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How To Start With Bitcoin: A Beginner's Guide To Investing

Education: How To Start With Bitcoin: A Beginner's Guide To Investing

To start with bitcoin, you need to know the basics of the cryptocurrency, its value, and the steps to creating a Bitcoin wallet. Here’s everything you need to know about investing in Bitcoin so you can make smart decisions and maximize your profits.

How to Start Investing in Bitcoin

Bitcoin is the first and largest cryptocurrency to date. Introduced as an alternative to fiat currency, whose value is dependent on policies set by central authorities, #Bitcoin and other cryptocurrencies are free of any kind of central control from financial institutions.

Because it relies on blockchain technology – a digital ledger that records transactions across a peer-to-peer network – bitcoin has neither an intrinsic value nor a physical form. It is also created and used without the need for any intermediaries.

While bitcoin can be used to make purchases, many people around the world use it as an investment option, much in the same way they invest in stocks and bonds. It is considered by holders as a store of value and referred to by its backers as “digital gold”.

If you're new to the world of crypto, it can be a little daunting to get started. But with a little guidance, it shouldn't take you too long to figure out how to start with Bitcoin. In this beginner's guide, we'll go over everything you need to know about investing in Bitcoin. We'll cover how to buy Bitcoins, how to store them safely, and how to invest in the cryptocurrency.

How Much Is Bitcoin Worth?

Following its introduction in 2009, bitcoin's value has risen, fallen, and risen again, reaching a price peak in 2021 when it hit $68,000. As of writing, bitcoin's value hovers somewhere around $52,000 and $54,000, but experts are predicting it could reach $100,000 within 2024 after #halving.

Because of this, more and more newcomers are looking into incorporating crypto into their portfolios. In fact, over half of all Americans who own cryptocurrency purchased it in the last year. This could potentially turn the tide for crypto, which was once seen as a mere “fringe” investment.

What You Should Know Before Investing in Bitcoin

Before you jump into the particulars of investing in Bitcoin, there are a few important things that you should know first, such as what influences Bitcoin's value to other cryptocurrency options out there as well as legal and tax issues you may encounter down the line.

1. Cryptocurrency Is a Volatile Investment

Volatility refers to the extent of and frequency at which an asset or market's value changes. At this point, the whole cryptocurrency market – not just Bitcoin – is still incredibly #volatile. Bitcoin's value can drop tens of thousands of dollars in just one day.

Stock markets are volatile too, due to changes in interest rates, political instability, inflation, and institutional policy changes. Crypto's volatility is particularly influenced primarily by the fact that cryptocurrency has no intrinsic value.

As a speculative asset, bitcoin's value depends largely on public opinion. Even seemingly inconsequential things (such as #Elon Musk's tweets) can cause the value of bitcoin to go up or down.

Several other factors can influence the price of bitcoin, including:

Scarcity

Proponents of Bitcoin believe it has value because Bitcoin has a finite supply. In other words, it's scarce, and scarcity leads to a higher demand for a good or asset.

There are about 19,6 million bitcoins in circulation right now, but minting will stop once 21 million are mined. However, because the number of new bitcoins issued per mined block is halved every few years, we don’t expect to see the end of minting until 2140.

Regulation

Governments around the world are beginning to issue #regulations on cryptocurrencies:

  • In the US, a new infrastructure bill aims to require all cryptocurrency exchanges to notify the IRS of all crypto transactions.
  • In other countries such as #China, Egypt, and Algeria, the use and exchange of crypto have been made illegal.

In light of China's ban, bitcoin's price dropped momentarily.

Mainstream Use

As previously mentioned, public opinion and mainstream use can drive up the price of bitcoin. As more and more people adopt the use of crypto, the value of cryptocurrencies like Bitcoin is only expected to rise.

Coinbase reported 73 million verified users worldwide in 2021. In contrast, the fast-growing crypto exchange only had 13 million users in 2017.

2. Bitcoin Is Just One of Many Digital Currencies

Bitcoin may have been the trailblazer in the world of crypto, but it's hardly the only option out there. There are now over 20,000 cryptocurrencies in existence, with Bitcoin, #Ethereum, #Tether, USD Coin, and Binance being in the top five by market cap.

Ethereum is predicted to become as big as or even bigger than Bitcoin. Whereas Bitcoin has become a popular store of value and risk asset for investors, Ethereum is more of a decentralized computing network with a broad scope of capabilities, such as supporting smart contracts and NFTs. Still, Bitcoin has the highest current market cap at over $1 Trillion – this is more than twice as much as that of Ethereum.

With all that being said, investment advisors all agree on one thing: when it comes to managing volatile assets like crypto, it's best to not put all your eggs into one basket.

3. Know What You're Investing in

Make sure to look into the pros and cons of popular cryptocurrencies before making your move. In other words, do your research. A thorough understanding of risk management and a high risk tolerance are important when you're dealing with volatile assets such as Bitcoin and Ethereum.

Given that cryptocurrency and blockchain technology are still in their infancy, it's hard to tell how the market will evolve. At the moment, only a handful of companies accept bitcoin as a legitimate exchange, such as Xbox, Burger King, #Starbucks, Whole Foods, and luxury vehicle distributor BitCars. Even then, some of these companies only take bitcoin in the form of gift card purchases through third-party sites.

Investing in cryptocurrency doesn't shield you from the risk of theft, either. While security breaches at legitimate crypto exchanges are rare, there are reported cases of fake exchanges where scammers steal money from investors.

Other cryptocurrency scams come in the form of so-called “investment managers” who contact holders out of the blue and promise to help them “grow their money”. Later in the article, we list down some of the most popular crypto exchanges that have been verified as legitimate.

What You Need to Start Investing in Crypto

Before you can start investing in Bitcoin, you'll need a few things first:

  • Identification documents for verification purposes
  • A bank account and your account information ready at hand. Note that most crypto exchanges do not accept credit cards as payment, so you’ll need a linked bank account.
  • A stable and secure internet connection
  • An account at a legitimate cryptocurrency #exchange
  • A cryptocurrency #wallet

We'll explain how you can set up the last two below.

A Step-By-Step Guide to Investing in Bitcoin

Here's what you have to do to start buying and selling Bitcoin:

Step 1: Choose a Cryptocurrency Exchange

Since Bitcoin is an open-source technology, you won't find one official Bitcoin platform where you can buy and sell your virtual money. You can only purchase bitcoin through a crypto exchange, a digital marketplace and trading platform that works similarly to an online stock brokerage.

There are about 600 crypto exchanges around the world. On most of these sites, you can use your fiat currency to buy crypto or trade one cryptocurrency for another. You can also use these platforms to convert your crypto coins into cash.

When choosing a crypto exchange, you'll have to consider the following factors:

  • Available coins: This may not be much of an issue if you're buying Bitcoin, given that it's the most popular crypto coin in the world. But if you're interested in a newer, less popular coin, you may have a harder time finding an exchange that carries it.
  • Storage options: There is a lot of debate in the crypto community about storing your coins in a hosted wallet on the exchange versus storing them in a digital wallet. Many say there are a lot of risks in leaving all your coins in an exchange, from potential hacks to fund mismanagement.
  • Security: Since cryptocurrency doesn't have the backing of central institutions, your funds don't have the same amount of protection as regular money stored in a bank. Bigger exchanges usually have some kind of insurance policy for fraud and cyber-threats.
  • Liquidity: The higher the trade volume is on an exchange, the better your chances are of buying and selling your holdings at a good price.
  • Fees: Crypto exchanges charge fees for transactions such as trades, deposits, withdrawals, and loans.

Here are some popular Bitcoin exchanges you can start with:

Once you pick an exchange, setting up an account is fairly easy. You'll be asked to verify your identity by providing a copy of your ID. Then, you'll be prompted to link your bank account or crypto wallet to the exchange.

Step 2: Set Up Your Cryptocurrency Wallet

A crypto wallet is a digital wallet where you store all your digital currency. It's similar to a bank account, only it holds your crypto assets instead of regular money.

As mentioned, users can store their virtual currencies on their exchange of choice. But if you want something more flexible and secure, you can choose one of the following options:

  • Hot wallet: This is a software-based wallet that can be accessed online, either via a program, web browser extension, or mobile app.
  • Cold wallet: This is a hardware-based wallet that you plug into your computer, usually via USB port. Though they may look like fancy flash drives, cold wallets are encrypted with several layers of security to keep all your virtual money safe and sound.

Crypto wallets are accessed using public and private keys:

  • Public keys are like email addresses – another party needs this to deposit cryptocurrency into your wallet. Public keys don't provide other parties access to your account.
  • A private key acts like a password for the wallet holder. Unlike regular passwords, private keys come in the form of numerical codes or “seed phrases”.

Make sure to write down your private key and keep it somewhere safe – it's next to impossible to recover your assets if you lose your private key or seed phrase. It isn't advisable to take a screenshot of your private key, as hackers may get their hands on this information and gain access to the contents of your wallet.

Once your wallet is set up, you'll have to link a payment method before you can make a purchase. You can typically link a bank account, #PayPal account, or Apple Pay account to most crypto wallets. Credit card payments are typically not accepted for crypto purchases

Step 3: Make Your First Purchase

Congratulations, you're ready to place your first Bitcoin order! If you've purchased stocks through an online broker before, the process is fairly similar – you select the coin you're interested in purchasing (in this case, bitcoin) and indicate how much you're willing to spend.

Of course, the process will vary to some degree from exchange to exchange. Some crypto exchanges are simple enough – just click a “buy” or “sell” button, then indicate the amount of currency you want to exchange.

Other platforms allow you to make different types of orders, including (but not limited to) market orders, limit orders, and stop orders:

  • A market order allows you to buy bitcoin immediately at the market's current best price.
  • A limit order lets you buy or sell Bitcoin at a set price. Limit orders are done to limit price risks.
  • A stop order is a market order that is only placed when a given price condition is met.

Step 4: Manage Your Bitcoin Investments

You have several options for managing your cryptocurrency investments.

  • Buy and hold: Arguably the most common investment strategy, this involves holding onto your Bitcoin and waiting for it to appreciate. Many investors only dedicate a small percentage of their portfolio to their crypto assets and invest larger amounts in more traditional options such as stocks and bonds.
  • Participate in day trading: Day trading is a high-risk strategy that involves buying and selling crypto on the same day to make a profit. If you want to get into day trading, you'll need extensive knowledge of the crypto market, trading simulator software, and stock screening tools.
  • Purchase other digital assets: NFTs are the second-most popular digital assets right now next to crypto coins, and more and more people are looking to get into the #NFT market as an investment strategy. Most NFTs are built on the Ethereum network and purchased with ETH coins. If you want to get into NFTs, you can always exchange your BTC for #ETH.

The Pros and Cons of Investing in Bitcoin

To sum up our guide, let's review the advantages and disadvantages of investing in Bitcoin:

Bitcoin Investing Pros

  • Trading bitcoin requires no licenses or certificates, unlike traditional stock trading. Joining a crypto exchange is relatively easy, as long as you have ID documents, a bank account, and a stable connection.
  • As a decentralized digital currency, Bitcoin is not vulnerable to forces such as inflation, geopolitical instability, and policy changes.
  • Trading bitcoins can generate great returns – if you play your cards right and do your due diligence.
  • Bitcoin is the most popular coin on the market, with a market price expected to reach $100,000 in the near future. As crypto becomes more mainstream, the value of bitcoin is expected to rise.

Bitcoin Investing Cons

  • Bitcoin, like any cryptocurrency, is highly volatile and comes with risks. As a speculative asset, bitcoin's value is particularly affected by public opinion.
  • Given that it is a #digital asset, trading in bitcoin makes you more vulnerable to cybersecurity threats such as hacks and online fraud.
  • Bitcoin has a lot of competitors right now, some of which offer more flexibility and emerging technologies like NFTs and #DeFi protocols.
  • Governments around the world are beginning to crack down on cryptocurrencies with regulatory policies and capital gains taxes.

Whether bitcoin is a good investment depends on who you ask. Some people believe that the digital currency is nothing more than a speculative bubble waiting to burst, while others are convinced that it’s only going to become more and more valuable in the years to come.

The Bottom Line

It’s important to remember that like any other investment, there are risks involved with Bitcoin, and not everyone will see a return on their investment. However, if you take the time to learn about Bitcoin and how it works, you may find that it’s a great way to bolster your portfolio and protect yourself against economic downturns.

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