How to invest in bitcoin? A guide for everyone from A do Z!
Bitcoin is a cryptocurrency – a system based on a blockchain register that aspires to be a means of payment. The key is that Bitcoin has not yet set up a full legal tender, as it enables its manipulation in isolation from the legal obligations imposed on currency operations. This makes the market less rigid, and at the same time more dynamic, which may be conducive to making money on investing in it.
Investing in bitcoin – how to get started?
Before we start Investing in bitcoin, it is worth explaining what an investment is at all. In a dictionary, you can find that an investment consists in allocating funds in the expectation of some benefit in the future and this is roughly what Investing in bitcoin is as well. It’s crucial to distinguish between investing and trading, the second of which involves frequent handling of cryptocurrency to make a profit on its daily ups and downs. If you have a lot of experience in this matter, trading allows you to get rich fairly quickly but carries a risk that is much lower in the case of investments. When investing, your goal is to buy, hold, and sell at the best possible moment, all or part of the assets. The main problem is determining when the right moment to sell your assets occurs. Even before buying Bitcoin, it is worth deciding what your asset realisation model is. There are really many methods that you can adopt, for example:
– realising half of your profits at regular intervals (e.g., if you have BTC worth PLN 1000 and its value increases to PLN 1100, you pay out PLN 50, and the remaining PLN 1050 still earns you money)
– realising part of the profit after a certain increase (e.g., you withdraw half of the profit when the value of your investment increases by 25%)
– realising your whole investment after reaching a certain threshold (e.g., after doubling its value, you withdraw all funds, which would allow you to then invest in something different)
– realising the whole investment before a large decline in value (this method requires a bit more commitment because determining when a bear market is approaching is possible only through careful observation of the market and even then, it is not certain)
– realising when in a crisis situation (Investing in bitcoin is in this case more of a form of security than an investment in the strict sense; when an unexpected event occurs, whether in your private life or in the economy, it is worth having diversified “rainy day” funds).
Is investing in BTC worth it?
There are three short answers to this question: “yes”, “no idea” and “it depends”. Although at first glance they are somewhat contradictory, together they constitute a coherent, complete answer.
On the one hand, it is almost sure that Bitcoin, despite its short-term volatility, is bound to become more expensive in the long run. This is due to its limited supply (ultimately mining only a total of 21 million BTC is feasible since the electricity required to mine each new unit is increased) and the growing role of blockchain technology. Blockchain makes it possible to store data in a completely safe, decentralized, anonymous, transparent, and independent manner. This may sound utopian but moving all databases to the blockchain would remove countless problems, from the risk of data leakage by hackers to reducing the cost of maintaining the data transmission chain to removing the risk of information loss due to errors of the central database. The increase in blockchain popularity would directly contribute to the increase in Bitcoin’s popularity and, simultaneously, its price.
On the other hand, it is not known how the market will behave in the future. In 2017, our answers to the question of how to Invest in bitcoin to gain a lot were completely different than now. This is due to a better understanding of the market that has since evolved, but we cannot be sure that our current answers are final. 19th-century physicists thought they had nothing to discover, after which the 20th century with its elementary particles, the theory of relativity, and quantum mechanics turned science upside down. We have to come to terms with the Socratic “I know I don’t know anything” – our predictions of Bitcoin’s behaviour may turn out to be quite accurate for a long time, and then the currency may unexpectedly enter a recession.
And on the third hand, it all depends. Our predictions are often accurate after all, and you can still rely on them for profit. Like any market, the cryptocurrency market is burdened with a certain risk – the greater the risk the faster it allows you to profit. Investing in bitcoin with a lot of knowledge is still a way to make a profit. If this were not the case, we would not have heard of numerous cases of people who made fortunes on Bitcoin. Knowledge is almost always power, so invest in BTC especially after having learned as much about it as possible. A person with a lot of knowledge will gain more when the price increases than a beginner without it, and when it decreases – they will lose less. Following the ancient Chinese tactician and strategist Sun Tzu – maximizing gains and minimizing losses is about getting to know the battlefield on which you operate in as much detail as possible.
What are the risks of Investing in bitcoin?
As we have already mentioned, the risks inherent to Investing in bitcoin are greater when you lack knowledge. Unfortunately (or rather, fortunately) it’s impossible to know the future. Cryptocurrencies, including Bitcoin, are still elusive and full of secrets. The market is governed by fixed laws that we must discover. Each unexpected change allows us to add new paragraphs to this unique code of laws. The risk depends on your level of knowledge and market awareness. If you follow the history of the BTC exchange rate and compare it with the geopolitical and economic situation in the world, you can approximate the behaviour of its exchange rate in the context of upcoming changes. The price also depends on internal events in the market – a few large transactions on the stock exchange can trigger an avalanche effect that can lead to unprecedented drops or increases. Therefore, you should always strive to carefully observe the market.
Investing in bitcoin is incredibly easy, although it is insanely difficult to predict exactly how the cryptocurrency will change in value. Its price will almost certainly increase in the long run, so it is worth allocating at least a small percentage of your investment portfolio to this type of asset. In case of failure, you will lose only one part of your funds and in case of success, you stand a chance to earn a sizable profit.