So, you’ve heard your friends chatting excitedly about bitcoin or perhaps the idea of including it in your investment portfolio has crossed your mind. After all, the allure of cryptocurrency is more palpable than ever, enticing many with its potential for high returns and unique advantages. Let’s dive into the intriguing world of bitcoin investing and explore how you can embark on your journey.
What is Bitcoin, and How Does It Work?
Bitcoin was launched in 2009 as the first widely accepted cryptocurrency. In essence, cryptocurrencies are decentralized digital assets, allowing users to send, receive, and store value using the blockchain—a secure, shared, immutable ledger.
At its core, bitcoin utilizes cryptography to provide security and verify transactions, ensuring that users can transfer their assets without depending on traditional financial institutions. While bitcoin can experience significant price fluctuations, it has historically outperformed many traditional assets over extended periods.
Though it can act like currency as a store of value, remember that bitcoin is entirely digital. You won’t be handing over a physical bitcoin at the grocery store just yet!
Should You Invest in Bitcoin?
Investing in bitcoin presents the possibility of high returns. Moreover, it serves as a vehicle for portfolio diversification. Dr. Joe Duarte, author of “Cryptocurrency 101,” suggests that now is a prime time to enter the crypto market.
With recent price declines in major cryptocurrencies, like bitcoin, investors can buy in at more favorable rates. Additionally, cryptocurrency exchange-traded funds (ETFs) have become increasingly accessible, allowing one to gain exposure to crypto without actually owning it outright.
Beyond holding bitcoin as an investment, it can also be used for transactional purposes. Various major retailers accept bitcoin for goods and services, whether that’s for an online purchase or even in-game items for avid gamers. If you are a small business owner, you can use bitcoin to facilitate payments from international clients efficiently.
How Does Bitcoin Serve Your Financial Goals?
Investing in assets like stocks and bonds usually requires introspection regarding financial goals—and the same holds true for cryptocurrency. Consider asking yourself:
- Are you aiming for short-term gains or long-term wealth accumulation?
- Will your crypto investments focus more on speculative ventures or generating income?
- What is your comfort level with risk?
- How does bitcoin fit into your overall investment strategy?
Due to its notorious volatility, many advisors recommend that your cryptocurrency investments should comprise no more than 5% of your total portfolio. For added safety, you could begin with an even smaller proportion, only investing disposable income you are comfortable losing.
How to Start Investing in Bitcoin
If you’re prepared to venture into bitcoin investing, several avenues are available: centralized exchanges, financial apps, and brokerage platforms. Let’s break down the steps to guide you through the process.
1. Choose a Crypto Exchange
For newcomers, crypto exchanges are the easiest way to buy bitcoin. These platforms operate similarly to stock exchanges, each with its own rules governing transactions.
When selecting an exchange, pay attention to its services, user-friendliness, fee structures, security protocols, and customer support. Some exchanges also offer educational resources like tutorials and market analysis to help you make informed decisions.
Before committing, Duarte advises doing your homework to ensure you clearly understand the risks and benefits and have defined goals for your crypto investments.
2. Create an Account
Setting up an account is akin to opening a traditional bank or investment account. You will generally provide basic personal information and undergo identity verification.
Next, you’ll link a payment method, such as a bank account, debit card, or wire transfer, to facilitate transactions.
3. Place a Trade
Once your account is active, select bitcoin from the list of cryptocurrencies and enter the amount you’d like to purchase. You’ll choose an order type—options include market orders, limit orders, or stop-loss orders—before confirming your trade.
Keep in mind that bitcoin is often high in price, but exchanges allow you to purchase fractional amounts. You can generally invest less than $10 to get started.
4. Choose Between a Custodial and Non-Custodial Crypto Wallet
After purchasing bitcoin, you’ll need to decide how to store it: in a custodial or non-custodial wallet.
Crypto wallets do not physically store bitcoin; rather, they hold your private key, an alphanumeric code that proves ownership and grants access to your funds. In a custodial wallet, the exchange manages your private keys, offering the advantage of recovering funds if you forget your password. Conversely, a non-custodial wallet gives you complete control over your private key and crypto assets.
FAQs
Is $100 enough to start investing in bitcoin?
Yes, $100 is a sufficient amount to start investing in bitcoin or other cryptocurrencies, as you can buy fractions of bitcoin for less than $10.
How much money should I invest in crypto as a beginner?
Beginners should limit their exposure to crypto investments to no more than 5% of their overall portfolio. Due to the high volatility of cryptocurrencies, only invest what you are comfortable potentially losing.
Should beginners invest in bitcoin?
Yes, beginners can certainly invest in bitcoin. However, if you are entirely new to investing, it is advisable to start with more stable investment options such as retirement accounts, building a portfolio before venturing into cryptocurrency.
Created by the Commerce team at Business Insider with SoFi Crypto.
