The Ultimate Guide To Bitcoin Investing

Bitcoin is a highly volatile and speculative investment. Its value is prone to violent swings, which can result in significant profits or losses for investors.

Before investing in Bitcoin, it is important to understand the risks involved and ensure that you have a solid financial foundation, including an emergency fund and a manageable level of debt. Here are some key things to know about investing in Bitcoin:

1. Understand what you are investing in: Bitcoin and other cryptocurrencies are not backed by any hard assets or cash flow, so their value is entirely dependent on market demand.

2. Don't rely on past performance: Just because Bitcoin has seen tremendous growth in the past does not guarantee that it will continue to do so in the future.

3. Be prepared for volatility: The cryptocurrency market is highly volatile, and prices can drop quickly on rumours or news. This can be challenging for new investors who don't have the same level of experience or algorithms as sophisticated traders.

4. Manage your risk: Develop a risk management strategy that suits your investment style and stick to it. For example, long-term investors might decide never to sell, while short-term traders might set rules to sell when a certain loss threshold is reached.

5. Only invest what you can afford to lose: Don't put money into Bitcoin that you can't afford to lose. Keep your essential funds in safe accounts and consider paying off high-interest debt for a guaranteed return.

Understand the risks and volatility of the market

Bitcoin is a highly volatile asset that's prone to large and fast swings in value, which presents an opportunity for large returns but also poses tremendous risk. It is critical that you learn how to invest in Bitcoin responsibly before making any decisions. Be sure to diversify your investment portfolio to protect yourself from marketplace volatility.

Volatility

The prices of cryptocurrencies are about as volatile as an asset can get. They could drop quickly in seconds on nothing more than a rumour that ends up proving baseless. That can be great for sophisticated investors who can execute trades rapidly or who have a solid grasp of the market's fundamentals, how the market is trending, and where it could go. For new investors without these skills – or the high-powered algorithms that direct these trades – it's a minefield.

Volatility is a game for high-powered Wall Street traders, each of whom is trying to outgun other deep-pocketed investors. A new investor can easily get crushed by the volatility. That's because volatility shakes out traders, especially beginners, who get scared. Meanwhile, other traders may step in and buy on the cheap. In short, volatility can help sophisticated traders "buy low and sell high" while inexperienced investors "buy high and sell low".

Risk Management

If you're trading any asset on a short-term basis, you need to manage your risk, and that can be especially true with volatile assets such as cryptocurrency. So as a newer trader, you'll need to understand how best to manage risk and develop a process that helps you mitigate losses. And that process can vary from individual to individual:

• Risk management for a long-term investor might simply be never selling, regardless of the price. The long-term mentality allows the investor to stick with the position.
• Risk management for a short-term trader, however, might be setting strict rules on when to sell, such as when an investment has fallen 10%. The trader then strictly follows the rule so that a relatively small decline doesn't become a crushing loss later.

Newer traders should consider setting aside a certain amount of trading money and then using only a portion of it, at least at first. If a position moves against them, they'll still have money in reserve to trade with later. The ultimate point is that you can't trade if you don't have any money. So keeping some cash in reserve means you'll always have a bankroll to fund your trading.

It's important to manage risk, but that will come at an emotional cost. Selling a losing position hurts, but doing so can help you avoid worse losses later.

Don't Invest More Than You Can Afford to Lose

Finally, it's important to avoid putting money that you need into speculative assets. If you can't afford to lose it – all of it – you can't afford to put it into risky assets such as cryptocurrency, or other speculative assets, for that matter. Whether it's a down payment for a house or an important upcoming purchase, money that you need in the next few years should be kept in safe accounts so that it's there when you need it. And if you're looking for an absolutely sure return, your best option is to pay off high-interest debt. You're guaranteed to earn (or save) whatever interest rate you're paying on the debt. You can't lose there.

Research the past and future value of Bitcoin

Researching the Past and Future Value of Bitcoin

Bitcoin's Price History

Bitcoin was launched in 2009 with no value. In July 2010, it gained value for the first time, at $0.0008. In April 2013, it rallied to $250 for the first time, and in December 2017, it made history after hitting a high of $20,000.

However, in January 2018, Bitcoin entered a bear market, dropping to $3,000 by the end of the year. In November 2021, Bitcoin made an all-time high of $69,000. But, after a sustained bear run throughout 2022, it dropped to $19,000 in October.

At the beginning of 2023, bearish sentiments continued, and the BTC price stood at $16,619.10. As of August 2024, the price of Bitcoin is around $60,000, having reached an all-time high of $73,794 in March 2024.

Bitcoin's Price Predictions

According to technical analysis, in 2024, the minimum cost of Bitcoin is expected to be $59,698.44, with a maximum level of $67,728.49. The average trading price is predicted to be around $75,758.54.

For 2025, the minimum price of Bitcoin is predicted to be around $100,655, with a maximum of $121,030. The average trading price might be $104,243.

Looking further ahead, in 2027, the minimum BTC price might drop to $203,668, while its maximum can reach $249,565. On average, the trading cost is expected to be around $209,610.

By 2029, the estimated average BTC price will be around $409,401. It might drop to a minimum of $395,035 or reach a maximum of $477,213.

Finally, in 2030, it is estimated that BTC will be traded between $567,112 and $683,285. Its average cost is expected to be around $583,489.

Know how to manage risk and volatility

Cryptocurrency is a highly volatile and speculative investment. Wild price swings are commonplace. For instance, in the first weekend of 2021, bitcoin rose 20%. The next Sunday, it fell 20%.

Bitcoin is a digital currency that operates outside the control of governments and banks. Trading it is fast and cheap. Its volatile price has made it a favorite of high-stakes, risk-seeking investors eager for the potential of a big payoff.

Tips for Managing Risk and Volatility

• Understand what you're investing in: Do your research and understand the investment case for each trade. Many cryptocurrencies are backed by nothing at all, so you need to understand the potential upside and downside.
• Remember, the past is past: Don't get caught up in looking at past performance. Focus on what will drive future returns.
• Watch that volatility: Be prepared for rapid price drops, especially as a new investor. Consider setting strict rules on when to sell to manage your risk.
• Don't invest more than you can afford to lose: Only invest money that you can afford to lose. Keep your short-term savings and emergency funds in safe accounts.
• Consider a crypto wallet: To protect your investment, some traders choose to invest in a crypto wallet to hold their coins offline, making them inaccessible to hackers.

Only invest money you can afford to lose

Before investing in Bitcoin, it is crucial to understand the risks involved. Bitcoin is a highly volatile and speculative investment, with wild price swings that can occur in a matter of hours or days. As a result, there is a possibility of significant gains but also a high risk of substantial losses.

When investing in Bitcoin, it is essential only to use money you can afford to lose. This means that the funds you allocate for Bitcoin investment should not be intended for essential expenses such as rent, utilities, or other financial commitments. By adopting this approach, you ensure that even if your Bitcoin investment performs poorly or loses value, your financial stability and ability to cover your necessary expenses are not jeopardized.

Additionally, it is important to have a comprehensive understanding of your risk tolerance and investment strategy before investing in Bitcoin. Assess your financial goals and determine if Bitcoin aligns with your investment horizon and risk profile. Diversifying your investment portfolio by including low and medium-risk assets, such as government bonds, index funds, and real estate, is also advisable.

Starting small and gradually increasing your Bitcoin allocation as you gain more knowledge and confidence in the market is a prudent approach. This strategy enables you to gain exposure to the potential upside of Bitcoin while managing your risk effectively. Remember, investing in Bitcoin should be done with a long-term perspective, and it is generally not advisable to invest money that you anticipate needing in the short term.

In summary, when considering Bitcoin investment, prioritize capital preservation and ensure that you only invest what you can afford to lose. This disciplined approach will help you navigate the volatile nature of the cryptocurrency market and protect your financial well-being.

Choose a secure exchange or broker

There are several options for purchasing Bitcoin, with the most popular being a cryptocurrency exchange. Exchanges are the middlemen of cryptocurrency investing, like a stock brokerage. They offer a breadth of features and more cryptocurrencies for trading. They also enable investors to buy, sell, and hold cryptocurrency and allow users to transfer crypto to their online wallet for safekeeping.

Some of the most popular exchanges include:

• Coinbase: A very popular crypto exchange that insures losses in the event of a security breach or fraudulent transfers
• Binance: Founded in 2017, Binance is a crypto exchange with a strong focus on altcoins
• Kraken: This San Francisco-based exchange allows you to invest in Bitcoin using various currencies from around the world
• Gemini: Launched in 2015 by Cameron and Tyler Winklevoss, Gemini offers services for casual and veteran Bitcoin investors with different user interfaces and fee structures
• Bitfinex: The longest-running cryptocurrency exchange that’s optimized for advanced traders and lenders (unfortunately, Bitfinex doesn’t currently accept US customers)

When creating a cryptocurrency exchange account, it is important to use two-factor authentication and a long, unique password that includes a variety of letters, special characters, and numbers.

It is also important to note that not every online platform or application allows investors to own standalone Bitcoin. For example, Robinhood allows people to invest in Bitcoin, but they do not give investors the "keys" to their Bitcoin holdings so that they may transfer the assets to their own wallets.

In addition to exchanges, there are other ways to invest in Bitcoin, including:

• Crypto futures: Futures are another way to wager on the price swings in Bitcoin, and futures allow you to use the power of leverage to generate massive returns (or losses)
• Bitcoin ETFs: In January 2024, the Securities and Exchange Commission approved several exchange-traded funds that invest directly in Bitcoin
• Crypto exchange or broker stocks: Buying stock in a company that’s poised to profit on the rise of cryptocurrency regardless of the winner
• Blockchain ETFs: A blockchain ETF allows you to invest in the companies that may profit from the emergence of blockchain technology

Frequently asked questions