The Best Places To Invest Your Bitcoin

Bitcoin has been performing quite admirably in the past few years, with its price rising by more than 126% in 2016 alone. In 2017, it reached new heights of $20,000, and some analysts even predict a rise to $500,000. However, it's important to note that Bitcoin is a highly volatile and risky asset.

There are several ways to invest in Bitcoin, each with its own pros and cons. Here are some of the most common methods:

- Cryptocurrency Exchanges: You can purchase Bitcoin from cryptocurrency exchanges such as Coinbase, Gemini, Kraken, and Crypto.com. These exchanges offer a variety of cryptocurrencies and carry different fees and consumer protections.

- Traditional Stockbrokers: Robinhood was one of the first mainstream investment brokers to offer Bitcoin trading, and it doesn't charge any fees for Bitcoin trades. Other options include Webull, TradeStation, and Fidelity.

- Bitcoin ATMs: These work like normal ATMs and can be found in various locations, including retail stores like Walmart. They allow you to buy and sell Bitcoin with cash, but the fees can be relatively high, typically ranging from 5-10%.

- Bitcoin Exchange-Traded Funds (ETFs): The Securities and Exchange Commission has recently approved spot Bitcoin ETFs, which track the price of Bitcoin and can be traded on major exchanges. This makes it easier for traditional investors to gain access to Bitcoin.

- Peer-to-Peer Money Transfer Apps: Apps like PayPal, Venmo, or Cash App allow users to purchase, store, send, and sell Bitcoin directly within the apps, providing a convenient option for those already familiar with these interfaces.

Before investing in Bitcoin, it's important to understand the risks and potential rewards. It's a volatile market, and while it's possible for Bitcoin's value to increase significantly, it could also drop to zero. Additionally, Bitcoin is susceptible to government actions and hacking attempts, so investors should only invest what they can afford to lose.

Bitcoin wallets

Once you've decided to invest in Bitcoin, you'll need to choose a Bitcoin wallet to store your cryptocurrency. There are several types of Bitcoin wallets, each with its own advantages and disadvantages. Here is an overview of some of the most common types of Bitcoin wallets:

Hot Wallets

Hot wallets are online wallets or apps that can be installed on computers, phones, or tablets. They are convenient and ideal for making transactions face-to-face as they often use QR codes to facilitate quick and seamless transactions. However, hot wallets are susceptible to malware and other security threats, and the loss or damage of the device can potentially lead to the loss of funds.

Cold Wallets

Cold wallets, also known as hardware wallets, are small, encrypted portable devices that allow you to store your Bitcoin offline. They are considered much more secure than hot wallets and are ideal for storing large amounts of Bitcoin. Cold wallets can be challenging to use while mobile, and the loss of the device without a proper backup can make funds unrecoverable.

Desktop Wallets

Desktop wallets are programs that can be downloaded and installed on a computer. They are considered "hot" wallets and are best for small amounts of cryptocurrency or crypto that is actively trading on an exchange. While they offer more security than online wallets, they are still susceptible to malware and other security threats.

Mobile Wallets

Mobile wallets are apps that can be installed on mobile devices, such as phones or tablets. They are convenient for everyday use and facilitate quick transactions, often using QR codes. However, like desktop wallets, they are also susceptible to malware and other security threats.

When choosing a Bitcoin wallet, it is essential to consider your needs and preferences. Some factors to consider include security, ease of use, accessibility, and the level of control you want over your Bitcoin. Additionally, it is crucial to prioritize the safety and security of your Bitcoin wallet by enabling two-factor authentication, using strong passwords, and regularly backing up your wallet.

Cryptocurrency exchanges

There are two main types of cryptocurrency exchanges: centralized and decentralized. Centralized exchanges are managed by a single entity and allow users to convert fiat currency into crypto. Decentralized exchanges, on the other hand, distribute responsibility for facilitating and verifying trades among a network of users. While decentralized exchanges may offer increased accountability and transparency, they are often less user-friendly and may not support fiat-to-crypto conversions.

When choosing a cryptocurrency exchange, it is important to consider factors such as security, fees, the range of cryptocurrencies offered, and customer service. Some popular centralized exchanges include:

• Coinbase: Offers an easy-to-use platform and a large selection of cryptocurrencies, but has relatively high fees.
• Crypto.com: Provides a mobile app with a wide range of features and supports over 350 cryptocurrencies, but has limited customer support.
• Kraken: A well-established exchange with low fees, a large selection of cryptocurrencies, and advanced trading features, but is not available in all U.S. states.
• Gemini: Emphasizes security and compliance, insures user funds, and offers a professional-grade trading platform, but has high fees and supports fewer cryptocurrencies than some competitors.
• Robinhood Crypto: Allows users to buy and sell crypto using USD and offers an intuitive interface, but has limited crypto-to-crypto trading features.

It is also worth noting that some traditional stock brokers, such as Fidelity and Interactive Brokers, now offer crypto trading in addition to their standard services.

Traditional stockbrokers

Overview

Bitcoin is one of the most widely used types of cryptocurrency. It was created to solve some big cryptocurrency flaws, including the fraudulent duplication of coins. Bitcoin uses blockchain technology, an advanced coding mechanism that disperses a single code over thousands of different computers.

The choices among traditional brokers that allow customers to buy and sell Bitcoin are few. Robinhood was the first mainstream investment broker to offer Bitcoin trading, and it does not charge any fees for Bitcoin trades. Other online brokers that offer access to Bitcoin or other cryptocurrencies include Webull, TradeStation, Fidelity, eToro, and Interactive Brokers.

Pros and Cons

The main benefit of investing in Bitcoin through traditional stockbrokers is that they are regulated and insured. For example, Coinbase insures losses in the event of a security breach or fraudulent transfers. However, one disadvantage is that these brokers offer limited cryptocurrencies compared to crypto exchanges.

Tips for Investing in Bitcoin

Before investing in Bitcoin, it is important to understand your risk tolerance, diversify your investment portfolio, and start small. It is also crucial to carefully review your investment strategy and financial goals, as Bitcoin is a very high-risk and volatile asset.

Strategies for Investing in Bitcoin

There are three main strategies for investing in Bitcoin:

• Buy and 'Hodl' Bitcoin: This strategy suggests holding on to Bitcoin forever, regardless of price fluctuations.
• Hold Bitcoin Long Term: This strategy involves holding Bitcoin for the long term, but investors may be inclined to sell once they are satisfied with the returns.
• Trade Bitcoin on Short-Term Volatility: This strategy involves riding the ups and downs of Bitcoin's volatile market, selling at the peaks and buying on the dips.

Final Thoughts

Investing in Bitcoin through traditional stockbrokers can be a convenient option, especially for those who prefer a regulated and insured platform. However, it is important to carefully consider the pros and cons, understand the risks, and diversify your investments.

Bitcoin ATMs

To use a Bitcoin ATM, you typically need to follow these steps:

• Choose the "Buy" or "Sell" option.
• Scan the QR code of your Bitcoin wallet address.
• Insert cash, a debit card, or a credit card.
• Confirm the purchase.
• Wait for the transaction to be processed.

It is important to note that Bitcoin ATMs are not the same as traditional ATMs. They do not allow you to physically withdraw, deposit, or transfer funds from your bank account. Instead, they facilitate blockchain-based transactions that send cryptocurrencies to your digital wallet.

As of September 2021, there were over 24,700 Bitcoin ATMs in the US, with a presence in retail stores, shops, taverns, restaurants, malls, and airports. Bitcoin Depot claims to have over 8,000 Bitcoin ATMs across the US and Canada, making it the largest Bitcoin ATM network in North America.

When using a Bitcoin ATM, users should be aware of the transaction fees, which can range from 6.5% to 25% of the transaction value. Additionally, some Bitcoin ATM providers may require users to have an existing account or undergo a KYC (Know Your Customer) process to comply with anti-money laundering regulations.

Bitcoin exchange-traded funds

ETFs are investment funds that hold assets and issue securities as shares of the fund, which are then traded on an exchange. Bitcoin ETFs specifically hold Bitcoin futures contracts and sell shares of the fund to investors. These shares are bought and sold on a mainstream exchange, allowing investors to gain exposure to Bitcoin without needing to buy or store the cryptocurrency themselves.

The first concept for a Bitcoin ETF emerged when investors noticed that Bitcoin prices were rising and wanted to generate returns by trading the cryptocurrency. However, the Securities and Exchange Commission (SEC) rejected proposals for Bitcoin ETFs until 2024, when it approved 11 spot Bitcoin ETFs.

How Bitcoin ETFs Work

Bitcoin futures ETFs are created when an investment company creates a subsidiary that acts as a commodity pool, trading Bitcoin futures contracts to mimic the spot price of Bitcoin. The fund managers then purchase these contracts and bundle them into a fund, which is offered to investors.

It's important to note that Bitcoin futures contracts don't track spot prices exactly, and there are costs involved such as "roll premiums" and management fees. As a result, the value of a Bitcoin ETF may not always directly match the current exact value of Bitcoin.

Advantages of Bitcoin ETFs

One of the main advantages of Bitcoin ETFs is that they eliminate the need for security procedures and excessive funds associated with buying and storing Bitcoin directly. Additionally, they provide a more familiar investment type for those who are hesitant to enter the world of cryptocurrency.

Another benefit is that Bitcoin ETFs allow investors to gain exposure to Bitcoin within their budget, risk tolerance, and investing goals. The high price of Bitcoin means that retail investors may not have the assets to purchase one BTC, but ETFs allow them to invest in smaller denominations.

Limitations of Bitcoin ETFs

There are also some limitations and risks associated with investing in Bitcoin ETFs. The regulatory landscape for cryptocurrencies is still evolving, and changes in regulations can impact the legality, trading, and valuation of Bitcoin futures, introducing uncertainty for investors.

Another limitation is the liquidity of the underlying Bitcoin futures contracts, which is crucial for the smooth operation of the ETF. Limited liquidity in the futures market may result in wider bid-ask spreads, making it more expensive for investors to buy or sell shares of the ETF.

Additionally, Bitcoin futures contracts have expiration dates, and the ETF must roll the contracts before they expire, incurring transaction costs. This strategy may slightly erode the fund's return, especially during periods of contango or backwardation.

Examples of Bitcoin ETFs

• Proshares Bitcoin Strategy ETF (BITO)
• Valkyrie Bitcoin and Ether Strategy ETF (BTF)
• VanEck Bitcoin Strategy ETF (XBTF)
• Global X Blockchain & Bitcoin Strategy ETF (BITS)

Frequently asked questions