A Small Bitcoin Investment: Is It Worth It?

Bitcoin is a highly volatile cryptocurrency, with massive ups and downs. It is an extremely confusing investment vehicle, but it can be exciting to invest in. $100 is not a huge investment, but it is a good starting point for someone who is new to investing. It is important to do your research and understand the risks involved before investing in Bitcoin or any other cryptocurrency. Bitcoin is divisible by eight decimal points, or 1/100 millionth of one, and these fractions are called Satoshis. If $100 is your budget, that will currently buy you about 0.0143 Bitcoin.

Bitcoin's value over time

Bitcoin's value has fluctuated since its launch in 2009. In its early days, the cryptocurrency's value was $0. In October 2010, its value rose from less than $0.10 to $0.20 and then to $0.30 by the end of the year.

Bitcoin's price continued to increase in 2011, reaching a peak of $29.60 in June. However, a sharp recession in cryptocurrency markets followed, and Bitcoin's price dropped to around $5 by the end of the year.

Bitcoin had a quiet year in 2012, increasing by a few dollars, but 2013 saw strong gains. It started the year at $13, passed $100 by April, and reached $200 by October. By the end of 2013, it had crossed $1,000 and closed out the year at $732.

Prices slowly climbed through 2016, ending the year at over $900. In 2017, Bitcoin's price hovered around $1,000 until mid-May when it broke $2,000 and then skyrocketed to close at $19,188 on December 16.

Bitcoin's price moved sideways in 2018 and 2019, with small bursts of activity. For example, there was a resurgence in price and trading volume in June 2019, with the price surpassing $10,000, but it fell to a closing price of $6,612 by mid-December.

The COVID-19 pandemic and subsequent government policies in 2020 fuelled investors' fears about the global economy and accelerated Bitcoin's rise. It opened the year at $7,161 and closed at $28,993 on December 31, increasing 416% from the start of that year.

Bitcoin took less than a month in 2021 to smash its 2020 price record, surpassing $40,000 by January 7. By mid-April, Bitcoin prices reached new all-time highs of over $60,000 as Coinbase, a cryptocurrency exchange, went public. Institutional interest further propelled its price, and Bitcoin reached a peak of $64,895 on April 14, 2021.

By the summer of 2021, prices had dropped by 50%, closing at $30,829 on July 19. September saw another bull run, with prices reaching $52,956, but a large drawdown took it to a closing price of $40,597 about two weeks later.

On November 10, 2021, Bitcoin again reached an all-time high of $69,000 before closing at $64,921. In mid-December 2021, Bitcoin fell to a close of $46,211 as uncertainty about inflation and the emergence of a new COVID-19 variant spooked investors.

Between January and May 2022, Bitcoin's price continued to gradually decline, falling to $29,000 on May 11. This was the first time since July 2021 that Bitcoin closed under $30,000. On June 13, crypto prices plunged, with Bitcoin dropping below $23,000, and by the end of 2022, it had dropped below $20,000.

Bitcoin's fortunes changed in 2023, with a stellar rise in its price. It opened the year at $16,530 and ended at $42,258.

In March 2024, Bitcoin breached $60,000 again, setting a high of $70,184 on March 8. On March 14, it reached an all-time high of $75,830. As of August 2024, Bitcoin's price is $55,936.34, and its value has increased by 32.61% so far this year.

Diversifying your portfolio

Understanding Diversification

Diversification is a fundamental investment strategy that involves spreading your investments across various assets or sectors. In the context of cryptocurrencies, diversification means investing in multiple coins and tokens to mitigate the impact of price volatility. By diversifying, you can protect yourself from significant losses if a particular cryptocurrency experiences a drastic drop in value.

Benefits of Diversification in Crypto

The primary benefit of diversification in cryptocurrency is limiting extreme outcomes. If one cryptocurrency fails and loses its value, your investments in other cryptos may still perform well or at least cushion the blow. Diversification also provides an opportunity to explore different coins and projects, allowing you to identify those with strong potential. Additionally, a diversified crypto portfolio can grant you access to various crypto markets, increasing your flexibility as an investor.

Strategies for Diversification

• Diversify by Value: Invest in cryptocurrencies with different use cases. For example, some cryptos focus on fast and easy transactions, while others are designed as a digital store of value or for smart contracts.
• Diversify by Valuation: Consider the location of the cryptocurrency project. Projects located in regions with favourable crypto regulations and wider adoption can be more convenient and cost-effective.
• Invest in Stablecoins: Stablecoins are cryptocurrencies designed to track the value of an underlying asset, such as fiat currency or precious metals. They provide stability to your portfolio, as they are less susceptible to the volatility of the crypto market.
• Explore DeFi and NFTs: Decentralized Finance (DeFi) offers a wide range of financial services without the involvement of traditional intermediaries like banks. NFTs, or non-fungible tokens, represent unique digital assets. Investing in DeFi and NFTs can be a way to profit from the evolving world of cryptocurrency and decentralised finance.
• Allocate Capital Efficiently: Start with well-established cryptocurrencies like Bitcoin or Ethereum, which have a strong track record and relatively lower volatility. Once you have a stable base, you can explore smaller and riskier coins.
• Risk Management: Assess the risk associated with each investment and ensure that your portfolio aligns with your risk tolerance. Diversification does not eliminate risk but helps manage it by ensuring that not all your investments are in the same volatile asset.
• Regular Rebalancing: Keep an eye on your portfolio and rebalance it as needed. The crypto market is highly volatile, and your investment decisions should be adaptable to market conditions.
• Dollar-Cost Averaging: Instead of investing a large sum at once, consider investing smaller amounts regularly. This strategy helps to average out the price of your investments over time and reduces the impact of market fluctuations.

Final Thoughts

Diversification is a powerful tool to manage risk and improve your long-term investment outcomes. Remember to do your own research, understand the fundamentals of each cryptocurrency, and make investment decisions that align with your financial goals and risk appetite.

Dollar-cost averaging

Bitcoin Dollar-Cost Averaging (DCA) is an investment strategy where you buy a fixed amount of Bitcoin at regular intervals, regardless of the price. This means you can invest $100 in Bitcoin.

With DCA, you can set up a specific amount of money to invest periodically, such as weekly or monthly, and stick to this schedule over time. This reduces the impact of short-term market volatility, as your specified amount buys more Bitcoin when prices are low and less when prices are high, ultimately averaging out the cost per Bitcoin.

For example, if you invest $100 every month, you will buy more Bitcoin when the price is low and less when the price is high. This averages out the cost per Bitcoin and helps to remove short-term volatility.

DCA is a long-term investment strategy, and it is important to remember that investing in Bitcoin is risky. However, it is a straightforward and simple way to invest in Bitcoin without stressing over short-term price movements. It also allows anyone, even those with a small investment capital, to start investing in Bitcoin.

• Set a budget: Figure out how much you are comfortable investing regularly. Some Bitcoin savings apps allow you to start with as little as $10.
• Decide on the intervals: This could be every week, bi-weekly, or once a month.
• Find a good platform: You need a reputable Bitcoin exchange or app that allows you to automatically save in Bitcoin using recurring payments. Examples include Swan (US), Relai (Europe), and Bitnob (Africa).
• Set up regular bank transfers: Once you have registered for a Bitcoin DCA platform, set up regular bank transfers, and the app will purchase Bitcoin for you automatically at regular intervals based on your predetermined settings.
• Use a secure wallet: As your Bitcoin savings app regularly buys Bitcoin for you, ensure the Bitcoin wallet you use is a secure, non-custodial wallet, where only you have access to the private keys.

Remember, investing in Bitcoin is risky, and you should not invest more than you are willing to lose. It is always a good idea to do your research and consult with a financial advisor before investing.

Crypto wallets

Hot wallets are highly convenient and can be accessed from anywhere with an internet connection. However, they are less secure than cold wallets and are vulnerable to a wider variety of attacks. Examples of hot wallets include Coinbase Wallet, MetaMask, TrustWallet, and Electrum.

Cold wallets, on the other hand, store your digital keys offline, such as on a USB drive or a sheet of paper. They are designed to be hard to hack and provide a higher level of security than hot wallets. Examples of cold wallets include Ledger, Ellipal Titan, and SafePal.

When choosing a crypto wallet, it is important to consider factors such as security, functionality, cost, and the types of cryptocurrencies supported. Additionally, it is crucial to follow safe practices and use a reputable company with good security measures to protect your digital assets.

Bitcoin's volatility

Bitcoin is considered a volatile asset. Volatility is a measure of how much the price of a financial asset varies over time. The volatility of Bitcoin is measured by how much its price fluctuates relative to the average price in a given period.

Despite its volatility, Bitcoin has been one of the best-performing assets of the last decade. For example, if you had invested $100 in Bitcoin in October 2010 when it was 10 cents, those bitcoins would have been worth more than $48 million at its all-time high in February 2021.

However, due to its volatility, there have also been many stories of people losing money by buying and selling Bitcoin at the wrong time. Additionally, investors who have held onto Bitcoin for a long time have faced technical issues when trying to cash out their gains, such as forgetting the passwords to their digital wallets.

In summary, while $100 is a good amount for a beginner to start investing in Bitcoin, as it is a small enough amount to not cause significant losses if things go wrong, it is important to remember that Bitcoin is a highly volatile asset that comes with a certain level of risk.

Frequently asked questions