Over the last several years, Bitcoin has become increasingly popular amongst today’s investors. During that same time, there’s been a lot of debate about Bitcoin and other cryptocurrencies—Its proponents argue that it’s the future of currency and investing, while its detractors argue that it’s a risky investment option that may not generate big returns.
To better understand its true value in the marketplace, we must look to its latest movements. Most recently, Bitcoin’s valuation has increased more than 763% in just one year, easily outpacing traditional gains in the stock market. More people are buying into Bitcoin becoming a decentralized, global currency. One tailwind, in particular, is the acceptance of Bitcoin by several high-profile individuals and businesses.
Elon Musk, the mind behind both Tesla and SpaceX, recently announced his automotive empire would not only purchase $1.5 billion in Bitcoin, but it also intends to accept the cryptocurrency as payment in the future. Several popular FinTech (financial technology) companies like Square and PayPal also announced their intentions to support cryptocurrencies moving forward. Despite all of that, however, the most important development for Bitcoin may be the recent IPO (initial public offering) of Coinbase Global, Inc. (NASDAQ: COIN), today’s leading cryptocurrency exchange platform.
There’s no doubt about it: momentum in Bitcoin is certainly building. Recent developments have contributed to Bitcoin’s meteoric rise in value, and proponents of the asset are convinced this is just the beginning.
So, what exactly is Bitcoin, and how can you determine whether it’s the right investment for you? Read our beginner’s guide on how to invest in Bitcoin.
What is Bitcoin?
Bitcoin was created by a programmer or group of programmers using the name “Satoshi Nakamoto.” But the real creator(s) of Bitcoin is still unknown to the public.
Bitcoin is one of the most widely used types of cryptocurrency. Virtual “coins” or “tokens” are used in a cryptocurrency system instead of physical cash. Coins have no intrinsic value, and they aren’t backed up by gold or silver.
Bitcoin was created to solve a couple of big cryptocurrency flaws. First, it was designed to prevent crypto coins from being fraudulently duplicated. Think about how easy it is to make copies of your computer’s data—documents, photos, files, etc. Cryptocurrency wouldn’t be possible if anybody could duplicate a coin and create an unlimited amount of currency for oneself. You can’t just make copies of a $20 bill, right? Likewise, there’s a need to prevent people from reproducing crypto coins.
Understanding Blockchain Technology
Bitcoin uses a digital technology called “blockchain,” an advanced coding mechanism that disperses a single code over thousands of different computers. For example, let’s say that your coin is built from the code “XDA146DDS.” Blockchain segments the code into smaller pieces and stores the pieces of code across many computers. If a hacker wanted to access the code, they’d have to hack various computers to access the entire code.
Blockchain also employs a “public ledger,” which uses thousands of computers (referred to as “nodes”) to keep track of coins and their owners. If a coin’s data is changed, the nodes will cross-reference their records to verify whether the change is accurate and that the coin’s owner initiated it.
What is Bitcoin used for?
Once you purchase coins, you can use them in online transactions wherever they’re accepted. Remember, when you make a transaction with a coin, there’s no actual money being pulled from your bank account. Money only leaves your bank account when you purchase the coin itself—not when you make purchases with a coin.
Like cash currency, the value of a coin may fluctuate. That’s why some investors are getting excited about Bitcoin and other types of cryptocurrency. Investors speculate that Bitcoin’s value may rise significantly if there’s a surge in the market. I’ll explain the arguments for and against cryptocurrency investment later on.
For now, investors should pay special considerations to the rate by which Bitcoin and other relevant cryptocurrencies are being adopted. Not unlike traditional equities, Bitcoin increases in value when more people are interested, and more people are interested in buying Bitcoin today than ever before. Whether it is pure conviction or an inherent fear of missing out on what many predict to be the greatest transfer of wealth in American history, trading volume continues to increase exponentially. For the better part of a year, in fact, Bitcoin trading volume has steadily increased. As a result, Bitcoin is regularly testing new highs.
What Do You Need to Invest in Bitcoin?
You don’t need very much to invest in Bitcoin! You only need the following:
Personal identification documents
Bank account information
A secure internet connection
Keep in mind—if you’re going to be purchasing coins through a stockbroker, you may not need to supply your personal information or financial information because your stockbroker will likely have all that on record.
How to Invest in Bitcoin in 5 Steps
Are you ready to dive into cryptocurrency? You’re in luck, as buying Bitcoin is simpler than you might think. Here’s how to invest in Bitcoin, in 5 easy steps:
Join a Bitcoin Exchange
Get a Bitcoin Wallet
Connect Your Wallet to a Bank Account
Place Your Bitcoin Order
Manage Your Bitcoin Investments
1. Join a Bitcoin Exchange
First, you’ll need to determine where you want to make a Bitcoin purchase. Most Bitcoin investors use cryptocurrency exchanges. There’s no official “Bitcoin” company because it’s an open-source technology, but there are several different exchanges that facilitate Bitcoin transactions. These exchanges are the middlemen of cryptocurrency investing, like a stock brokerage.
If you decide to purchase from an exchange, you’ll have to decide which exchange you want to buy from.
2. Get a Bitcoin Wallet
When you purchase a coin, it’s stored in a “wallet,” which is where all your cryptocurrency is stored. There are two types of wallets you can get: a “hot wallet” or a “cold wallet.”
A hot wallet is a wallet that’s operated by either your cryptocurrency exchange or by a provider. Some exchanges will automatically provide you with a hot wallet when you open your account. In any case, hot wallets are convenient because you’ll be able to access your coins through the internet or a software program.
Some notable hot wallets are:
Electrum: Software that enables you to store your coins on your computer
Mycelium: A mobile-only app for Android and iPhone users
However, hot wallets are not the most secure form of coin storage. If the hot wallet provider is hacked, then your coin information may be at risk.
A cold wallet is the safest storage method for your coins. A cold wallet is an actual piece of hardware that stores your coins, usually, a portable device that’s similar to a flash drive. Most cold wallets cost between $60 to $100. Some popular cold wallets are:
Trezor
Ledger Nano
If you’re only going to purchase small amounts of coin, then you might be fine using a hot wallet with an insured crypto exchange. But if you’re going to be trading large amounts of coin, then a cold wallet would be well worth your investment.
Need help deciding which wallet is right for you? Take a look at our picks of the best bitcoin wallets.
3. Connect Your Wallet to a Bank Account
When you’ve obtained your wallet, you’ll need to link it to your bank account. This enables you to purchase coins and sell coins. Alternatively, your bank account may be linked to your cryptocurrency exchange account.
4. Place Your Bitcoin Order
Now you’re ready to purchase Bitcoin. Your cryptocurrency exchange will have everything you need to buy. The big question is, how much Bitcoin should you purchase?
Some coins cost thousands of dollars, but exchanges often allow you to buy fractions of a single coin—your initial investment could be as low as $25.
Investing in Bitcoin is very risky, and it’s important that you carefully determine your risk tolerance and review your investment strategy before you purchase any Bitcoin. We’ll go over this in the next section.
5. Manage Your Bitcoin Investments
After you’ve purchased bitcoin, you can:
Use your coins to make online transactions
Hold your coins for a long period in the hopes it’ll appreciate in value
Perform day trading with your coins—that is, buying and selling coins with other Bitcoin owners, which can be facilitated on the cryptocurrency exchange
Your cryptocurrency exchange will provide you with everything you need to buy and sell coins.
Is Bitcoin a Good Investment?
Here’s one of the most commonly asked questions about Bitcoin: is Bitcoin a good investment?
Well, the real answer is no investment is inherently “good” or “bad.” It depends entirely on your risk tolerance, your investment strategy, and your financial goals. Before you consider Bitcoin as an investment, you should carefully consider your own goals and determine what you want to accomplish in your investment activities. Do you want to develop a passive income? Become a full-time investor? Save for retirement? Answering these questions will help you figure out whether Bitcoin is the right investment option for you.
Bitcoin is a very high-risk investment because it’s a volatile asset. That means that Bitcoin values may rise or fall dramatically in value over a very short period—even as quickly as a few hours or days.
Like all cryptocurrencies, Bitcoin has no intrinsic value. It’s not backed by any physical asset, like gold or silver, and there’s no central regulator to ensure that the value remains stable. Furthermore, Bitcoin value isn’t linked to the profits of any one corporation. The value of Bitcoin is dependent on market demand. When there are more people buying Bitcoin, the value will increase. When there are fewer people buying Bitcoin, the value will decrease.
To make a significant profit on Bitcoin, you may need to rely on “timing the market,” which is a difficult and generally ill-advised investment strategy. Nonetheless, there’s a potential for profit.
Bitcoin vs. Other Investments
Choosing which investments to jump on and which to avoid can be a very confusing decision. Your choice will decide whether you enjoy great returns for years to come or you lose it all. It is impossible to turn on the TV or read an investment blog without hearing about Bitcoin. It is one of the hottest topics in the world right now, but it’s not the only way to invest your money, which begs the question: How does Bitcoin stack up against other wealth-building vehicles?
While Bitcoin is its own investment vehicle, it’s important to note that it can actually transcend investing borders. In fact, Bitcoin can be used concurrently with some of today’s greatest assets. Real estate, in particular, could benefit immensely from what’s known as “tokenization.” According to Tom Winter, CRO & co-founder of DevSkiller, “tokenization is the process of creating a virtual token representing ownership of an interest in real estate that exists on a blockchain (The core technology behind Bitcoin).” Winter suggests “tokenization has the potential of revolutionizing the global real estate market. It offers investors many advantages over existing investment options.”
The unique convergence of real estate and Bitcoin may award investors with attractive profits, but how do the two investment vehicles compare to each other by themselves?
Bitcoin:
Many experts believe that Bitcoin is a bubble, meaning it is overvalued and could crash at any moment.
Bitcoin’s value is volatile; it is equally prone to massive spikes and drops in price.
Bitcoin is entirely digital, meaning it is more vulnerable to security breaches than a tangible asset.
Real Estate:
Real estate is an investment that is backed by a strong historical record and the security of a tangible asset.
Rising home values and rents are an excellent hedge against inflation.
Depreciation, utilities, insurance, and repairs all allow real estate investors to qualify for valuable tax benefits.
Rental properties provide consistent monthly cash flow you can rely on.
The Pros of Bitcoin Investing
The main benefit to Bitcoin investing is that you may be able to generate a huge return on profit, perhaps as high as 200% or more. Of course, that’s a challenging thing to accomplish, but it’s possible.
If you purchase a large amount of Bitcoin, you may be able to capitalize on a market surge and sell your coins for a much higher value when there are lots of buyers. There’s also a slight possibility that Bitcoin will truly become the currency of the future or a more popularly traded asset, and you could hopefully generate returns from long-term holdings. It should be noted, however, that Bitcoin values are generally decreasing every year.
Your success may depend on properly “timing the market.” In other words, you’ll buy coins when they’re at a low price and sell them when they’re at the highest possible price. High-risk investors who pay close attention to the market may be able to generate massive returns when employing that strategy. They might even generate returns that are highly improbable in the world of corporate stocks or government bonds. To that end, Bitcoin is incredibly liquid. According to Shaun Heng, VP of growth and operations at CoinMarketCap, “Bitcoin is one of the most liquid investment assets you can have and is more liquid than any other cryptocurrency.” As a result, any realized can actually be realized almost immediately.
The Cons of Bitcoin Investing
Unfortunately, the high volatility of Bitcoin makes it a hazardous investment, and you could lose money if you’re not careful.
“Depending on how much you’ve seen in recent months about Bitcoin, it may seem like one of the best investments to make,” says Jim Pendergast, SVP of altLine, “but the crackdown of governmental policies is making Bitcoin decrease in value, especially now.”
Bitcoin and other types of cryptocurrency are also at high risk of “pump-and-dump” schemes. Predatory investors will reach out to amateur or unassuming investors and convince them to pour a lot of money into Bitcoin. The resulting surge causes Bitcoin prices to increase rapidly.
The predatory investors are smart, and they sell all of their holdings before the buying surge ends, making a huge profit. But when investors stop buying, the value of the coins falls to extremely low prices. A coin bought for $200 could wind up having a valuation of just $30. The unknowing investors would be throwing their money away.
You could always make a profit by selling your coins before the price collapses, but it’s impossible to predict when the buying surge is going to stop—prices could fall 50% in only a matter of hours. That’s why any volatile asset, like cryptocurrency and penny stocks, are considered high-risk investments unless you a professional.
How to Invest in Bitcoin: Different Methods
There are several different ways to invest in Bitcoin, both directly and indirectly.
First, you can invest in a company like us "HTP Foundation" Which utilizes Bitcoin technology.
Purchasing Standalone Bitcoin
The most obvious Bitcoin investment strategy is purchasing standalone Bitcoin. Buying Bitcoin directly from an app like Coinbase allows investors to take “physical” ownership of the asset. That’s an important distinction to make, as Coinbase allows investors to actually buy Bitcoin and store it in their own encrypted wallets. In doing so, investors will simultaneously gain access to the asset’s price performance and use it as a currency to make subsequent transactions. Owning standalone Bitcoin isn’t all that different from owning any other currency, less the incredibly volatile swings in value.
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