So you want to invest in Bitcoin? You may be wondering how to do just that. The first steps into entering the cryptocurrency world can be a bit intimidating. There is no centralized governing authority and scams that have arisen can make investing a bit frightening.
Nevertheless, with a few clear and simple tips your cryptocurrency purchase will be a lot less nerve-wracking.
1. ALWAYS do your homework
There have been plenty of hype, horror and large success stories circulating in the world of cryptocurrency this year. Don’t listen to the media, There are plenty of stories centered around teenagers becoming millionaires but make sure you understand what you’re getting into.
The famous Warren Buffet, whose net worth is currently around 78.7 billion USD, once said:
“Never invest in a business you cannot understand.”
With cryptocurrencies’ high volatility and unknown future, DO NOT RISK MORE THAN YOU CAN AFFORD TO LOSE.
Bitcoin and the other digital currencies are an exciting venture to be in on but one that is extremely complex if you only enter it on hype alone. Many people buy expensive cars and appliances not knowing how they function, and that’s okay because there are people to fix them if something goes wrong. The cryptocurrency world is nothing like that. It is entirely decentralized and nobody is there to hold your hand.
The Chief Executive Officer and co-founder of Coinfirm said this when it came to investing, “The more you understand, the better off you will be.” Don’t just guess about the money that can be made in bitcoin or form your assumptions based on what others have made, learn how the Blockchain works and how cryptocurrency works within the blockchain technology.
The founder and CEO of Wireline, Lucas Geiger, explains:
“This may seem obvious, but I think the first thing is take time to understand the Blockchain. I say this strongly because few people will do this. If you don’t have a high-level understanding of how a Blockchain stores secure data (such as coins), then you are investing in the equivalent of tulip bulbs.”
A useful place to begin would be to go back to the beginning and why someone felt it was necessary to build this platform. Satoshi Nakamoto is the founder of the blockchain and Bitcoin and his white paper is easy to read at eight pages long.
The great thing about cryptocurrency and the blockchain is that there is now plenty of information out there to help simplify it.
In any sort of investing there is a risk, but the risk with cryptocurrency is higher because of how new the cryptocurrency market is.
Again, it is tempting to jump into it based off of the success stories alone but realize millionaires aren’t made overnight. Currently, sinking huge amounts of capital into it will leave you with more issues than financial gains.
Crypto Asset Management’s Director, Tim Enneking, gave some great advice:
“Don’t chase Bitcoin prices. Decide on a entry point and stick with it. With Bitcoin, you’re almost always right in terms of foreseeable price action – it’s your timing that might be off. So, be patient, and let the Bitcoin price come to you.”
Currently, there are a lot of different investing strategies that work well with cryptocurrency, more specifically Bitcoin, but the ones that have been the most successful are the most careful.
“Dollar Cost Averaging” (DCA) as explained by Investopedia is putting the same amount of money in an investment at the same time each month or week. This tactic works great for Bitcoin due to its high volatility and helps ride the highs and lows.
3. Diversity is key
Most new cryptocurrency users only know about or hear first about bitcoin but there are thousands of other digital currencies on the market and have grown faster than Bitcoin.
Adding some diversity to your books is always wise, especially because these other coins seem to rise when Bitcoin’s price falls. For example, if a person’s portfolio consisted of equal parts of Bitcoin, Ether, Monero, Litecoin and Dash, when one currency falls just 5% it usually means they’ll make it up with the other cryptocurrencies.
“Hedge against volatility and don’t put all your eggs in one basket,” Tech entrepreneur Oliver Isaacs states. “Much like investing in the stock market or FX, you should diversify your funds as a risk management technique.”
Ronnie Moas is a famous stock chooser and emphasized strongly the importance of diversification. It’s easy to jump into Bitcoin seeing the hype and how much it has grown over the year but it is important to hedge your bets and diversify.
4. Secure your coins
Lately, there have been a substantial amount of crypto heists happening and it’s always important to take precautions, especially with no safety net to the system.
It is not very hard to make hackers lives that difficult, you should use the exchanges for what they are made for and once you’ve bought the currency, store it in a wallet only you can control. Here’s a great video made by a well-known cryptocurrency investor, who gives some advice on which wallets he uses and likes the best.
Just like most people have their currencies disbursed on many different platforms or held in a different form, that’s how your cryptocurrencies should be. Just in case one is compromised, you still have access to other funds or haven’t lost them all completely.
5. Buckle Up
As you can tell from the one-month chart from Bitcoin above, Bitcoin and other cryptocurrencies are well-known for their volatility. A drop in its price does not imply immediate disaster but it will cause some panic when your funds start heading towards the red.
Again, diversification is great for that very thing but it takes some time to educate yourself.
The most famous of all strategies going into the cryptocurrency world is HODL or hold on for dear life. Do not invest more than you are able to lose and ride the waves. Also, investing and forgetting is another strategy if you are easily spooked, invest in a few cryptocurrencies and do not check the markets for weeks at a time.
Featured Image: Depositphotos/© jansucko