Let’s face it, buying bitcoin is much different than investing in bitcoin. Why? Anyone can learn how to buy BTC, but do they make a profit?
The answer to this question depends on a few factors that we will discuss in this tutorial.
Now, let’s explore how to invest in bitcoin the right way in a few simple steps.
Step 1: Understanding a Fluctuating Market
The first thing you should know about how to invest in bitcoin is that the crypto market is volatile.
Unlike other currencies, like you are used to (i.e., USD, Euro, etc) cryptocurrencies change in value over short periods (even in seconds).
Let’s take the past year of bitcoin price as an example.
In February 2020, Bitcoin’s peak was roughly $10k. Today, the price of bitcoin is approximately $33k. Imagine that you bought $1,000 worth of bitcoin in February and sold it today. How much would your investment be today? Over $2,500, about a 250% profit!
That is just one year of holding on to your bitcoin.
This does, however, pose a potential risk. Because Bitcoin’s price can also drop suddenly. It was nearly $20k in 2018 then abruptly dropped to $13k and eventually reached close to $3k.
The lesson here is that you can’t just buy bitcoin and sit on it. You must monitor the market and be prepared to sell it for a profit. Otherwise, your investment will turn into a loss.
Step 2: Avoiding Fraud
Another aspect of how bitcoin works, and all crypto for that matter, is it is filled with scammers and thieves. These factors will also affect your investment as you must be cautious and smart.
There are two types of fraud in crypto:
- The obvious
- The not so obvious
What does this mean?
An obvious cryptocurrency scam may not be apparent while in the process of getting scammed, but you will be well aware after the fact. For example, if a website poses as a bitcoin exchange, offers to sell you bitcoin, and then takes your money without delivering, it is obvious that you’ve been scammed.
There are, however, more long-term and intricate schemes that ask you to invest your bitcoin or other coins in an ICO or a DeFi (decentralized finance) protocol, for example. You may view the project as legitimate and a means to make money off of your bitcoin. The difference is that you may still believe this when the project falls apart. This is because it might dissolve for reasonable reasons. In the end, you have lost your investment because the project wasn’t intended to succeed.
The tricky part is that you need a cryptocurrency exchange to buy and sell bitcoin and there are worthy ICOs and DeFi protocols to invest in. So, how do you find the legit ones? By doing your homework.
Step 3: Knowing When to Buy and Sell
Now that you know how the crypto market fluctuates and how to avoid scams, you now need to know when to buy and sell Bitcoin.
Making a profit means more than just buying Bitcoin and holding on to it. There are good times to buy as well as good times to sell. You may also buy and sell BTC several times, making a profit within each cycle.
Much of the bitcoin price fluctuation depends on the fear and greed index. This meter gages the emotional sentiment of traders, companies, and the general public which complements buying and selling trends. Monitoring the patterns of the market can help you decide the best times to buy and sell for profit.
Check out this guide to trading for how to make a profit with your bitcoin.
Step 4: Storing Your Bitcoin
No matter how much you sell for a profit you always want to keep a stash of Bitcoin just in case the price decides to skyrocket over the long-term. What do you do with this stash?
Keeping your Bitcoin secure is very important as it can be prone to hacking. This includes keeping your coins on a legitimate cryptocurrency exchange since they can also be hacked.
So, where should you keep your long-term Bitcoin? A hardware Bitcoin wallet is your safest option.
Your crypto is kept offline and only you hold the private key to access or recover your assets.
For Bitcoin that you want to trade, sell, or spend then there are accessible wallets like these Bitcoin wallet apps that are your second safest option.
Step 5: How Much to Invest in Bitcoin?
The last thing you need to consider when investing in Bitcoin is how much you want to buy.
There are no limits on how much Bitcoin you can buy, whether large or small. (Although there is a fixed supply, Bitcoin will not run out anytime soon.)
This means that you can buy small amounts of Bitcoin, called satoshi, like .0001 BTC, no problem.
Remember though that exchanges may have a minimum for buying BTC but it usually is as little as $10.
If this is your first time buying Bitcoin then you can start will low amounts so that you can get used to the market, find a reliable exchange, and choose a secure wallet.
So, Is It Worth Investing in Bitcoin?
If you’ve read this far then your answer probably is a “yes.” And we think so too.
Here are a few reasons why Bitcoin is a smart investment:
- Easy to buy using traditional methods of payment
- Decentralized—no government, company, or person owns or controls it
- Appreciates in value
- Fixed supply keeps demand high
- Growing adoption worldwide
- Consumer/retail implementations on the rise
It is easy to see that Bitcoin is here to stay as it becomes more popular and more profitable. And you are a part of its success as well now that you’ve taken the first step by learning how to invest in Bitcoin for your future.
Expand your knowledge further by visiting our tutorials section.
Remember that CoinColony is not a financial advisor. This content is meant for informational purposes only. Please invest your money carefully and consult a professional beforehand.