For investors who are used to traditional financial products, Bitcoin is often their first step into cryptocurrencies.
Bitcoin, the world’s first and most popular cryptocurrency, has increased in value from $3,237 in December 2018 to more than $5,000. Unlike many tried-and-true investments, including stocks, bonds, and mutual funds, Bitcoin is speculative and subject to much greater volatility.
Bitcoin: Is it right for you?
In order to make a wise decision, it is important to consider your goals and strategy carefully before investing in bitcoin. Although Bitcoin’s price has appreciated dramatically, not everyone has benefited from that appreciation. Since cryptocurrency markets are extremely volatile, it’s nearly impossible to find the “right time” to buy or sell — the price could soar moments after you sell, or plummet as soon as you buy.
If you are new to investing, take a look at how to invest money. A common rule of thumb is that you shouldn’t invest more than 10% of your portfolio in individual stocks or risky assets like bitcoin. You will also need to make some technical and logistical decisions if you decide to buy bitcoin.
Here are some basic things you should know before investing.
What is a cryptocurrency? Cryptocurrencies are digital assets that are usually created using a cryptographic computer networking technology called blockchain, which allows them to be exchanged without the need for a central authority, such as a bank. It is common for cryptocurrency exchanges to trade, but they are generally not governed by the same rules as other traditional investment products.
How does Bitcoin fit in? Bitcoin dominates the market for cryptocurrencies, but thousands of others exist — some reputable, some not. Cryptocurrencies often serve different purposes. Bitcoin, for example, is used as a payment system. Others, such as Ethereum, are used to carry out more complex transactions. Dogecoin, for example, has attracted investor interest even though it was created as a joke.
There are a few ways to think about Bitcoin and any cryptocurrency you’re considering buying. Investing in Bitcoin is both a bet on the cryptocurrency space itself as well as its underlying technology. They are both relatively new and untested, and neither is guaranteed to reach the potential some of their proponents anticipate.
If you believe in the concept of cryptocurrency, but you’re not convinced that Bitcoin is the ultimate expression of those concepts, you might want to consider a more diversified portfolio of cryptocurrencies.
Four steps to buying Bitcoin
- A few traditional brokers like Robinhood and BTC Exchanges like BTCC can help you get started investing in Bitcoin.
- Consider how you will store your cryptocurrency. Will you keep your Bitcoin in a hot wallet or a cold one?
- Figure out how much you would like to invest in Bitcoin before you make your purchase.
- Develop a long-term plan for your investment.
Where can you buy Bitcoin?
Exchanges and traditional brokers are two ways to buy Bitcoin and other cryptocurrencies.
There are several Cryptocurrency Trading Platforms where you can buy bitcoin from. Some of these exchanges offer dozens of cryptocurrencies to choose from, while others provide only bitcoin and a few alternatives. All of these exchanges have different fees and consumer protections, so you should do your research before purchasing bitcoin.
There aren’t many traditional brokers that offer customers the option of buying and selling bitcoins right now — Robinhood was the first mainstream investment broker to offer bitcoins (Robinhood Crypto is available in most, but not all, states in the U.S.). The Robinhood platform charges no commissions on Bitcoin transactions, just as it does on its stock-trading platform.
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