Bitcoin and other cryptocurrencies have become increasingly popular investments over the past two years. They’ve had long-lasting support from crypto and blockchain enthusiasts but are also now seen as a potential option for everyday investors. Is Bitcoin the right choice for you? Here are some things you should consider when buying Bitcoin.
Bitcoin and Volatility
Bitcoin is a very volatile investment. That means that the price can fluctuate wildly. Over the course of its 13-year history, the price has seen numerous sky-rocketing all-time highs and subsequent crashes. While Bitcoin is still way up over 2020 and earlier prices, we’re now seeing a significant drop compared to all-time highs in 2021.
That means that anyone who entered the market since the beginning of 2021 and hasn’t sold is now holding their Bitcoin at a loss. However, there are plenty of investors who sold during periods of high prices and saw massive profits. Anyone who bought in 2020 or earlier is still up, and buyers from 2019 will have enjoyed a 5x increase.
The simple fact of the matter is that timing these swings is incredibly difficult and not something that most everyday investors should attempt. Conservative investment strategies don’t try to time the market and instead invest in assets that trend upward over time. Bitcoin has recovered after every crash so far, but the significant volatility is something that any investor should consider carefully.
Investing Through Other Assets
Today, buying and later selling Bitcoin is far from the only option that investors have to take advantage of market growth. There is a wide range of related and derivative assets that can allow investors to carefully tailor their risk thresholds and investment strategies.
There are many different stocks available today related to Bitcoin and other cryptocurrency projects. Investors can buy stocks in Bitcoin mining companies that derive their profits from purchasing and running Bitcoin mining equipment. This adds to their Bitcoin reserves, increasing the value of the company.
Other stock options include companies that provide services or carry out projects in the cryptocurrency industry. Exchanges are a notable example, and there are plenty of unique tech start-ups working in the cryptocurrency space that you could invest in.
Finally, there are cryptocurrency-centric ETFs and funds. These assets spread your investment across a broad portfolio of crypto-related stocks. This includes options with a wide range of Bitcoin exposure, so investors aren’t directly affected by Bitcoin price swings. This could reduce risk but also reduces the potential gains if Bitcoin were to sky-rocket to new highs again.
It’s also important to point out that there are certain alternative investment services such as the latest Bitcode Prime who are presented to customers as legitimate. However, at least some websites claim otherwise, so make sure to do your research properly before risking your money.
Buying and Holding Bitcoin
If you do choose to invest in Bitcoin or other cryptocurrencies directly, you’ll have to take into account the technical process of buying and holding your investments. Most people buy and sell Bitcoin and other cryptocurrencies through exchanges. These are large, centralized companies that carry out transactions, much like a foreign currency or stock exchange.
They make the process much easier but also charge fees for transactions that are typically a flat percentage of any purchase. Investors should be sure to only work with established exchanges, as there are many cryptocurrency scams online that make big promises to swindle their victims.
Once you have bought your Bitcoin, there’s still the question of where to keep it. Cryptocurrencies exist inside wallets that are defined by a private key and a public key. The public key allows others to send cryptocurrencies to your wallet, while the private key is what allows you to make transactions using your wallet.
If you buy through an exchange, the actual cryptocurrency may be held in the exchange’s wallet. You’ll only have access to make trades through their platform and will rely on them for the safekeeping of your cryptocurrencies. Several major cryptocurrency exchanges have gone under in the past when wallets containing client funds were compromised and the cryptocurrency was stolen.
Holding Bitcoin in your own wallet can provide more security but also requires some technical knowledge. Be sure to research how wallets and crypto transactions work before trying this because there is no way to recover Bitcoin sent to the wrong wallet.
Don’t Overdo It
The general advice within the industry for everyday investors is to have no more than 5% of your portfolio in Bitcoin and other cryptocurrencies. They may represent great investment opportunities but still represent too great a risk for anyone to put down money that they really need.
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