The Definitive Guide To BTC Investing
Bitcoin has come a long way. Once upon a time, it was trading at only $0.10. On February 2011, the digital currency surpassed the historic milestone of $1, hitting record highs over the years to reach $19,000 in December 2107. You know what this means? Well, if you invested $1,000 in 2011 you would have been $19 million richer in 2017. Crazy money, right?
2017 was the best year for bitcoin so far, with many people making a fortune from their investment. But hey, analysts believe that the party for bitcoin is just getting started, so it’s not too late to get your feet wet. If you are looking to invest in bitcoin this year, don’t worry because we are going to guide you on how to invest in bitcoin and join the lucrative cryptocurrency market, along with some helpful tips to keep you going.
But before we get to the investment tips, perhaps its best we start by learning a few things about bitcoin, what it entails and, of course, some facts about it.
So, What Is Bitcoin?
In simple words, Bitcoin is a fully decentralized digital currency that allows parties to transact without necessarily involving a third party. It was invented in 2009 by Satoshi Nakamoto, a pseudo for an individual software developer or a group of people, whose whereabouts are not known even today.
Bitcoin transactions between peers are direct and based on the blockchain technology. When a transaction is initiated, it’s broadcasted on the blockchain network and stored on a public ledger, which helps to ensure transparency and integrity of the digital currency.
You might ask yourself, how are new bitcoins generated? You see, with fiat currency, a government makes the decision of printing and distributing its paper currency. Bitcoin isn’t controlled by any government or central bank, so new bitcoins are generated through mining. This is a process through which transactions/blocks in a network are validated. Miners on the network contribute their computer power to solve complex algorithms and are rewarded with new bitcoins.
Mining bitcoins is costly as it involves expensive hardware and incredibly high electricity costs. During the first days of bitcoin, one could easily use their laptop or PC to mine the digital currency, but with time it has become more difficult, requiring a lot of energy and resources to mine. Considering everything involved, people no longer see bitcoin mining as a profitable venture, unless you intend to do it on a large scale, are based on a country where electricity cost is low, or have a huge budget to purchase and set up the hardware.
Interesting Facts about Bitcoin
Here are some facts about Bitcoin that you need to know about:
- Bitcoin was the first cryptocurrency, which is perhaps why it still dominates the cryptocurrency sphere
- It’s a payment solution just like PayPal or Payza but eliminates the huge fees associated with typical bank transfers
- Bitcoin is limited to just 21 million coins
- Bitcoin transactions can be traced on the blockchain network as they are fully transparent
- The digital currency is fully decentralized, meaning that it’s not controlled by any central authority like it’s the case with fiat currency. No government or central bank influence!
How to Invest in Bitcoin: Buying and Selling Bitcoin
First things first – you need to set up a wallet to store your bitcoins!
There are different kinds of wallets out there, ranging from to to , but being a beginner, it’s highly recommended that you start with an online wallet since it’s easier to use and access. Some of the common options include Blockchain.info and Mycelium wallet. For this case, however, we are going to take you through the Coinbase wallet, considering that it’s one of the most convenient options since it allows you to buy and sell bitcoin with your credit/card or bank transfer.
Setting up an account with Coinbase couldn’t be easier. Here’s how to go about it:
Step 2: Fill in the details as required. Write down your first names, an email address, and a password. Ensure that the password is strong enough and includes both letters and digits for security purposes.
Step 3: Coinbase will send you an email containing a link for verification. Click on the link and make sure that you verify your account. You might be asked to fill in your phone number for 2FA verification, so ensure you use a working line.
Your Coinbase wallet is all set up and ready to use. But hey, you don’t have the bitcoins yet, do you? It’s now time to purchase the digital currency through the same platform. Coinbase accepts Credit/debit cards and bank transfer when purchasing cryptocurrencies, and bank transfer and PayPal when selling the same. Assuming you intend to use credit card/debit card, which is one of the most popular payment options, here’s the next step:
Step 4: Navigate to the Account settings page and click on the Payment Methods tab. You will be given the three payment options we mentioned earlier, so you need to proceed and select the Credit/Debit card option.
Step 5: You will be redirected to a page, where you’ll be required to enter your card information, which includes card name, card number, expiry date, CVC number, and zip code. A confirmation will appear which now lets you proceed with your purchase.
Note: You will be asked to provide photo ID verification by uploading selfies of yourself holding the credit card. You need to remember that this payment option only allows you to purchase up to $250 worth of bitcoins daily.
Step 6: When you hit the “Buy Bitcoin” tab, you will be taken to a page where you are to fill out information as to how many bitcoins you intend to buy, the payment method, and the wallet where the bitcoins will be deposited (choose My Wallet). Click “Buy Bitcoin Instantly” and viola – you bitcoins will reflect in your wallet! Pretty easy, right?
>> Don’t have a Coinbase account yet? Sign up here <<
Selling Your Bitcoins
Hopefully, the price of Bitcoin has skyrocketed and you’ve made some profits on your investment. It’s now time to cash out, converting the bitcoins in your Coinbase account to fiat currency. You can sell the bitcoins in two ways:
- Using an online marketplace such as Coinbase – Coinbase allows you to sell your bitcoins instantly, and the process for doing this is as simple as buying. All you need to do is navigate to the , enter the number of bitcoins you intend to sell, choose your wallet (typically your bitcoin wallet), choose the account you want the money to be deposited (bank account or PayPal), and confirm the order.
- Selling bitcoins person to person – There are various platforms that allow you to connect with buyers and sell your bitcoins using your preferred payment method. One of the most popular sites is . You can either advertise as a bitcoin seller, waiting for interested parties to contact you, or just go for people willing to buy. It’s best that you first register an account with Localbitcoins so that you can benefit from the site’s escrow services when making your transactions. And yes, the general safety rules also apply when transacting with strangers on the internet.
How to Store Bitcoins in a Secure Wallet
Exchanges provide a great platform to purchase bitcoins and exchange them for other cryptocurrencies but are definitely not the best places to store them. In the past, we have experienced massive hacks on cryptocurrency exchanges, with the most recent being , where hackers made away with more than $400 million worth of cryptocurrencies. If your exchange ever suffered such an attack or experienced an account suspension, all your investment would go down the drain. A good strategy is to open a bitcoin wallet and send everything thereafter purchase.
A wallet can either be online based (hot wallet) or offline based (cold wallet). Each of these wallets has their pros and cons, and your choice depends on whether you want to get quick access to your cryptos regularly and the number of bitcoins you wish to store.
Most online wallets come with an easy-to-use interface and provide a quicker access to your bitcoins. However, their connection to the internet makes them attractive to hackers, which is why you shouldn’t store large amounts of bitcoins on such.
If you are just getting started with bitcoin and want to begin with small amounts, there’s no need to go for an offline wallet. Start with a web-based wallet, such as or Coinbase itself. If you are going to use Coinbase, make sure you go with its multi-sig wallet or Coinbase vault wallet for utmost security.
There are also mobile wallets, which by definition are online based. These provide a wide range of features to improve security and usability. The best thing about these wallets is that you can access your bitcoins whenever and wherever using your mobile device. To protect your digital assets, ensure that you use 2FA when accessing the wallets. The danger about mobile wallets is that your cryptocurrencies can be insecure if you happen to lose your device or it’s attacked by a malware, keyloggers or viruses. Good examples of mobile wallets include , , , and .
Offline wallets are certainly the most secure, and best for those looking to store a large number of bitcoins for long-term. Keeping your digital assets offline means that they can’t be accessed by hackers or compromised by keyloggers and the likes.
Let’s start with desktop wallets. Yes, they are online based at first, because they involve downloading software, but storing the bitcoins is completely offline. They are fairly easy to use, but access is limited to a specific computer/laptop where the software is installed. Good examples of desktop wallets include and .
Another kind of cold wallet is hardware wallet. This is the most secure way to store a large number of bitcoins. Here’s it works: you purchase an external storage device specifically created for storing bitcoins. Three great examples are Ledger Nano S, and . You connect it to your PC and transfer all your bitcoins to the device. Some of them might come with a small screen to make the operation easier. The downside about these wallets is that they are cumbersome for new users. The hardware is also hard to come by because they are often sold out, so when you get a chance to purchase one, don’t hesitate.
Another wallet that matches the security of its hardware counterpart is the paper wallet. It’s basically a document with information about your bitcoin’s private keys. It’s hacker-proof and no viruses or phishing attacks would compromise the security of your digital assets. You can get one from
Note: Whatever option you will go for, keep your private key PRIVATE! Do not disclose it to anyone whether online or offline. Think of it as your banking pin. Most phishing attacks target the private key so that the people behind them can try and access your wallet.
When is the Right Time to Invest in Bitcoin?
Investing in bitcoin can be quite tricky, especially when identifying the right time to get in. You see, the cryptocurrency market can be volatile, with prices moving up and down on daily basis. Frankly, there isn’t the “best” time to buy the digital currency. But as it is with any other similar market, it’s best to buy bitcoin when there’s a dip. Remember that, though bitcoin is expected to grow in value, the prices are purely based on speculation. If your investment goals are for long-term, it’s best to get in early enough.
Investing Bitcoins in an IRA or 401K
The Internal Revenue Service (IRS) ruled that bitcoin and other digital currencies have an equivalent value in real currencies, which means that they can be used for services or purchasing goods. So this prompts a major question – can you fund your 401K or IRA with bitcoins?
Well, the IRS is yet to specify rules when it comes to bitcoin retirement plans, but since it ruled that digital currencies have an equivalent value in real currencies, it’s safe to have a 401K or IRA bitcoin investment.
As bitcoin continues to gain greater acceptance across the world, there’s a good chance that its value will continue to grow. This makes it a great option to fund your 401K or IRA. In fact, having a bitcoin 401K or IRA means that you are invested in non-collateral assets.
As it’s the case with other investments, no one can accurately predict the actual value of bitcoin in the future – it’s purely speculative. But under the circumstances we are in today, your 401K or IRA bitcoin investment could be very profitable in the long-term, especially factoring in tax savings.
Here’s how it works:
A bitcoin 401K or IRA works pretty much like the traditional IRAs. You roll over your securities and use the funds to buy Bitcoins. You have two options when it comes to this kind of investment: one, you can go for a Roth IRA with after-taxed assets (if you are under 70 1/2 years), or a traditional IRA with pre-taxed assets.
Just like 401Ks or IRAs in collectibles or precious metals, bitcoin IRAs are handled through certain custodians. As a plan participant, it’s your choice to pick the investment vehicle that suits you best. But ensure you only go with accredited providers who will make your investment dreams in a reality. Learn more about investing in Bitcoin through a Roth IRA or 401k retirement account here.
What you need to know before Investing in Bitcoin
Investing in bitcoin can be a lucrative venture, but there are some risks involved. Before you can invest your hard-earned dollars in the cryptocurrency, here are some pointers to keep in mind.
- Invest within your means
Just as mentioned earlier, the prices of bitcoin are purely based on speculation, so it’s only wise to invest the way you can afford to lose. Being the risky investment it is you shouldn’t invest your life savings with guarantees that you will make good money on a certain period. Have a clear investment strategy and commit some percentage of your earnings to it. Chances are that things will go to your favor, but if they don’t, you won’t end up financially depressed.
2. Think long-term, not short-term
Investing in bitcoin is not for the faint-hearted. The prices of the cryptocurrency can be $1,000 today and $700 tomorrow. It has happened before. If you are looking at bitcoin as an investment tool, it’s best to think long-term rather than short-term. Holding your coins for longer might yield better returns than just cashing out when prices spike.
3. Buy your bitcoins using dollar-cost-averaging
Assuming that you are looking to invest in for the long term, don’t buy a huge number of bitcoins in one trade. As mentioned earlier, the prices of this digital currency are extremely volatile, so spreading out your purchases over days or weeks could be helpful. If anything were to go wrong, you wouldn’t lose all your investment. Learn how to to predict just when the right time to buy is.
4. Don’t fall for seller scams
There are lots of scams around that re involved with bitcoin. The fact transactions use QR codes and users are anonymous, many dodgy people have come up to take advantage of unsuspecting investors. Don’t just buy your bitcoins anywhere – use reputable exchanges such as Coinbase and Localbitcoins.
Since its inception, Bitcoin has been a blessing to many investors. In 2009, it was just a budding idea and those who took the bold move to commit some money to it were rewarded handsomely. The price of bitcoin is expected to grow over time, especially now that it is receiving the much-needed mainstream attention. If you are looking to join the bandwagon and invest in the cryptocurrency, it’s never too late. However, as a beginner, you need to be very careful as the bitcoin market is extremely volatile. While bitcoin is no longer profitable and trading requires you to learn all the ins and outs of the bitcoin market, you can buy the digital currency and hold in a secure wallet, hoping that the prices go to your favor. Think of it as a long-term investment and only use reputable platforms for your dealings. Who knows, this could be the best decision you will make in 2018!
P.S. Are you looking for more useful resources to help you get started with Bitcoin investing? Check out our resources page for more helpful info.