Floated in 2009 as replacement to the regular cryptocurrencies, Bitcoin did not receive much power until late 2017 when it virtually beaten the $20,000 price barrier. However, the inauguration of the requisite regulatory legislation has been a major hindrance in the last few years coupled with the enormous fluctuations in the coin’s price. In spite of this, Bitcoin recorded an all-time-high of about $69,000 toward the end of November 2021.
Although, Bitcoin may be a decentralized blockchain network that relies on a proof-of-work consensus mechanism to authorize transactions. it transactions are immutable and cannot be modified or deleted without consensus. Individuals who participate in the authorisation and verification process are rewarded with BTC tokens. The total supply is capped at 21 million Bitcoins.
This write up is a guide for potential Bitcoin investors whether corporate or individual, expert or newbie. Whether it is for short or long-term There are several ways to invest in Bitcoin and other cryptocurrencies but for the purpose of this write up, four will be discussed.
Investing In Bitcoin Through An Exchange
The first method of investing in Bitcoin especially for the long-term, is to buy through a cryptocurrency exchange. A crypto exchange are digital platforms where you can purchase BTC coins at first hand for the purpose of retaining and selling through the same crypto exchange at a later time usually when Bitcoin value has appreciated.
Because of Bitcoin specialized digital technology, it requires a compatible digital wallets where the Bitcoin is held. There are basically two types of digital wallets for storing Bitcoin: Hardware and Software Wallets.
Hardware Wallets: Are physical devices like flash drives and contain hardware that detaches them completely from the external world. This implies that they cannot be invaded by any network and your exclusive key is offline. That’s why hardware or cold wallets are the safest way to keep bitcoin and other cryptocurrencies. Trezor and Ledger Nano S have been named as the top two Bitcoin wallets.
Software Wallets: As the name implies, software wallets are our familiar websites, web apps, and desktop applications. As opposed to the hardware wallets, they offer less security in comparison to hardware wallets but are more convenient to use and make Bitcoin tokens more accessible for trading. Some of the leading software wallets for holding Bitcoin are Coinbase, Atomic Wallet, Edge, and Exodus.
Purchase Some Fractions of Bitcoin Through An Exchange
Numerous potential investors who are new to the terrain of Bitcoin and other cryptocurrencies demoralized by its unusual high price. For example, as at the time of penning this article, a single BTC token is valued at more than $34,000, which means that there will not be many people who could afford to invest in an entire Bitcoin token. But there is a way out.
For instance, the smallest unit of Bitcoin is referred to as ‘Satoshi’, which is equal to 0.00000001 BTC. With the current price of Bitcoin and considering its high price volatility, this amount is worth less than a penny; this implies that you can actually invest in smaller affordable units.
All that is required is to pick your preferred Bitcoin exchange, sign up on the exchange and follow through with the registration process. Then invest in Bitcoin according to your financial requirements.
Trading Bitcoin Through A Broker
The third way to invest in Bitcoin is through the use of Cryptocurrency brokers, Cryptocurrency brokers are also digital platforms, but unlike Bitcoin exchanges, they do not sell Bitcoin or other cryptocurrencies directly.
Rather, they allow you to invest in the token of your choice by forecasting about their pricing. This is accomplished through a wide range of financial instruments, the most popular of which is Contract for Difference or CFD. Other instruments include options, futures, and ETFs.
Bitcoin brokers provides a better option for short-term investors who just want to take advantage of the price volatility that is not offered by other fiat currencies like (forex). One other advantage of investing through a broker is that you do not require a Bitcoin wallet to manage your BTC tokens.
Invest In A Bitcoin ETF
The fourth way to invest in Bitcoin is through an ETF (Exchange Traded Fund). This is a financial instrument that packages a variety of stocks and other digital assets in order to minimise trading risk.
ETFs are built and sustained by deliberately choosing those assets that are likely to perform well in the future based on their historical performance, market indicators, and other factors. The idea of an ETF is to ensure that your investment has a very high probability of accruing a net positive i.e. profit.
Having enumerated the various ways of investing in Bitcoin, the article will proceed to highlight some Bitcoin investment strategies. Just like every other investments strategies. Bitcoin investment also has its own strategies and three major ones will considered.
Bitcoin Investment Strategies
Buy And ‘Hodl’
The word ‘HODL’ derives from a frustrated and drunk Bitcoin investor who went on to unload his long rant on the internet in 2013 when Bitcoin had not a major contender.
The investor pledged that despite the original cryptocurrency not gaining traction at the time, he will continue to ‘hodl’ onto it since he believed in the idea of the decentralised blockchain and peer-to-peer currency network which will replace fiat currencies.
Therefore, Buy and ‘hold’ generally means that you believe in the long-term success and performance of the Bitcoin project as well as the BTC token. That is why you invest in BTC and continue to hold it for months, even years before it sold off to realise your utmost profit.
Some of the major benefits of this investment strategy are that; major profits are realized in the future through investing in BTC long-term, the worries of day-to-day price volatility are eliminated and demonstration of support for the vision.
The Use of Trading Bots
Another good strategy for investing in Bitcoin is employing a trading bot. A trading bot is an automatic software that opens and closes trading positions on your behalf.
All that is required is to specify certain limits and restrictions, so it operates within those guidelines. Most trading bots depend on economic and financial models as well as algorithms that are integrated along with artificial intelligence to make accurate and precise predictions. Moreover, bots also have the ability to open and close positions within a fraction of a second to maximise profits.
The use of a trading bot for bitcoin have a number of advantages which include the following: (a) It is the most user-friendly way of investing in bitcoin especially for first-timers traders and investors. (b) It makes investment and trading of cryptocurrencies more inclusive. (c) It comes with an array of features including accurate predictions, a quick way to open and close positions, data and analytics, and many more.
Hedging or shutting in of Bitcoin or the other cryptocurrencies involves opening trading positions that strategically cover the gain or loss of another position. One can use shorting, CFDs, and futures to hedge one’s Bitcoin investment.
Since the rise of Bitcoin, the token has also become a major asset class that is competing with conventional assets like gold and stocks. This implies that traders and investors are now looking to secure their trading positions to ensure they do not lose their capital.
Therefore, several benefits of hedging bitcoin which namely; making sure that your original trading position does not result in any financial loss, helping to manage your risk in order to maximise your profit potential with no downside and covering the price volatility of Bitcoin for better profitability.
Before Investing in Bitcoin
Like every other investments processes, there are a few things to consider before investing in Bitcoin, it important to have the necessary information on major factors that impact pricing and investment decisions. Listed below are a number of the key factors:
The very first factor to keep in mind is the transactional costs which include a variety of fees and charges. If you are using an exchange, it implies that you are directly buying Bitcoin tokens which will incur a network fee.
For instance, Bitcoin’s average transaction fee is close to $7.00 per transaction. This can be impacted by the demand and price of the BTC token. Apart from that, the exchange may require you to pay a fee for their services, including deposit and withdrawal charges, wallet fee, and inactivity charges.
Conversely, if you are investing through a broker or buying a financial instrument to bet on the BTC price, there is no payment for the network fee. However, you will need to cover the cost of commission, transaction charges, deposit and withdrawal fee and other requisite fees.
In addition, remember that the bank or your payment processor may also remove their service charges. This is why it is important to employ an investment strategy that takes care of all your costs while returning a healthy profit margin.
Just like other asset class, Bitcoin also comes with its own set of risks. As a relatively new digital asset, there is need to ensure that risks involved are effectively managed.
Some of the major risks of Bitcoin investment include the following:
Market and price volatility: This is most unpredictable aspect of Bitcoin investment, the price can change overnight. However, you can contain it by hedging your investment in Bitcoin through ETFs or investing in different tokens that show promise.
Lack of regulatory oversight: This is another risk can result in financial loss or even fraud. To rise above it, use exchanges or brokers that adhere to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations to safeguard your data and funds.
Summary of Investing in Bitcoin
If you are interested in investing in Bitcoin, there are several effective ways to go about it. Every investment method has its own upsides and downsides, and you need to evaluate your investment objectives, strategies, accessible capital, and available time to identify the best possible investment method. This will allow you to leverage your time and financial resources in the most effective manner so you can optimize your returns.