Bitcoin Investment Strategies: Where To Invest Your Money

Bitcoin is a popular type of cryptocurrency that has seen an increase in popularity among investors in recent years. It is a decentralised, digital currency that is not issued or controlled by a centralised authority such as a bank or government. All transactions are completed online, and there are no brokers involved.

Bitcoin is a highly volatile asset prone to large and fast swings in value, which presents an opportunity for large returns but also poses tremendous risk. Before investing in Bitcoin, it is important to understand the risks involved and consult with a financial advisor to determine if it is a suitable investment for your financial goals and risk tolerance.

There are several ways to invest in Bitcoin, including purchasing it directly from an app or exchange, investing in a company that utilises Bitcoin technology, or participating in Bitcoin mining. When investing in Bitcoin, it is important to diversify your investment portfolio, start with a small amount, and only invest what you are prepared to lose.

Where to buy Bitcoin

There are several options for where to buy Bitcoin. Here are some of the most popular platforms:

Coinbase

Coinbase is a popular cryptocurrency exchange that allows users to buy, sell, trade, store, and stake various cryptocurrencies, including Bitcoin. It is the only publicly traded crypto exchange in the US and offers advanced trading tools, real-time order books, and charting capabilities. Coinbase also provides a secure crypto wallet that gives users control over their crypto, keys, and data.

Binance

Binance is a centralized exchange where users can buy, sell, and trade cryptocurrencies, including Bitcoin. It offers low fees and high security. To use Binance, users need to open an account and verify their identification. Binance supports various payment methods, including debit/credit cards, Google Pay, Apple Pay, and third-party payment channels.

Crypto.com

Crypto.com is a trusted platform with over 100 million users worldwide. It offers a simple way to buy, sell, and trade Bitcoin, Ethereum, and 350+ other cryptocurrencies. Crypto.com provides a secure and regulated platform, holding the highest security rating in the industry. Users can choose from various payment methods, including bank transfers, credit/debit cards, and crypto transfers, depending on their region.

BitPay

BitPay is licensed to engage in Virtual Currency Business Activity by the New York State Department of Financial Services. It offers an app that allows users to buy and store Bitcoin and other cryptocurrencies. BitPay provides a help library and support options to assist users with their queries.

When choosing a platform to buy Bitcoin, it is important to perform proper research and select a reputable and secure platform. Additionally, consider the payment methods, fees, and security features offered by each platform to make an informed decision.

How to store Bitcoin

When you buy Bitcoin, you are given two keys: a public key and a private key. The public key is your wallet address, used to encrypt information. The private key allows you to decrypt information and access your Bitcoin. This is the key you need to store and safeguard.

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

Hot Wallets

Hot wallets are software that stores your keys online, allowing you to access your Bitcoin with an internet connection. They are convenient and easy to use, but they come with a higher risk of being hacked. Examples of hot wallets include desktop, mobile, and web-based wallets.

Cold Wallets (or Offline Wallets)

Cold wallets are not connected to the internet and are considered one of the safest methods for storing Bitcoin. They can be in the form of hardware wallets, such as USB drives, or even a simple piece of paper. While cold wallets are more secure, they are less convenient as they require additional steps to connect to the internet when you want to access your Bitcoin.

Custodial Wallets

Custodial wallets are managed by a third party, such as a cryptocurrency exchange, who stores your private keys for you. These wallets can be either hot or cold. While custodial wallets are convenient, they give a third party control over your crypto, and there is a risk of hacks or theft.

Non-Custodial Wallets

Non-custodial wallets give users full ownership of their private keys, without involving a third party. Like custodial wallets, non-custodial wallets can be either hot or cold.

When choosing a storage method, it's important to consider factors such as security, convenience, and your level of technical expertise. Additionally, it's recommended to use a combination of wallets for different purposes, such as a hardware wallet for long-term storage and a mobile wallet for spending and transactions.

• Back up your Bitcoin wallet regularly and store the backups in multiple secure locations.
• Keep your software and operating system up to date to patch security vulnerabilities.
• Use a strong password and encryption for your wallet.
• Physically record and secure your recovery phrases or seed phrases, which allow you to recover your crypto if you lose access to your wallet.
• Never share your recovery phrases or private keys with anyone.

Remember, no storage method is 100% secure, so it's important to take the necessary precautions to protect your Bitcoin.

How to sell Bitcoin

There are several methods to sell Bitcoin, each with its own unique processes and considerations. Here is a step-by-step guide on how to sell Bitcoin:

Method 1: Bitcoin Wallet Apps

You can sell Bitcoin through a Bitcoin wallet app, such as the Bitcoin.com Wallet app. Here are the steps:

• Download the Bitcoin wallet app.
• Import your Bitcoin and connect your bank account.
• Tap the "sell" button and follow the instructions.

Method 2: Bitcoin Exchange Services

You can also sell Bitcoin through a cryptocurrency exchange service. Examples of such services include Coinbase, PayPal, and Robinhood. Here are the general steps:

• Sign up for an account with the exchange service.
• Verify your identity and connect a payment method.
• Place a sell order for your Bitcoin.
• Withdraw your funds to your connected bank account.

Method 3: Centralized Exchanges (CEXs)

Centralized exchanges allow you to sell Bitcoin and offer various features and trading options. Examples include Coinbase, Kraken, Gemini, and Binance. Here are the general steps:

• Sign up for an account with a centralized exchange.
• Verify your identity and connect your bank account or payment method.
• Place a sell order for your Bitcoin.
• Withdraw your funds to your bank account.

Method 4: Bitcoin ATMs

Bitcoin ATMs are another option for selling Bitcoin. These machines allow you to sell Bitcoin for cash. Here are the general steps:

• Find a Bitcoin ATM in your area.
• Follow the instructions on the ATM to sell your Bitcoin.
• Provide a Bitcoin wallet address or scan a QR code to receive your funds.
• Collect your cash from the ATM.

Method 5: Peer-to-Peer (P2P) Trading

You can also sell Bitcoin through peer-to-peer trading platforms, which allow you to connect directly with buyers. Here are the general steps:

• Sign up for an account on a P2P trading platform, such as LocalBitcoins.
• Create a sell offer or find a buyer with a suitable buy offer.
• Agree on the terms of the trade, including payment methods and pricing.
• Complete the transaction by sending the Bitcoin to the buyer and receiving your payment.

Factors to Consider

When choosing a method to sell Bitcoin, consider your priorities, such as convenience, control over funds, transaction fees, and anonymity. Additionally, research the fees associated with each method, as they can vary. Remember that selling Bitcoin may have tax implications, so be sure to consult with a financial advisor or tax professional.

Bitcoin investment strategies

Bitcoin is a highly volatile asset, prone to large and fast swings in value, which presents an opportunity for large returns but also poses tremendous risk. Here are some strategies to consider when investing in Bitcoin:

• Buy and Hold: This strategy involves buying Bitcoin and holding onto it for the long term, riding out the market's ups and downs. This approach is often referred to as "HODL" (hold on for dear life) and is considered the "safest" method of investing in Bitcoin.
• Active Investing: Active investors seek to capitalise on Bitcoin's volatility by buying, selling, and trading frequently to generate quick returns. They buy when they believe the value is low and sell when they think the value has peaked. This strategy is riskier and requires careful market analysis.
• Diversification: To mitigate risk, investors can diversify their portfolio by investing in various cryptocurrencies and other asset classes, such as stocks, bonds, or real estate. This helps protect against losses in any single investment and smoothens out overall volatility.
• Dollar-Cost Averaging: This strategy involves investing a fixed amount of money in Bitcoin regularly, regardless of the market price. By doing so, investors can benefit from buying more when the price is low and less when the price is high, averaging out their purchase cost over time.
• Short-Term Trading: Some investors focus on short-term volatility, aiming to profit from Bitcoin's rapid price swings. This strategy involves frequent trading, buying when the price dips and selling when it peaks. It is a risky approach that requires close monitoring of the market.
• Using Crypto Exchanges: Crypto exchanges like Coinbase, Kraken, and Binance allow investors to buy, sell, and trade Bitcoin and other cryptocurrencies. They offer an easy and convenient way to invest in Bitcoin and provide access to a range of trading tools and features.
• Using a Crypto Wallet: A crypto wallet is a digital storage solution for your Bitcoin and other cryptocurrencies. It allows you to hold your Bitcoin securely and use it for transactions. There are hot wallets, which are online and convenient, and cold wallets, which are offline and considered more secure.
• Investing via IRA: Bitcoin IRA is a platform that combines the features of a crypto wallet and exchange with an IRA. This allows investors to hold their Bitcoin and other cryptocurrencies in a tax-free or tax-deferred account, maximising their gains over the long term.
• Crypto Savings Accounts: Some platforms, like Crypto.com, offer crypto savings accounts that pay interest on your Bitcoin holdings. This can be a way to generate passive income from your Bitcoin investments.
• Understanding Risk Tolerance: Before investing in Bitcoin, it is crucial to understand your risk tolerance. Bitcoin is a high-risk investment, and you should carefully consider whether you are comfortable with the potential losses. Only invest what you can afford to lose.

Bitcoin taxes

Bitcoin is taxed, but the specifics depend on how and when you acquired it.

When Bitcoin is taxed

If you sell Bitcoin for a profit, you're taxed on the difference between your purchase price and the proceeds of the sale. This includes exchanging your Bitcoin directly for another cryptocurrency, and using Bitcoin to pay for goods or services.

However, the way in which Bitcoin taxes are calculated depends on your specific circumstances. If you acquired Bitcoin from mining or as payment for goods or services, that value is taxable immediately, like earned income. If you disposed of or used Bitcoin by cashing it on an exchange, buying goods and services or trading it for another cryptocurrency, you will owe taxes if the realised value is greater than the price at which you acquired the crypto.

Bitcoin tax rate

If you’re paying taxes on the profit you made buying and selling Bitcoin, your rate depends on two factors:

• How long you owned it before selling. If you owned Bitcoin for one year or less before selling it, you’ll face higher rates — between 10% and 37%. If you owned Bitcoin for more than a year, your rates will be between 0% and 20%.
• Your total income for the year. The highest tax rates apply to those with the largest incomes.

Bitcoin tax paperwork

The IRS has added a question to tax return forms asking filers about their crypto activity. For example, this year, the question reads: "At any time during 2023, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"

To make sure you stay on the right side of the rules, keep careful records. You'll need records of the fair market value of your Bitcoin when you mined or bought it, as well as records of its fair market value when you used or sold it.

Declaring Bitcoin losses

If you lose money on any investment, you can declare those losses on your tax return and see if you can reduce your tax liability. The maximum amount you can write off in one year is $3,000.

However, there is a difference between Bitcoin losses and stock losses. Cryptocurrencies, including Bitcoin, are exempt from the wash-sale rule, which prevents traders from selling a stock for a loss, claiming the tax break, then immediately buying back the same stock. With Bitcoin, traders can sell for a loss to claim the tax break, and then immediately buy it back.

Failure to report Bitcoin

While privacy is a prominent feature of many cryptocurrencies, the IRS uses multiple methods to keep tabs on the industry. If you “carelessly, recklessly or intentionally” ignore tax rules or regulations, which include reporting gains and losses on Bitcoin trades, you’ll face fines in addition to taxes. If you don’t pay your penalty on time, you’ll be charged interest.

Frequently asked questions