2017 started with a bang as Bitcoin shot through the $2588.75 mark with no signs of slowing down. As a result people are asking one very simple question: “Should I invest in Bitcoin?”
Before we begin, I want to get something out of the way – Bitcoin is not a company or a stock, it’s a currency. So when you want to invest in Bitcoin you are basically buying the currency. However, there are also some other forms of investing in Bitcoin.
What does it mean to invest in Bitcoin?
In order to answer this question the first thing you need to answer is what do you mean when you say you want to invest in Bitcoin. Do you want to buy the currency in hopes it will appreciate it value? Do you want to invest in Bitcoin related companies? Are you looking to day trade with Bitcoins?
Buying and holding
The most common form of “investing” in Bitcoin is buying the currency in hopes it will appreciate in value. If this is the case then you need to decide for yourself if you think this is a good time to buy. Meaning, do you think the price will continue to rise.
Don’t take anyone’s advice about what will happen with the currency, do your homework, learn about Bitcoin and come to a conclusion. Personally I believe we are just starting, but that’s my own opinion and you shouldn’t consider that as investment advice as well.
A few pointers for buying and holding Bitcoins:
- Never invest more than you are willing/able to lose – Bitcoin is a very risky investment and you should keep in that in mind at all times.
- After buying Bitcoins make sure to move them into your own personal wallet and never leave them at the exchange. My personal recommendation is to use a hardware wallet to store your Bitcoins. If you can’t afford a hardware wallet, try a paper wallet.
- Make sure to buy Bitcoins only from exchanges that have proven their reputation.
- Buy Bitcoins through Dollar cost averaging – This means that you don’t buy all of your Bitcoins in one trade but instead buy a fixed amount every month, week or even day throughout the year. This way you average the price over the course of a whole year.
Trading in Bitcoins
Bitcoin trading is different than buying and holding. When you are trading Bitcoins it means that you are actively trying to buy Bitcoins at a low price and sell them back at a higher price in relatively short time interval. Trading successfully requires knowledge and practice. The trading market is occupied by very large players who are just waiting for newbies to come in and throw their money away by trading aimlessly.
Investing in Bitcoin mining
Some people would like to invest their money into mining Bitcoin. For the past few years mining Bitcoin is only profitable if done at large scales. This means you will need to get expensive mining equipment and hopefully have access to free electricity. Also it’s usually much more cost effective to buy Bitcoins with this money instead of using it to buy mining equipment.
Some of you may have heard of all sorts of sites that allow you to mine Bitcoins through them. This is known as cloud mining and these sites fall into one out of two categories:
- They are complete scams that will run away with your money and don’t actually use it to mine Bitcoin.
- They are not scams, but they are bad investments since you will probably get more Bitcoins if you just use that money to buy Bitcoins instead of paying the site.
So should you invest in Bitcoin?
By now you can probably see that the answer isn’t that simple. It’s not just a matter of should you invest, but also a matter of how to invest. Like I said in the beginning, start by educating yourself. Learn about the currency, what affects it, what are its advantages and disadvantages, etc.
After you feel you’ve acquired some basic education it’s time to answer this question. REMEMBER – only you can answer this. You can consult others and read online but never follow someone’s advice blindly.
A version of this article first appeared on 99bitcoins.