Cryptocurrency is steadily rising in popularity, and the crypto market now has a total market capitalization of $144.96 billion.
Despite this, many people are still in the dark about how to invest in leading cryptocurrencies like Bitcoin (BTC).
In this post, we’ll explore how you can begin investing in Bitcoin, starting from the top.
Bitcoin: The Leading Cryptocurrency
There are many types of cryptocurrencies that are available to investors. For example, some of the leading cryptocurrencies on the market today include:
- Ethereum (ETH)
- Ripple (XRP)
- EOS (EOS)
- Litecoin (LTC)
- Tether (USDT)
Bitcoin, however, is the most popular cryptocurrency on the market. This digital currency was invented in 2008 by an unknown individual or group of individuals operating under the alias Satoshi Nakamoto. The currency was officially released in 2009.
Each Bitcoin is a computer file that can be bought and stored in a digital wallet using mobile apps like Exodus, Electrum, or Coinbase.
Just like when trading stocks, you can buy a whole Bitcoin or a fraction of a Bitcoin, depending on how much you are willing to spend.
What is Cryptocurrency?
A cryptocurrency is a type of virtual currency, or digital asset, meaning it does not exist in physical form.
While you can buy certain products and services with cryptos, they aren’t actual coins — despite what the abundance of stock photos floating around the internet with a “B” and a dollar sign inscribed might have you think.
One of the major misconceptions about cryptocurrency is that it has to be decentralized, or not controlled by a governing body or central banks (like the stock market is). Yet there are some centralized cryptocurrencies on the market (e.g., Ripple).
Just as the name suggests, cryptocurrencies are encrypted for privacy and security. Most cryptocurrencies leverage blockchain technology — or distributed public ledgers — which are used to securely record transactional data.
How to Invest in Bitcoin
Heres are 3 easy steps to start investing in bitcoin:
1. Join a Bitcoin Exchange
The first thing to understand is that you can’t store Bitcoin in a regular bank account.
To invest in Bitcoin, you’ll need to obtain a digital wallet from a bitcoin exchange provider. On some platforms, you can even buy cryptos with your credit card or debit card.
A cryptocurrency wallet is basically a program or service that stores private and/or public keys. Private keys are only known to owners and are used to confirm fund transfers.
Coinbase is one of the most popular wallet providers on the market, offering enhanced security with insurance against breaches or theft. Coinbase is user-friendly and can be used with all leading cryptocurrencies. It’s especially popular as a bitcoin exchange for first-time investors.
Binance is the largest cryptocurrency trading platform in the world in terms of transactional volume. The company was founded in 2017 and is currently headquartered in Malta.
On their website, Coinmama claims to be the easiest place to buy and sell cryptos. You can use a debit card or credit card to buy coins, and they offer a nice variety of options beyond BTC and Ethereum.
2. Get a Bitcoin Wallet
Cryptocurrency wallets can be either hot (connected) or cold (offline).
Hot wallets are connected to the internet, allowing users to store, buy, and sell digital tokens online. On one hand, hot wallets are convenient. However, they are more vulnerable to hacks and theft.
Some popular hot wallets include:
With Exodus, you can send, receive and exchange Bitcoin along with over 100 other cryptocurrencies.
Mycelium has been in the bitcoin game since 2008. They are a mobile-only bitcoin wallet making them great for investors on the go.
A cold crypto wallet is unconnected to the internet, meaning it can’t be compromised by cybercriminals. These are sometimes referred to as offline or hardware wallets. They are used with computer software instead of an internet browser. Some also come with Bluetooth technology.
Some popular cold wallets include:
Trezor also makes a powerful hardware wallet, which has a convenient embedded interface. You can use Trezor with a variety of coins.
Edge is an online crypto wallet, which is known for making it easy to shift back and forth digital currencies from a central location. It also offers an exchange where you can transfer money for coins.
3. Link Your Bitcoin Wallet to Your Bank Account
Once you are all set with your bitcoin wallet, you will need to connect it with your bank account. This way you can start to buy and sell bitcoins as you please.
4. Purchase Bitcoin
Well, there you have it, now you are all ready to start purchasing bitcoin and hopefully making a good investment.
How Much Bitcoin Should You Buy?
New cryptocurrency investors often make the mistake of thinking that they should buy a whole Bitcoin — and they get dismayed when they see the price tag that comes with it.
As it turns out, you don’t need to buy a whole Bitcoin at once. You can buy Bitcoin in fractions, depending on how much you want to spend.
Just like with any investment, how much Bitcoin you should buy will depend on your risk tolerance. Remember that Bitcoin is a gamble and needs to be treated as such. Don’t invest more than you would feel comfortable losing.
With that in mind, if you want to buy a whole Bitcoin, make sure that you could comfortably lose all of it — because it could happen. If not, you may want to start by investing smaller amounts and eventually work your way up to a full Bitcoin.
One good approach could be to set aside a certain amount of money, say $50, and invest in a little bit of Bitcoin at that price each month.
That way, you can dollar-cost average into the market, and you’ll protect yourself a little bit against the coin’s infamous volatility.
If you believe in the future of Bitcoin and want to invest, I’d highly recommend starting with this kind of approach.
Bitcoin: High Risk, High Reward
Opinions about Bitcoin vary wildly depending on who you talk to. This is largely because Bitcoin is unregulated. As such, it’s incredibly risky for most investors.
The price of Bitcoin constantly fluctuates and has a history of unpredictable swings. For example, as of May 22, 2021, a single Bitcoin was valued at $37,817.57 USD. Just twelve days earlier, one Bitcoin was equal to $57,949.03.
However, this isn’t the only big swing we have seen, it happened as well in 2017. The price of a single Bitcoin went from under $1,000 to roughly $20,000 in a period of about 12 months, before crashing down into the $3,000s — a tough pill to swallow for anyone who had invested large sums of money in the cryptocurrency at the wrong times.
As with any investment, I can’t tell you whether to invest in Bitcoin or not. All I can say is that you should thoroughly research the market and decide how much — if any — you want to pump into Bitcoin or other cryptocurrencies.
Just know what you’re getting yourself into ahead of time, so that you don’t get burned.
With all this said, let’s take a look at how you can go about investing in Bitcoin.
Is Ethereum better than Bitcoin?
Ethereum and Bitcoin may seem similar, but they have some important differences that you should be aware of before investing in either coin. For example, Ethereum is technically a platform, while Bitcoin is a cryptocurrency. And while Bitcoin transactions are monetary in nature, Ethereum can be executable code. As such, Ethereum can be used as a digital currency as well as a service to monetize smart contracts.
Most investors will tell you that Bitcoin is the better long-term buy. However, it’s tough to ignore the development that’s taking place on Ethereum’s platform. Compare both and decide which is right for your needs both now and in the future. And as always, there’s nothing stopping you from investing in both — just remember to temper your expectations.
What is Bitcoin Cash?
Bitcoin Cash is technically a fork of Bitcoin. In other words, Bitcoin Cash has its own blockchain that forked off the original Bitcoin blockchain. It functions like a digital currency, and all new Bitcoin Cash is created through bitcoin mining.
Bitcoin Cash was created when a group of developers forked Bitcoin and created a version of Bitcoin with important structural modifications. For example, Bitcoin Cash has lower transfer fees and faster transfer times. It can also handle more transactions per second.
The big difference right now is value. Bitcoin Cash is worth just a small fraction of Bitcoin. However, some experts predict that Bitcoin Cash could continue to win market share moving forward, although this is unlikely.
What are Bitcoin Futures?
Bitcoin futures are a way to invest in the asset class without opening a digital wallet. Bitcoin futures are regulated by the United States Commodity Futures Trading Commission, and when you purchase them, you aren’t actually buying BTC. Instead, you’re making a bet on what you think the future value of BTC will be (which is risky).
What are Bitcoin ATMs?
Bitcoin ATMs are similar to traditional ATMs, but you use them to purchase cryptos using cash or a debit card. There are currently a few thousand Bitcoin ATMs scattered throughout convenience stores and bodegas. Personally, I don’t see the need to use these, as I am hearing reports that some of them might charge high transaction fees.
Can You Lose Money on Bitcoin?
Bitcoin investing is risky. It is possible that you will lose some or all of your investment as the value of bitcoin fluctuates. However, you cannot lose more than you put in, and, as with stocks and ETFs, you won’t lose money unless you sell at a loss. So as long as you’re responsible, you won’t go bankrupt or spiral into debt from trying it.
What is BlockFi?
If you’re considering investing in Bitcoin, you should seriously consider using a service like BlockFi.
BlockFi is an online digital wealth management solution backed by Gemini. BlockFi gives you the option to diversify your investments while earning a high-interest rate.
It’s a bit like using a high-yield savings account (HYSA) but for cryptocurrencies. With BlockFi, you can generate an annual return of an astounding 8.6% — without hidden fees.
This is possible because BlockFi makes money by lending your money to partners like investment companies and banks. Since BlockFi is an online service, the company is able to maximize its low overhead and make healthy returns to customers.
BlockFi can work with different types of cryptocurrencies other than Bitcoin. For example, BlockFi will work with Stablecoin, Litecoin, and Etherueum.
Should You Invest in Bitcoin?
The biggest issue surrounding Bitcoin other than market volatility is that it’s unsupervised. In other words, the Security Exchange Commission (SEC) does not consider cryptocurrency to be a security.
This is an issue that’s been plaguing the cryptocurrency market from day one.
According to one study, 95 percent of bitcoin spot trading is faked by unregulated exchanges. The study found that 71 out of 81 exchanges were rife with wash trading, which occurs when a person buys and sells the same stock to create the appearance of market activity.
That’s not to say Bitcoin is illegitimate, or that you can’t get rich off of investing in Bitcoin. However, it’s not as common as you may think.
In fact, just 0.07% of bitcoin addresses are worth more than $1 million. And 74.5% are worth less than $1.
The best way forward is to do your own research and think of Bitcoin like you have a wad of cash in Las Vegas. If you’re comfortable making a gamble, Bitcoin could be a good investment. But if you’re thinking of emptying your bank account so that you can invest in Bitcoin, I urge you to sleep on that decision.
Remember: Generally speaking, it’s better to take the boring route and get rich slow by investing in securities with high-performing returns. Bitcoin may help get you there but it’s probably not going to land you a megayacht any time soon.
Here’s to making smart personal finance decisions and enjoying financial freedom!