Bitcoin is known as many things to many people: a passing fad, the future of currency, a brilliant digital innovation, even vaporware. But to savvy investors, it’s above all the best-performing asset of the past decade.
If you’re considering investing in bitcoin but haven’t taken the plunge yet, you likely have questions:
- What crucial information should I know before investing in bitcoin?
- Which exchange is best for purchasing it?
- How do I securely store my bitcoin and what are “wallets”?
- Lastly, how should I manage my bitcoin investment?
In this guide, we’ll tackle these questions and more to provide insight into how to invest in bitcoin.
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4 Things to Know Before Investing in Bitcoin
Investing in bitcoin, like any other investment, demands understanding what you’re getting into. While the potential gains are appealing, the risks should not be disregarded.
- Bitcoin Is Still a Volatile, High-Risk Investment Bitcoin’s value has surged overall, but the journey has been turbulent. For example, compare the performance of the Vanguard S&P 500 ETF (VOO), a relatively stable investment, to bitcoin over the past five years. Bitcoin’s peaks and valleys are more extreme, emphasizing its volatility.
- Buying Bitcoin Isn’t the Only Way to Invest If you believe in the concept of Bitcoin but want less risk exposure or prefer not to manage cryptocurrency directly, consider bitcoin ETFs. Additionally, you can invest in blockchain technology, the backbone of Bitcoin.
- Bitcoin Isn’t the Only Crypto to Consider Ethereum, for instance, offers innovations beyond Bitcoin, making it an appealing alternative for some investors. Diversifying your portfolio with multiple cryptocurrencies can add a layer of risk management.
- Bitcoin Profits Are Subject to Capital Gains Taxes The IRS treats crypto gains as taxable income. Recent regulations require cryptocurrency exchanges to report transactions. Stay informed about your tax obligations.
How to Invest in Bitcoin
Step 1: Choose a Crypto Exchange or Platform
Select a reputable exchange that prioritizes safety, convenience, and competitive fees. For beginners, Coinbase is user-friendly and offers educational resources. Binance.US and eToro are suitable for more advanced traders.
Step 2: Connect Your Bank Account to the Exchange
Link your bank account to your chosen exchange for funding. Note that purchasing with a credit card isn’t commonly supported due to high fees and complications.
Step 3: Place an Order
Initiate your first bitcoin purchase through the exchange’s platform. Consider your risk tolerance and start with a small investment.
Step 4: Store Your Bitcoin
Decide between a “hot wallet” (online) or “cold wallet” (offline) to store your private keys. While hot wallets offer convenience, cold wallets provide enhanced security.
Step 5: Manage Your Bitcoin Investment
Whether you adopt a buy-and-hold strategy or make regular trades, managing your bitcoin investment requires careful consideration of your goals and risk tolerance.
Bottom Line
Investing in bitcoin demands informed decisions. This guide has provided insights into essential aspects of investing, from understanding bitcoin’s volatility to choosing a suitable exchange and managing your investment strategy. By following these steps and staying educated, you can invest in bitcoin both efficiently and prudently.