Bitcoin, one of the cryptocurrencies, is a digital form of payment and is not affiliated with any government. Its value has a very fluctuating structure. For example, while its value was around $ 4,900 in March 2020, it reached almost $ 14,000 in November. If this fluctuation can be managed well with a proper strategy, you can earn large amounts of cash. To decide if you want to include Bitcoin in your investment portfolio, we've listed different ways to invest in Bitcoin below.
What is the advantage of investing in Bitcoin?
Bitcoin emerged after the financial crisis of 2008, when tech enthusiasts who saw the traditional monetary system as a failure were looking for an alternative solution. Since it has a history of about 12 years, it is not so old that we can evaluate its performance as an investment. For example, the American stock market on Wall Street has existed since 1792, and investors have learned how the stock market responds to different situations and in which situations it is better to invest in which goal.
Understanding these responses is important because people have a lot of ideas about investing in Bitcoin, but it is not yet long before they can test them out. This is why some investors are interested in short-term or day-to-day trading with Bitcoin because of its dramatic rises and falls.
Bitcoin Risk - Value Review
When Bitcoin first appeared in late 2017, its value increased from $ 100 to almost $ 35,000 in early 2021.
In Bitcoin, "buy and hodl" (, HODL; slang for "hold for dear life") strategies have become quite common given the stagnation of the stock market. But even this strategy may not work as some investors expect. Although Bitcoin's value has increased since the beginning of the epidemic, its value dropped by 50% when Covid cases first appeared in America.
When you invest in Bitcoin, you have the chance to win large sums of money in a short time, but otherwise you could lose your money overnight. It is a bit like gambling without proper investment strategies as it is not as stable as the stock market.
According to a study done at Yale in 2018, Bitcoin was significantly more volatile than traditional stocks on every short-term timescale measured from daily to month. There are different issues to be aware of when buying bitcoin. We will examine these topics later in the article.
For these reasons, it's not a bad idea to invest in Bitcoin if you're interested. However, you should know that it is not a predictable investment tool that you can risk most of your money. For this reason, we recommend that you do not invest in large amounts that you cannot afford to lose, and that you allocate a small portion of your portfolio to Bitcoin.
Ways to Invest in Bitcoin
When it comes to investing in Bitcoin, the first option that comes to mind is to buy Bitcoin. While this is an option, there are other ways to invest in Bitcoin.
The most direct way to invest in Bitcoin is to buy Bitcoin. But this process is not as simple as opening an account with a bank, and there are some things you should know before buying Bitcoin.
First, you must have a bitcoin "wallet". This wallet works similar to a bank account or brokerage account and you store your Bitcoins. Wallets can be in the form of "software" or "hardware". If you have a software wallet, you can use it on a website, app, or a computer program. If you have a "hardware" wallet, it means they are on a hard drive and not connected to the Internet.
Most Bitcoin markets offer software wallets but are vulnerable to theft. That's why it's best to store your Bitcoin savings in a more secure wallet. There is no federal insurance program for Bitcoin such as the FDIC or SPIC if you have been theft. Therefore, using hardware wallets that are completely offline is the most logical and secure way.
After creating a wallet, you need an exchange or marketplace to trade Bitcoin. There are many marketplaces on the Internet, but the most popular are known as eToro, Blockfi, and Coinbase. Exchanges' transaction fees are also different from each other. Therefore, take special note of the transaction fees.
When you are ready to trade, you will connect your bank account to the wallet and use this wallet to buy Bitcoins on the Bitcoin exchange. When you sell, your Bitcoin is deposited back into your wallet and you can withdraw it later in cash to your bank account.
If you are experienced in investing with ETFs, a Bitcoin ETF can be an easy way to start investing, but the biggest problem right now is that it is not available in US markets at all.
Until now, the Securities and Exchange Commission (SEC) has been hesitant to approve any public ETFs because the cryptocurrency market is largely unregulated. But this does not mean that it will continue like this forever. We can start ETF investment soon. Thus, you can make your investments in a safer and easier way than old-fashioned Bitcoin trading. Because with ETF, you can trade on your existing brokerage account without having to worry about security and technology issues specific to Bitcoin. The ETF will work as a traditional investment, except that it tracks Bitcoin's price.
Gray Scale Bitcoin Trust (GBTC), which sells shares in the OTCQX market, is the first publicly available Bitcoin investment tool to be launched on January 21, 2020. However, this investment tool is not suitable for any investor because the minimum contribution is $ 50,000 and the expenses are also quite high (2%) and only available to accredited investors.
Investors do not have to worry about storage and security issues associated with buying Bitcoins just like with ETF. You can even buy GBTC shares through an IRA, making it one of the few ways to invest in Bitcoin in a tax-advantageous retirement account.
Special Index Funds
There are several private index funds such as Bitwise 10 Crypto Index Fund that invests in various cryptocurrencies, including Bitcoin. Although the fund has applied for approval to be public, it has not yet been approved and can be used privately. Again, it is not accessible to investors from all walks of life, as it has a high expense ratio (2.5%), requires a minimum investment of $ 25,000 and is only open to accredited investors.
Get Ideas from Investment Advisors
If you are interested in investing in Bitcoin, you can seek advice from people who specialize in it to make an investment strategy that suits your goals. Gaining an outside perspective on your plans and getting a second opinion from professionals will save you time and money.
As a result
Although investing in Bitcoin has a high risk, it can be a high return investment tool. Those who are interested in cryptocurrency trading and those who do not invest more money than they can afford to lose can get quite high returns if they have some luck. You can increase your chances of success by doing your research in advance, as it should be in every investment.