How To Invest In Bitcoin - Step-by-Step Guide
Bitcoin is a peer-to-peer cryptocurrency whose goal is to offer people control over their money. Eleven years since its launch, Bitcoin remains the most popular cryptocurrency, and this is reflected in the number of users and its price. In the past 9 years, BTC has managed an ROI of over 47923551.788%, outperforming any other asset class by miles. This is a testament to its growing popularity and appeal among the masses as an alternative store of value. In this guide, we will go over the many ways you can invest in Bitcoin.
Table of Contents
- 1 Invest in Bitcoin in 3 Steps
- 2 Step One – Get a Bitcoin Wallet
- 3 Step Two – Join a Bitcoin Exchange
- 4 Step Three – Invest in Bitcoin
- 5 Investing in Bitcoin Explained
- 6 Where Can You Invest In Bitcoin?
- 7 Bitcoin Investment Strategies
- 8 Disadvantages of Investing in Bitcoin
- 9 Other Ways of Investing in Bitcoin
Invest in Bitcoin in 3 Steps
Step One – Get a Bitcoin Wallet
The first step of investing in BTC involves getting your hands on a Bitcoin wallet. Several types of wallets exist for storing BTC, including hardware wallets and software wallets. The security of these wallets varies, and given you will be storing a valuable asset in there, you ought to choose the most convenient wallet for your needs.
Step Two – Join a Bitcoin Exchange
The next step is joining an exchange where Bitcoin is supported and can be easily purchased. Today there are plenty of these platforms, including Coinbase, Binance, Coinmama, Poloniex, and many more. Most of these platforms will allow you to purchase BTC using fiat through a credit/debit card, which is simple and quite direct.
Step Three – Invest in Bitcoin
Once you are signed up on an exchange, you will have to verify your identity before you are allowed to invest. Then you have to fund your account through the various methods on offer. The next step involves purchasing the quantity of Bitcoin you want by entering the amount you wish to spend, and you will receive an equivalent amount in BTC depending on the market rate at the time.
Investing in Bitcoin Explained
When selecting a Bitcoin wallet, there are a few factors to consider before deciding which suits your needs best, including simplicity, customer support and development, security and backup features, private key control, and anonymity.
Hardware wallets represent the safest way to store bitcoins since they are kept offline. Some of the best available in the market include Ledger Nano X, Ledger Nano S, and Trezor. Then there are mobile wallets, which are apps that can be installed on mobile phones. Some popular examples include Electrum, Edge, Guarda, and many more. Desktop wallets are programs that can be installed on the desktop and compatible with different operating systems. Popular examples include Exodus, Bitcoin Core, and BitGo.
There are web wallets compatible with Bitcoin, also known as ‘hot wallets’. They are accessible by connecting to the internet, and it's the kind of wallet you will be given once you sign up on Coinbase, Binance, or any other cryptocurrency exchange.
If you need to access them frequently, it makes sense to keep them on hot wallets, which are convenient for transferring them. But never keep too many coins there since you can lose them all if the platform is breached.
When you join a platform of your choice, you will have to fund the account and then purchase BTC.
Another popular method is using peer to peer platforms like Localbitcoins.com. The platform uses a rating system to determine the most trustworthy traders, and you get to negotiate with the seller on the price. There are plenty of payment methods supported, and in case you run into issues; you can reach out to customer support, who will help out.
Where Can You Invest In Bitcoin?
We have taken the time to shortlist a few platforms that we feel offer the best service for those looking to invest in Bitcoin. These platforms have been chosen for their high reputations, regulatory status, and customer service.
There are several payment methods you can use to make your first Bitcoin investment. Different platforms will offer different options, but the most common and convenient mode for beginners is using credit/debit cards. A platform like Coinbase or Binance will offer you this option, and it's relatively straight forward. Typically, you will have to click the fund/deposit tab and enter your card's details and then make the money transfer to your account. Once the funds hit your account, it's time to invest in BTC.
A platform like Coinbase will allow you to send money directly from your bank account before making the BTC investment. Under the Wallet Balance, you will have to select the deposit option. Select the currency you would like to use, which is supported, and then select the bank account tab. You will be required to add an account where you will be redirected to complete the bank account verification process before making the deposit and progress to invest in BTC.
Most of these platforms will allow you to invest in BTC using various payment methods; you have to select the most convenient and follow the deposit instructions.
Bitcoin Investment Strategies
There are several ways to invest in Bitcoin to ensure you don't miss out on the many opportunities. The section below will cover the most popular ones by explaining what the strategy is all about, how to use it, and why you should use it while investing in Bitcoin.
Buy and 'Hodl'
What is it?
This is as simple as it sounds. The word hodl is part of Bitcoin culture and a running joke, which is a misspelt ‘hold’. Hodling works as the BTC ROI tells us. The asset continues to get stronger and outperform other asset classes. As a matter of fact, some experts see its price getting to $1 million. This may seem too far-fetched for now, but judging by where the asset has come from in the past few years, it’s a price that could potentially be achieved later down the line.
How to use this strategy
This strategy is simple; you go on an exchange platform and purchase BTC as we have described above and then hold onto it. It's a long-term strategy and requires patience but eventually pays. For example, at the start of the year, BTC was trading at around $7,200, and as of the time of writing, it's just above $26,000. Those who sat on their investment for the year now stand to bring in some great returns.
When to use this strategy
Ideally, when the price of BTC is low, that is the time to buy and hold. Currently, a low would be anything below $40,000. The crypto market is volatile, and the prices will rise and fall frequently, but one thing that stands out over time for Bitcoin is that its price manages to go to higher levels over time. At $56,000, this may seem high, but in five years, if it's trading at $25,000, the current price would be low in retrospect. For this strategy, any time could be the right time. All you need is patience.
Buy Fractional Bitcoin
What is it?
Purchasing a fraction of a Bitcoin means investing in a small amount of BTC. Bitcoin can be divided into several small units known as Satoshis. One whole BTC is equal to 100,000,000 Satoshis. Fractional purchasing is the most common way small retail investors make their BTC investment since you can buy BTC worth any amount, even $10 worth. Let's say at the start of this year, you decided to set aside $100 per month, and instead of saving in a bank account to get pitiful interest rates, you decided to purchase BTC worth that amount each month, gradually increasing your investment. By the end of the year, you will have spent $1200, but your BTC at the current prices would be worth around three times that value.
How to use this strategy
As mentioned above, this is the simplest way of getting your hands on BTC. Set aside a fraction of your income and promise yourself to purchase a certain amount of the asset every month. Over time your portfolio will grow tremendously.
When to use this strategy
The best time to use this strategy is when starting out and with little capital. It requires patience and discipline, but you can build the value of your investment significantly over time.
Long Position on Bitcoin
What is it?
Taking a long position while investing in Bitcoin is possible only through leverage trading. It involves entering the Bitcoin market through leverage trading by purchasing the underlying asset with the hopes its price will go up.
How to use this strategy
This strategy involves joining a broker platform and then selecting the size of your trade. Enter the amount of leverage you would like to use and select the price you would like to enter the long position at. When the price reaches your desired mark, your order will be placed. If the price rises higher, you can close your position where the asset will be sold and you retain the profit.
When to use this strategy
This strategy is ideal in a bull market. When the asset's price is experiencing positive momentum due to increased adoption, positive news, etc. Therefore paying attention to market developments and important world events can truly pay off.
Benefits of Investing in Bitcoin
- It's a deflationary currency – This means it's immune to inflation, which causes currencies to lose value, thereby reducing their purchasing power. Retirees are an example of individuals that suffer from inflation.
- Enjoy low transaction fees – Fees make a huge difference, especially when you have to make many transactions. With an average of around $0.18 per transaction, BTC has some of the lowest fees of any currency.
- Easy to use worldwide – Bitcoin isn't mainstream yet, but has seen increased adoption around the globe with lots of merchants accepting it as a payment option. This makes it more appealing than the local fiat option that you may struggle to spend outside your jurisdiction.
- Accessibility – Bitcoin exists as a code on a computer. This makes it easily accessible to anyone who has a device that can connect to the internet.
- Autonomy – You have absolute control over your finances. You don't have to deal with a central authority like the bank or government.
- Anonymity – There is a level of anonymity with Bitcoin. It's possible to spend the currency, and you won't be easily traced.
- Peer to Peer focus – One reason Bitcoin transactions are so cheap is the lack of intermediaries. You get to deal directly with the other party.
- Scarcity – This is the single reason why the price of BTC is always rising. Only 21 million coins will ever exist, and at the time of writing, we have about 18 million in circulation. The greater the scarcity, coupled with higher demand, will continue to push the prices up, which is excellent for those invested in the asset.
Disadvantages of Investing in Bitcoin
- High volatility – Due to high speculation of investors betting whether the price will rise or fall, BTC is highly volatile, making it unusable as a stable store of value. Even though it's important to note, this makes it profitable for speculative investors.
- Beware of scams – The crypto market has seen plenty of scams that have seen investors lose millions of dollars. If you are not very careful, you may be caught up in the wrong type of investment.
- Tainted reputation due to association with the black market – Thanks to its anonymous nature, Bitcoin has been a favourite among bad actors, damaging the assets reputation.
- A superior currency might replace it – Even though Bitcoin is highly popular being the first crypto asset, it's based on a first-generation blockchain, limiting its capabilities. Today there are plenty of superior designs that could potentially replace Bitcoin in the future.
- Mining effects on the environment – Bitcoins are created through mining, an energy-intensive endeavour.
Other Ways of Investing in Bitcoin
There are a few other ways you can get a hold of BTC. You can opt for face to face transactions where you meet up with the seller. Ensure you meet in a safe environment to avoid getting conned. You can also opt to use a Bitcoin ATM if there is one near you. This is a safe and fast process that doesn't require one to disclose their personal details, and it's fast. Ensure you check for ATMs that are listed on Bitcoin ATM Radar to avoid getting scammed. Another popular option is using PayPal, although this facility is not yet available worldwide. You have to sign up and fund the account. Recently the payment giant announced it would have to allow users to purchase, sell, and hold Bitcoin. Another way of investing in BTC is through leverage, a process we will go through below.
Trade Bitcoin on Leverage
Leverage trading helps the investor increase their exposure in the Bitcoin market. Your capital is multiplied by a given percentage, and this helps you profit more. You have to be careful since the bigger the leverage you opt to use, the greater the risk of getting liquidated from small price movements. Leverage trading is a great way to speculate short term price movements and profit quickly. It's only possible through an online broker such as eToro, Skilling, Plus500, and many more.
Invest in a Bitcoin ETF
A Bitcoin ETF offers a simple and legally compliant way to invest in the top cryptocurrency. It's an investment vehicle that tracks the price of Bitcoin and trades on the traditional stock market. The value of the ETF rises and falls depending on the price of the underlying asset. Each share of the ETF represents 1/10 of one BTC. It's an ideal way to invest for people with little knowledge of the Bitcoin market who would love to avoid the technicality involved, like dealing with Bitcoin addresses, private keys, and wallets.
Mining is the process through which Bitcoins are released on the network. At the start, it was quite easy to participate through the use of GPUs, but as the hash rate went up with more people using the network, so it became more difficult to mine profitably. The dawn of ASICs (Application Specific Integrated Circuits) made competition through the use of a GPU virtually obsolete.
Today mining is only really possible through large Bitcoin mining pools, which you can join to share the profits with other participants. Cloud mining is also an option, where you purchase time on someone's rig. To make more, you will have to spend more by purchasing a higher hash rate on platforms like Genesis Mining or HashFlare.
Frequently Asked Questions
No. Bitcoin can be broken down into different fractions; therefore, it's possible to buy small amounts of the asset.
If the value continues to rise, the best time would be now.
It depends on the laws within your jurisdiction; therefore, it's essential to consult with your official government website to understand what rules are involved in the purchase and sale of Bitcoin.
There is only one way to avoid getting scammed online while dealing with BTC investments; by doing your due diligence. Ensure you research the exchange or seller well and equip yourself with enough knowledge as possible to ensure you make informed decisions.
Different Bitcoin investment platforms employ KYC and AML regulations to combat money laundering and other types of fraud using cryptocurrencies.