Meta Title: Bitcoin Investment Basics: A Step-by-Step Guide for Beginners
Meta Description: Get to know the advantages of investing in Bitcoin, strategies for investment, and associated risks.
Bitcoin was the first cryptocurrency ever created. It was launched in 2009 amid the financial crisis that shook the world economies. The goal of Bitcoin is to decentralize the financial system, creating a functional network of participants without a central authority. This way, the system expects to overcome the issues that gave way to the economic crisis in the late 2000s.
The crypto market has grown a lot from that point. Now there are multiple alternative coins, with varying degrees of centralization and particular goals. However, Bitcoin is still the leading cryptocurrency in the market and one of the wisest investments. The best way to enter the crypto markets is to buy Bitcoin on the available exchanges.
Why Should You Invest in Bitcoin?
BTC offers many advantages to new investors, and it’s probably one of the safest options among cryptocurrencies.
- Hedge against inflation: Unlike fiat currencies, Bitcoin can serve as a store of value, because it is not prone to inflation. The protocol establishes a preset emission rate and finite supply. This means that no central authority can decide to create more BTC at any given point, as is the case with fiat.
- Transparent and secure: Blockchains are, by nature, open and transparent. Anyone, with the help of a blockchain explorer, can check transactions and wallet addresses. That, paired with the robust technology of the network, makes it the most secure crypto in the ecosystem.
- Growing adoption: Bitcoin is far from the days when it was considered a tool for illicit activities. Over the years, the value of BTC has kept growing steadily, and now we can find futures markets, ETFs, and other traditional financial instruments adopting BTC. Merchants around the world have also adopted cryptocurrencies, and especially Bitcoin, as a payment method, namely for cross-border transactions.
- Potential for high returns: All these factors mean that Bitcoin is a solid asset with a high return on investment. While BTC is still volatile, it tends to yield gains yearly, so it is valuable as a long-term investment.
4 Strategies for New Bitcoin Investors
There are different strategies to make gains investing in Bitcoin. Most of them have been adopted from traditional market dynamics, and some have been modified and even renamed throughout Bitcoin’s history.
Thanks to Bitcoin dominance and its position in the market, the price of BTC is usually followed by other coins.
Long-Term Holding (HODLing)
HODL is part of the crypto jargon, and it is a popular investment strategy that has many advocates and followers. It originated in 2013 on a BitcoinTalk forum, where a user stated he was hodling. That means that, despite the market crashing, he was not going to sell, but rather holding onto his BTC in hopes of future gains. Hodlers nowadays keep purchasing BTC anytime they can, but rarely sell them, whether the price is going up or down.
Regular Buying through Dollar-Cost Averaging (DCA)
Dollar-cost averaging (DCA) is a strategy to make small, albeit regular, purchases of an asset. This way, investors can get a larger share of coins over a long period of time. DCA takes advantage of low prices and makes gains at high prices as well. While investing during bear markets is the best way to maximize gains, it’s impossible to know when the perfect moment will come. Regular buying of BTC can be particularly rewarding since the coin tends to follow a positive trend year-on-year.
Swing Trading
Swing trading is a strategy where an investor buys an asset and holds it for a period of time. After a few days or weeks, when the price has changed, it is sold to make gains. Swing trading is a more active strategy, unlike the previously reviewed ones. It requires investors to keep an eye on the price at all times and understand the climate of general market trends. However, it takes advantage of high volatility, either in bull or bear markets.
Day Trading
Day trading takes a step forward from swing trading strategies. Instead of holding for a few days or weeks, day traders buy and sell on the same day. This way, they take advantage of rapid price movements. While it can be highly rewarding, it also demands more attention from the investor, and it can potentially generate losses.
Risks of Bitcoin Investing
Investing in Bitcoin does not come without risk. As with any asset, there are some factors that need to be taken into account before deciding to make an investment.
- Volatility: Bitcoin has a low volatility relative to the rest of the market, but it’s still more volatile than traditional assets. The general market sentiment must be taken into account before investing, and it’s important to understand that the price can plummet at any time.
- Unsafe storing: Since Bitcoin is decentralized, there is no central authority safeguarding the coins. If an exchange wallet is compromised, the owner is likely to lose all the funds. For this reason, it’s important to learn how Bitcoin and Bitcoin wallets work beforehand and only use proven options.
- Forks and governance issues: Decentralization, again, can result in negative outcomes. Since all nodes must agree on network updates, there have been cases where this agreement does not happen. That causes the network to split, and results in the creation of Bitcoin forks, like Bitcoin Cash, Bitcoin SV, or Bitcoin Gold. These coins can potentially cause BTC to lose value and generate tension in the market.
The Bottom Line
Bitcoin doesn’t come without risks, like any other asset. However, it can lead to large gains if investors make informed decisions and understand the market well before jumping in. It’s important to know the fundamentals of the technology and learn how the asset behaves in response to different stimuli. Also, it’s good to know a few strategies since some are more appropriate for particular times and market trends. In the end, the best advice is to do your own research and make moderate investments without compromising the totality of your assets.
