With the rise of crypto over the years, you may have heard about Bitcoin, the first well-known decentralized currency. And despite the uncertainty surrounding this concept, many are still delving further into the wonders of cryptocurrency.
As a beginner, it’s natural that you feel overwhelmed and confused with how it works, what it does, and how to earn it. But if you’re serious about jumping into the world of Bitcoin, there are some things you should know before investing.
What is Bitcoin, exactly?
Bitcoin is a digital currency developed by Satoshi Nakamoto and was made available to the public in 2009. The goal of Bitcoin is to create a new electronic cash system that involves no third party. That means it operates on a decentralized system with no one person, group, or entity controlling it. Since the owners of Bitcoins are anonymous, people can sell or buy anything without being traced.
What Are The Things You Need To Know About Bitcoin Before Investing?
- The crypto market is volatile
Crypto enthusiasts or not, everyone knows that the crypto market is highly volatile, meaning there is no guarantee that you will see any returns. That’s why before investing in Bitcoin, it is critical that you only splash out on money you are confident enough to lose entirely.
Risk tolerance is the one thing investors should possess. Think about the amount you plan on investing and assess if you will feel emotionally detached from it, whether your assets go up or down. People who fund too much money on Bitcoin face the temptation to ‘panic sell’ when the market goes down. While it can be the right decision sometimes, do sell out of rational and not emotional.
- Purchasing Bitcoin comes with a fee
Even though you see «no transaction fee,» purchasing Bitcoin is still not free. Most businesses that sell Bitcoin make money from a «spread,» which is the distinction between the price they pay for Bitcoin and the price they charge you when purchasing. The fee is often between 1% and 2%. Some websites, including a couple of our favorite bitcoin exchanges, additionally charge a transaction fee. Although you shouldn’t let these costs deter you from purchasing, it is still essential to be mindful of them.
- Timing is crucial
When Bitcoin’s price was soaring, guaranteed you heard more about cryptocurrencies than when it was falling or leveling out. It is because the people and the media have a natural predisposition to follow current trends. But did you realize that repeated market cycles make up the bitcoin industry? These market cycles usually span one to two years, and prices quickly increase, causing large bubbles. These bubbles then suffered a disastrous burst.
That’s why timing in cryptocurrency is crucial, as it can entirely change your journey and your perspective towards it. As a result, the best strategy to invest in Bitcoin is to consider where we are in these market cycles when determining how much money you should put into it when investing.
But note that investing in cryptocurrencies today isn’t a good idea because it gets you started, even though we’re amid price increases. Timing will only alter your entry strategy and the starting amount you had in mind.
Know where to store your Bitcoin
It’s crucial to understand that there are other options besides keeping your Bitcoin where you bought it. For instance, if you purchase Bitcoin on Coinbase, you can keep it in your account, which is an acceptable choice for many people.
However, you can utilize a Bitcoin wallet if you’re concerned about the security of your Bitcoin. You can acquire a wallet in a variety of protective levels. To store your Bitcoin offline, you can utilize a hardware wallet, a customized hard disk that’s not linked to the internet. Such a precaution may not be required if you only sometimes purchase Bitcoin, but it may be wise if you intend to invest thousands of dollars.
Safeguard your passwords
When exchanging cryptocurrencies, they are usually secure from hacks and widespread theft. Many of the Bitcoin held by cryptocurrency exchanges is in cold storage (i.e., it’s not online), and there is usually an insurance policy to prevent theft.
If only your account is compromised, there is little you can do to protect yourself. There is no way to recover stolen money, unlike with a credit card or bank account, if someone steals your password or uses your phone to validate a transaction. Bitcoin is lost the moment it is transferred out of your account. Therefore, it’s crucial to utilize secure passwords and protect your account’s security.
Diversify your investments
Any experienced investor will utilize diversification as a strategy to lessen the significance of luck. It implies that in addition to investing in cryptocurrencies, you will also spread your cash among various other investment vehicles, like gold, stocks, and real estate.
You can also leave some of your money with the bank to earn a tiny interest rate. It’s better not to put all your financial eggs in the bitcoin basket. It would be comparable to martingale roulette. You’ll continue to succeed, but if you fail, all is lost.
Conclusion
The short investment history of bitcoin is marked by extreme price volatility. Your financial situation, investment portfolio, risk tolerance, and investment objectives will influence whether it is a wise investment. So before investing in cryptocurrencies, you should research and always seek advice from a financial expert to be sure it is appropriate for your situation.
