanges impose a minimum. Others also set minimums for account deposits via bank transfer.

Some crypto exchanges allow the minimum Bitcoin investment to be as low as $2, but this is not recommended due to the fees for buying, selling and transferring cryptocurrencies, which will quickly kill your investment. A better minimum purchase is around $50.

If you are based in Europe, the Relai app allows you to start investing in bitcoin with as little as €10.

Payment methods

Once you've chosen a crypto exchange, the next step is to select a payment method. Most major platforms offer the option of linking your bank account for wire and ACH transfers. You can also link a debit card, and some platforms even allow payment through PayPal.

Regardless of the payment option you choose, you will need to verify your identity when signing up for an account and registering a payment method. In the US, this usually involves submitting a scan of a state-issued ID, such as a driver's license. Depending on your location and chosen platform, you may also be required to provide additional documentation, such as a passport or proof of address.

It's important to note that exchanges vary in terms of the payment methods they support, so be sure to check and ensure that your preferred method is accepted before signing up.

If you're investing a small amount, it's also worth considering the fees charged by the exchange. These can vary widely, and you don't want them to eat into your investment. For example, Coinbase allows a minimum Bitcoin investment of $2, but the fees for buying, selling, and transferring cryptocurrencies can quickly add up if you're only investing a small amount.

One way to avoid high fees is to use an app like Relai, which allows anyone in Europe to start investing in Bitcoin with as little as €10. The process is simple: download the app, enter the amount of Bitcoin you want to buy, and make a bank transfer to pay for your purchase.

Risk tolerance

When deciding on an investment amount, ask yourself the following questions:

• Will I feel comfortable losing my full investment?
• Will I judge myself for deciding to invest?
• Will it affect my mental health or well-being?
• Will it impact my ability to make rational decisions?

If the answer to any of these questions is "yes," you should consider lowering the amount you plan to invest. It's crucial to maintain a level of investment that doesn't compromise your judgment or emotional well-being.

Additionally, a higher investment amount may lead to the temptation of 'panic selling' during a loss. While selling at a loss can sometimes be a rational decision, it's important that this choice isn't driven by emotions or panic.

To manage risk effectively, consider adopting a dollar-cost averaging (DCA) strategy. This involves investing a fixed amount regularly (weekly, monthly) to smooth out market volatility. This approach is particularly popular among Bitcoin investors due to its potential for high returns and price volatility.

By investing small amounts regularly, you can take advantage of market corrections and buy larger chunks of Bitcoin at more favourable prices. This value investor approach helps create a margin of safety for your investment.

Remember, the golden rule of investing is never to invest money that you cannot afford to lose. Bitcoin is an emerging market and a new asset class, so it's crucial to be comfortable with the level of risk you're taking.

Dollar-cost averaging

To implement a dollar-cost averaging strategy for bitcoin, you can follow these steps:

• Set a budget: Determine how much you are comfortable investing on a regular basis. Some bitcoin savings apps allow you to start with a small amount, such as $10, but you can decide how much you want to invest in bitcoin each week or month.
• Decide on the intervals: You can choose the frequency of your investments, such as weekly, bi-weekly, or monthly.
• Find a good platform: Select a reputable bitcoin exchange or app that allows you to automatically save in bitcoin using recurring payments. Examples of popular Bitcoin DCA apps include Swan (US), Relai (Europe), and Bitnob (Africa).
• Set up regular bank transfers: Once you have chosen a platform, set up regular bank transfers from your bank account to the platform.
• Purchase bitcoin automatically: The chosen app or platform will then purchase bitcoin for you automatically at regular intervals based on your predetermined settings.
• Store your bitcoin securely: Ensure that you use a secure, non-custodial bitcoin wallet, where only you have access to the private keys. This will allow you to safely hold your bitcoin investment for the long term.

Store your crypto safely

Storing your cryptocurrency safely is essential to ensure your crypto investment journey doesn't suffer an early setback. Here are some detailed instructions and tips to help you store your crypto securely:

• Choose a Secure Crypto Wallet: You need a crypto wallet to store your cryptocurrency. A crypto wallet is a device or program that keeps your crypto assets, private keys, and wallet addresses (public keys) in one place. There are different types of crypto wallets available, including hot wallets (online software wallets) and cold wallets (offline hardware wallets). Select a wallet that offers strong security features, such as two-factor authentication, to protect your crypto assets from hackers and other threats.
• Select a Reputable Crypto Exchange: Choose a crypto exchange that supports a wide range of cryptocurrencies, has a good user experience, and is available in your country. The exchange should also have robust security measures in place to protect your assets.
• Open an Account and Complete KYC Requirements: Sign up for an account with your chosen crypto exchange. This usually involves providing personal information, such as an email address, phone number, and legal name. You may also need to submit documents, such as a government-issued ID, utility bill, or proof of address, to satisfy Know Your Customer (KYC) requirements.
• Set Up Your Crypto Wallet: Follow the instructions provided by your chosen crypto exchange to set up your wallet. This may include downloading software, creating wallet addresses, and setting up security features. Make sure to keep your recovery or seed phrase safe, as it will help you recover your crypto if you lose access to your wallet.
• Deposit Your Crypto: Once your wallet is set up, you can deposit your crypto into it. To do this, you will need the wallet address, which can usually be found on your crypto's transaction page. Always double-check that you are sending your crypto to the correct address to avoid permanent loss.
• Consider Cold Storage for Large Amounts: While hot wallets offer convenience, cold wallets are considered the most secure option for storing large amounts of cryptocurrency. Cold wallets are not connected to the internet, protecting your crypto from online hacks and security breaches. Purchase a reputable cold storage device, such as a portable device with Bluetooth connectivity, and follow the instructions to set it up securely.
• Practice Safe Crypto Storage Habits: Never share your recovery phrase or private keys with anyone, and avoid storing them on your computer or other vulnerable locations. Physically record your recovery phrases and keep them in a secure location that only you can access. Additionally, be cautious when using public computers or unfamiliar websites to avoid malware and phishing scams.
• Diversify Your Storage Methods: Consider using multiple storage methods to balance security and accessibility. You can use a hot wallet for smaller amounts of crypto that you want to access quickly for transactions, while storing the bulk of your crypto in a cold wallet for added security.
• Stay Informed and Vigilant: Stay up to date with the latest attack techniques, white hat cheat sheets, and defences. Criminals are always devising new ways to target crypto holders, so it's important to be vigilant and proactive in protecting your crypto assets.

Frequently asked questions