As Bitcoin swings into the mainstream, it’s normal for new investors to wonder, "How much Bitcoin should I buy?" The question arises from the intersection of Bitcoin's volatility and limited supply, and it’s especially common when the price drops dramatically. For example, on June 12, 2022, Bitcoin's price fell to $26,000, down over 70% from its all-time high of $69,000 just six months prior. If you had considered buying Bitcoin before the drop, you may have been unsure whether to proceed with your purchase, wait for prices to drop further, or invest a fraction of the amount you originally planned. After all, what if the next block halving or bull market failed to boost prices as expected? Would you regret your investment? How much Bitcoin should you buy now? These questions can plague new investors and cause them to hesitate or make emotional decisions that counter their goals. This guide will cover navigating bitcoin supply and demand questions and confidently determining how much Bitcoin you should buy (if any) to align with your financial goals and risk tolerance.
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Should You Buy Bitcoin Now as it Nears its All-Time High Again?
Bitcoin remains one of the most popular assets on the market, and it is especially hot right now.
Bitcoin recently enjoyed an impressive rally that has sparked renewed interest. Bitcoin surged from around $25,000 to nearly $74,000 within a few months, approaching its previous all-time high.
Many factors influence Bitcoin’s price, including:
- Market sentiment
- Economic indicators
- Potential regulatory changes
While it’s impossible to predict where Bitcoin’s price will go next, buying at or near an all-time high comes with risks. Assessing personal financial situations and risk tolerance can help mitigate some risks.
What’s Behind Bitcoin’s Rally?
Those who have been trading Bitcoin for years know that BTC is prone to huge swings in price. The recent run has happened before, and it is hardly the biggest.
In its infancy, Bitcoin had some spectacular price runs, like from the end of 2010 through June 2011, when it went from roughly $0.30 to nearly $30. The next year, 2012, began with Bitcoin trading around $13. By November, it had hit $1,000.
Key Catalysts Behind Bitcoin’s Meteoric Rise in Early 2024
The run-up from late 2023 through the beginning of 2024 was impressive and marked a sharp departure from the poor performance of 2022. Bitcoin had risen from $25,000 to nearly $74,000 in a few months. Many factors are at play here, but a few key catalysts likely spurred this last run.
While institutional capital had been entering the market for years, the Securities and Exchange Commission's approval of spot Bitcoin exchange-traded funds (ETFs) greatly expanded access across Wall Street and retail investors. Additional capital flooded in. Blackrock's iShares Bitcoin ETF set a record when it passed $10 billion in assets under management (AUM) just seven weeks after launch. The previous record was set by SPDR's Gold Trust, which took two years to reach the same mark.
What’s Next?
The so-called halving occurred in April. Baked into the Bitcoin algorithm is a feature that reduces the flow of new Bitcoin into the market over time. Every four years, the reward for mining Bitcoin is cut in half until, eventually, in 2140, no more Bitcoin can be mined. If we think of the simple relationship between supply and demand, every time this occurs, supply growth is reduced. If demand stays constant or even increases, prices should rise as well. Each of Bitcoin's halvings has been correlated with a big upswing in the asset's price.
The latest jump is undoubtedly still tied to the previous two factors, but a few more catalysts are at play. Things are looking fairly rosy for the broader economy. It's not perfect, but many believe the Federal Reserve is pulling off a soft landing: curbing inflation without choking the economy and putting fears of a recession to bed.
Why Bitcoin May Thrive Amid Interest Rate Cuts and Shifting Investor Sentiment
The Fed will likely continue cutting interest rates, and many believe that, regardless of which candidate wins the U.S. presidential election in November, a more BTC-friendly regulatory environment will soon emerge.
At the same time, many investors are looking to diversify away from equities further, as some believe the next decade will look very different. Goldman Sachs analysts believe the next 10 years will return an average of just 3%, much lower than the historical norm. Take this with a grain of salt; it wouldn't be the first time a prediction like this turns out to be wrong, but it's certainly possible. An asset like Bitcoin is a great alternative to equities and could provide balance in a diversified portfolio.
How Will Bitcoin Perform Moving Forward?
Bitcoin is likely to outperform the market. Even if Goldman Sachs' report is off-target, Bitcoin will likely outpace the broader market by a long shot. You may not buy some of the more incredible predictions by Bitcoin's evangelists like Cathie Wood, who believes it could top $3.8 million by 2030, but it's not impossible. Bitcoin has earned its place as a legitimate investment asset. As more institutional money pours in, Bitcoin will likely march higher.
You would caution investors nearing retirement. Bitcoin is still a relatively volatile asset and differs from where you want your money if you need a guaranteed income. Bitcoin is a smart choice for investors with more risk tolerance. Buying in when Bitcoin is near all-time highs increases your risk, but it's not reason enough to hold off. As they say, time in the market beats timing the market.
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How Much Bitcoin Should You Buy as a Beginner?
Evaluate Discretionary Income Before Investing in Bitcoin
Before investing in Bitcoin, it is crucial to assess how much discretionary income is available. Discretionary income refers to the amount left over after core expenses, such as food, travel, mortgage payments, utilities, and a 401(k) plan. When determining "how much Bitcoin should you buy?" the chosen amount should not exceed the discretionary income identified.
For example, if an investor has $3,000 worth of monthly income, with $2,000 allocated for core expenses and $500 set aside for savings and a 401(k), this leaves $500 in discretionary income. It wouldn’t be wise to allocate 100% of this amount to Bitcoin. Instead, a more risk-averse strategy would limit investments to a portion of the available discretionary income.
Deploy a Dollar-Cost Average Strategy
A risk-averse way to determine “how much Bitcoin should you buy?” is to wait until the end of each month, perhaps a few days before the next salary deposit. Any disposable income left over can be utilized for Bitcoin. This strategy aligns with dollar-cost averaging, where investments are made on a monthly day rather than injecting one lump sum. Dollar-cost averaging removes the need to time the market and alleviates the risk of being over-exposed to a single cost price.
Understand the Volatility of Bitcoin
Accurately predicting Bitcoin price movements is impossible, but researching historical data and current indicators is important. Bitcoin is a super-volatile asset class. Although dollar-cost averaging can help ride out market volatility, it is essential to consider the risks involved. If investors have invested more than they can afford and need to sell Bitcoin to pay for everyday expenses, this can result in significant losses.
Beginners must be prepared for the emotional effects of Bitcoin's volatility and should avoid panic selling when prices decline. Checking the price of Bitcoin monthly rather than daily can help manage these emotions.
Determine How Much Appetite for Risk is Acceptable
Evaluating risk tolerance is crucial, as no two investors are the same. With Bitcoin's relatively short trading history, investing without considering the risk of loss would be unwise. Many market commentators suggest that the amount of Bitcoin to buy should reflect the money the investor is prepared to lose. Risk mitigation practices should be implemented, linking to dollar-cost averaging and limiting investments to discretionary income.
Buy the Dip to Invest in Bitcoin at a Cheap Entry Price
Many seasoned investors increase their stakes in Bitcoin when the market is bearish. Although Bitcoin has gone through several bear markets, it has always recovered. For example, after peaking at $20,000 in late 2017 and hitting lows of under $4,000 just 12 months later, investors who purchased Bitcoin at that low point made sizable gains when it hit $69,000.
Buying Bitcoin on the dip does require some element of attempting to time the market. It can be combined with a dollar-cost averaging strategy since investments will be made monthly regardless of Bitcoin's trading price.
Your Investment Horizon and Age
Investment strategies can vary based on age and investment horizon. Given the long runway ahead, Bitcoin should constitute a significant portion of younger investors' holdings. Older investors, however, may need to take a different approach, focusing on legacy rather than long-term growth. A measured approach for those looking to leave a legacy may involve a modest allocation to Bitcoin.
How Much Should You Invest in Bitcoin? What the Experts Say
While third-party advice should be taken with a grain of salt, evaluating what industry experts suggest regarding Bitcoin investments can be useful. The general rule is that investors should allocate at most 5% of their overall portfolio to Bitcoin due to its high-risk nature. A balanced portfolio might include more established asset classes. Some experts argue that a higher percentage could be appropriate, with suggestions ranging from 3% to 10% of the overall portfolio for Bitcoin investments.
The decision should be based on personal risk tolerance, long-term financial goals, and comfort with volatility. The most pertinent takeaway is that investors should only utilize discretionary income when making Bitcoin purchases, meaning only investing funds after core expenses have been covered.
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Common Mistakes To Avoid As A Beginner BTC Investor
Don’t Catch the FOMO Bug
New Bitcoin investors often buy into the hype when they should be taking a breath. FOMO, or fear of missing out, drives impulsive buying when Bitcoin prices rise. As a result, the new investors buy at the top of the market cycle.
When prices are correct, the losses can be steep. Scams on Bitcoin platforms are a possible result of FOMO, too. Many investors have been tricked into investing in worthless projects or getting involved in Ponzi schemes because they fear missing out on something big.
Do Your Research Before Buying Bitcoin
You wouldn’t buy a house without doing your homework, right? The same goes for investing in Bitcoin. Beginners should learn about the market before investing. BTC is complex, and applying quantitative methods to it is particularly challenging due to its complex and volatile nature. New investors should familiarize themselves with Bitcoin’s price history, market trends, and other dynamics.
Forget Timing the Market
Trying to time the Bitcoin market is a recipe for disaster. The price of Bitcoin is notoriously volatile and unpredictable. New investors may buy when rates are low and sell when prices increase slightly, which isn’t practical for building wealth.
They may wait to see if prices go down to a certain point or only buy when prices are low. Both strategies can lead to poor performance and missed opportunities. Instead, focus on building a long-term position in Bitcoin and forget about short-term price fluctuations.
Leave Emotions Out of It
The trading world only allows for calculations, not emotions. Decisions should be efficiently made based on facts and figures, ignoring emotions related to certain assets. Sadly, many newly interested people are driven solely by their feelings when they choose their trading options. They may execute a purchase assuming the asset will rise in value or short because it will likely go down.
Don’t Ignore Bitcoin’s Long-Term Potential
Some investors treat Bitcoin as a short-term trading asset rather than a long-term store of value. Due to its scarcity and growing acceptance as a store of value, Bitcoin has been referred to as “digital gold.” Selling too early, driven by short-term price movements, could mean missing out on substantial gains over time. Adopting a “buy and hold” strategyis often more effective if you believe in Bitcoin's long-term potential.
Have a Risk Management Strategy
Another mistake is not having a risk management strategy. Bitcoin can be highly unpredictable. Without a plan to handle downturns, beginner investors might panic-sell when prices drop, leading to losses. Knowing your risk tolerance and using strategies such as stop-loss orders can help you avoid making emotional choices during market fluctuations.
Tips For Beginner Bitcoin Investors
Considering the advice, newcomers can take their first steps on their BTC investing journey without making some of the most common mistakes.
Select Trustworthy Exchange
Picking a premium exchange is of the utmost importance. The makes of all exchanges are of different quality, and some may have security issues or bad service. Try to trade on an exchange, be a registered member of the FinCEN, and have a positive reputation among other users.
Utilize Dollar-Cost Averaging
Another way to counter Bitcoin price volatility’s adverse effects is to use a dollar-cost averaging strategy. This means regularly executing an investment strategy that involves investing a small and constant sum of money that could beat the market timing strategy.
Store Your Bitcoins in a Wallet
Since you have bought Bitcoin, you must store it securely in your wallet. Be aware of the best BTC wallets available in the market and which suits your trading needs.
The security of the Bitcoin wallet is crucial because many instances of hacked exchanges and investment scams result in losses of digital assets. The most critical thing is to keep your private keys safe; thus, no one must ever have a chance to access them.
Regularly Update Yourself On The Market
As a Bitcoin person, consider checking the new developments. Participate in discussions on forums with traders and investors and hold sitting sessions with other enthusiasts. Track Bitcoin exchange rates, prices, trading volume, and other market performance indicators.
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