Bitcoin has evolved from a digital curiosity into a legitimate asset class. Yet, despite its newfound status, the price of Bitcoin remains volatile. If you’re thinking about investing in Bitcoin, it can be challenging to figure out the best way to invest in Bitcoin. For example, should you invest now or wait for a potential dip? How much should you invest? What’s the best platform for buying Bitcoin? What is bitcoin supply and demand, and how can it be leveraged? Answering these questions can help you effectively plan your Bitcoin investment strategy. This article will help you confidently choose the most effective investment strategy for Bitcoin, optimize your returns, and manage risks wisely.
One valuable tool to help you achieve your Bitcoin investment goals is Bitcoin Magazine Pro's solution, Bitcoin analysis. This resource helps you make sense of Bitcoin's price movements so you can make informed decisions about when to buy, sell, and hold.
Is Bitcoin a Good Investment?
To know whether Bitcoin is a good investment or not, you need to understand a little about what Bitcoin is. Investing in something you know very little about is always a good idea. Always research and talk to a financial advisor before investing. Put simply, Bitcoin is a digital currency. It is money that is online. Like the money we use daily, you can use Bitcoin to buy, sell, and trade with other people. When you buy Bitcoin ( show you how to do the “How to invest in Bitcoin?” section below), you store it in a digital wallet. You can then send Bitcoin from your digital wallet to other people’s digital wallets, just like a bank transfer.
This is called a Bitcoin transaction. All transactions are stored on the Bitcoin blockchain, a technology that keeps your Bitcoins safe from hackers. The purpose of Bitcoin is to remove the need for a single company (banks, PayPal, etc.) to control your money. Instead, with Bitcoin, you have full control. All Bitcoin transactions are confirmed on a trustless shared network that no one owns.
Bitcoin Investment History
As mentioned above, Bitcoin has proved one of the best investments in the past 10 years. Although many people have doubted Bitcoin, it has continued to rise year after year. Let’s look at how Bitcoin has grown since its creation in 2009:
The Birth of Bitcoin
Bitcoin was first bought in 2010 at around $0.06. Yes, that’s right. $0.06 cheaper than a chocolate bar. If you had $20 to invest in Bitcoin in 2010, you could have bought 333 Bitcoins. Those 333 Bitcoins would now be worth over $3.7 Million. Bet you wish you knew how to invest in Bitcoin then, right?
2011
Bitcoin grew steadily in 2010 and started 2011 at around $0.30. Towards the end of 2011, it was worth around $6.10. That’s a total increase of over 2000%. This time, Bitcoin was used to buy illegal things online through the “Dark Web.”
Note: Bitcoin transactions are anonymous, which allows people to be anonymous when paying in Bitcoin. Silk Road was The most common website for selling illegal things online for Bitcoin. As you can imagine, the Silk Road ended badly for its creator.
2013
This was the year of “Bitcoin accepted here.” Businesses started to accept Bitcoin as a payment option, and Bitcoin reached a total market cap of $1 billion. By the end of 2013, one Bitcoin was worth around $817.
Market Cap: Bitcoin’s market cap is the total price of all Bitcoins.
2014
As for the price, 2014 wasn’t a great year to know how to invest in Bitcoin. The price of Bitcoin had dropped to $300 by the end of the year. This was the year that Microsoft started to accept Bitcoin payments. You could now use Bitcoin to buy Xbox games, apps, and videos from Microsoft.
2017
Without a doubt, 2017 was the year that Bitcoin exploded. Wall Street and large investment banks started to invest in Bitcoin. Many people began following Bitcoin, and it became on the news daily. The price of Bitcoin went high, starting at around $985 and rising to nearly $20,000. As you can see, investing in Bitcoin has made many people rich.
That being said, though, it is important that you understand the pros and cons of a Bitcoin investment. Before we explain how to invest in Bitcoin, let’s look at the advantages and disadvantages.
The Advantages of Investing in Bitcoin
There Will Only Ever Be 21 Million Bitcoins Created
What does this mean to you? Well, think about it. The more popular Bitcoin becomes, the more people want to buy it. If no more Bitcoins are created, then the demand will continue to rise for each Bitcoin, increasing the price.
Huge Returns on Investment
As the timeline above shows, Bitcoin can offer a unique return on investment.
Easy to Invest
Bitcoin is easy to invest in. You can buy and sell it whenever you want. You do not have to sign an agreement; you can do it all yourself!
Bitcoin’s Uses
Bitcoin has many great uses. Here are some reasons why some people would prefer to use Bitcoin over the traditional banking system: It allows people to send money to each other easily, and it is much quicker and cheaper to send international payments.
People have control over their money instead of the banks having control. Its anonymous transactions mean that people have privacy.
The Disadvantages of Investing in Bitcoin
Volatile
(The Price Is Always Changing In Huge Ways). When investing in Bitcoin, you must always consider the cons. The price of Bitcoin changes all the time. However, these aren’t just small changes. For example, after Bitcoin hit its highest price of $19,839 on the 17th of December 2017, it dropped to $12,015 on the 22nd of December. That’s a total loss of $7,824 in just 5 days.
Government Regulations
You might be wondering, “But why?” Well, Bitcoin’s anonymous transactions could cause huge problems for local governments. Bitcoin allows illegal activities to be paid for online without ID, and people and businesses could use Bitcoin to avoid taxes.
Limited Scaling
Currently, Bitcoin can only handle 3 to 7 transactions per second. So, as it becomes more popular, the time it takes for the Bitcoin network to verify a transaction becomes longer. If this problem isn’t fixed soon, the fees to send Bitcoins will increase, as will the time. You may wonder how to invest in Bitcoin, but you should invest in Bitcoin. It seems that the inventor of Bitcoin (Satoshi Nakamoto) didn’t think about this becoming a problem in the future.
Lack of Security
Because a single company doesn’t control Bitcoin, there is no help if you make an error. For example, if you forget the “password” to your Bitcoin wallet, there is no company to contact to reset your password. You might be asking, “But what happens if you accidentally send your Bitcoins to the wrong place?” well, the simple answer is that your Bitcoins will be gone forever.
Short-Term Investment or Long-Term Investment?
Should you invest in Bitcoin for the long term or the short term? Well, if you look at the growth of Bitcoin over the past 5 years, it’s clear that holding Bitcoin for the long term seems like the best option. Before you learn how to invest in Bitcoin, it's important that you have a clear strategy in mind when it comes to your investment. Let’s help you better understand what will work best for you, shall we?
Short-term Investing Minutes, Days, Weeks
Short-term investing can require a lot of your time and can be very stressful when the prices don’t go your way (you lose money). When things go your way, you can make quick money and have fun doing it. You would only recommend short-term investing for those prepared to spend much time analyzing charts and doing market research.
The price of Bitcoin moves up and down very quickly, so you must always oversee the charts and have a solid plan. You highly recommend not starting short-term investing without any training and always talking to a financial advisor before investing.
Long-term Investing (or HODLing)
One year+ “HODL” Hold On for Dear Life. This term is used in the Bitcoin world all the time. Put simply, it means to hold on to your investments. Not only has a long-term holding of Bitcoin been the best way to make a profit over the last 5 years, but it’s also the easiest.
Instead of sitting at your computer all day analyzing charts, you can sit back, relax, and wait for the price of Bitcoin to rise. But remember: never invest an amount you cannot afford to lose. No investment is guaranteed. By now, you should have a good idea of whether or not you want to invest.
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What is the Best Way to Invest in Bitcoin?
Passive Bitcoin Investing: The ‘Hodl’ Strategy
Passive investment strategies are common among Bitcoin investors. Those who employ passive strategies buy Bitcoin and hold it long-term, hoping its value appreciates over time. Bitcoin is incredibly volatile, and its price can swing dramatically quickly. While this can be worrisome for investors, the safest way to ride, the volatility is often to “hodl” (hold on for dear life) until the price increases to an acceptable level.
If you bought Bitcoin at $30,000 and the price suddenly jumped to $40,000, you’d likely be satisfied with a $10,000 return on your investment and sell. If you had instead opted to sell on the way to $40,000, you might have been unsettled by the volatility and sold at a loss of $28,000 instead. Passive investors avoid the panic of price volatility by simply holding until they reach their desired return.
Active Bitcoin Investing
Long and Short Positions Active investing strategies are the opposite of passive strategies. Active investors thrive on Bitcoin’s volatility and use it to make quick returns. Instead of buying Bitcoin and holding it for a long time, active investors buy, sell, and trade Bitcoin regularly to generate profit. They buy Bitcoin when they perceive the price is low and sell when they think it is high. Investors pursuing a long position wait for Bitcoin’s price to increase substantially and sell before they think it will crash.
A short position is the opposite. It relies on Bitcoin’s price decreasing. An investor will sell their Bitcoin at a high price and then try to repurchase it when the price decreases. Both positions are highly high-risk and require investors to try to anticipate and predict the market, which is tough for even the most experienced investors.
Bitcoin Wallets: Where to Store Your Bitcoin
If you’re looking to store Bitcoin as a long-term investment, using a cold storage hardware wallet is the best method to safeguard your coins. Popular cold storage wallet brands include Trezor and Ledger. Cold storage can even be beefed up with multisig services like Casa, where signatures from multiple physical devices are required to unlock your stored Bitcoin.
Long-Term Storage and Network Support
Full Bitcoin clients are also viable means for long-term storage but are less secure than cold wallet solutions. Besides purely investing in Bitcoin, you can support the decentralization and connectivity of the network by running a full node, which incorporates yourself into the Bitcoin core protocol that stores the entire blockchain.
Short-Term and Casual Use
Short-term holders looking to invest in Bitcoin in small amounts out of curiosity or to experiment with sending/receiving it can opt to use hot and custodial wallets. Third parties control these wallets, so they could be better for security assurances, but they are convenient to use and offer excellent user interfaces for Bitcoin.
Popular custodial wallets include:
- Blockchain Wallet
- Copay
- BreadWallet
Mining Bitcoin for Investment Returns
Bitcoin mining is a process that is performed using special computers. These are computers that are designed to verify transactions on the Bitcoin blockchain. To verify transactions, computers must solve a mathematical problem. The first computer to solve the problem is rewarded with Bitcoin. It’s just like gold miners being rewarded with gold.
The computers are miners. Here's another solution to the question of how to invest in Bitcoin. Well, it isn’t. There are thousands of computers trying to verify transactions. This means one thing: there is lots of competition. If you want to mine Bitcoin by yourself, you must invest a lot of money into computers to beat your competition! However, there are other options for mining Bitcoin. The most common option for small-time miners is to join a Bitcoin mining pool.
How to invest in Bitcoin
Mining Rigs
As the name suggests, a Bitcoin mining pool is a pool/group of computers that work together to verify Bitcoin transactions. All the computers in a mining pool combine their computing power to help verify transactions.
Suppose you have joined a Bitcoin mining pool, providing 5% of that mining pool’s computing power. You will be rewarded 5% of the Bitcoin when your mining pool verifies a transaction. If you want to start mining, you start by joining a Bitcoin mining pool. However, bitcoin mining isn’t always profitable and requires around $2000 - $3000 to set up.
ASIC miners
Is the only feasible way to mine Bitcoin today, and hosting your ASIC rig requires:
- Hardware costs
- Operating time
- Electricity
Small, independent miners using home-based rigs often have to operate at losses during extended depreciation of Bitcoin’s spot price as profit margins are diminished. If you wish to try Bitcoin mining, there are numerous tutorials for discerning which hardware and software suit your needs and budget.
Cloud mining services
also, users can purchase contracts for ASIC mining rigs within extensive mining warehouses operated by a third-party mining company. These companies offer regular returns based on your investment and can be convenient if you wish to earn Bitcoins through mining but want to avoid the hassle of setting up your rig. Hashflare and Genesis Mining are two popular cloud mining services.
Exchanges for Investing in Bitcoin
Exchanges are the most straightforward and popular method for acquiring Bitcoin. There are well over 100 operational Bitcoin exchanges worldwide, but the most prudent move is to steer clear of exchanges known for wash trading and stick with major reputable exchanges.
Several exchanges exist in the BTC market, including:
- Centralized exchanges
- Decentralized exchanges (DEXs)
- P2P marketplaces
- Fiat-to-BTC on-ramps
Buying Bitcoin with Fiat Currency
Coinbase is the most popular fiat-to-BTC on-ramp in the U.S. and requires that users go through regulated KYC/AML processes. Exchanges like Coinbase are centralized and custodial platforms, meaning that when your bitcoins are stored on the platform, they are technically not yours as they can be frozen like with a bank account. Other popular fiat-to-BTC exchanges include:
- Kraken
- Gemini
- BitMEX (not available to U.S. customers)
- Bitstamp
Decentralized Exchanges
The differences between centralized and decentralized exchanges are essential for several reasons. Centralized exchanges have custody over your Bitcoin, just as a bank retains custody over your fiat funds. Second, these exchanges are prone to hackers targeting them, and the sheer scale of hacks on exchanges in 2018 was astounding. It is best practice never to store your Bitcoin on an exchange, even a decentralized one.
DEXs are useful for direct exchanges between counterparties without an intermediary. They do not take custody of funds or require KYC/AML processes for users. However, the future growth of atomic swaps should help expand Bitcoin’s prevalence among DEXs.
Marketplace Exchanges
Other decentralized options for trading Bitcoin for fiat or altcoins include P2P marketplaces such as:
- Bisq
- Paxful
- HodlHodl
- OpenBazaar
Decentralized Marketplaces for Privacy and Security
OpenBazaar and Bisq are open-source marketplaces without registration and emphasize privacy and security. OpenBazaar also enables users to set up e-commerce stores to list physical and digital goods/services with payments directly between counterparties in Bitcoin.
Growing Adoption in Countries with Economic Instability
HodlHodl even offers TESTNET trading without risking actual money. Volumes on decentralized marketplaces are substantially lower than their centralized counterparts, but they are rapidly gaining traction among privacy proponents and users seeking better security assurances. Similarly, Bitcoin volume metrics sites like CoinDance indicate that decentralized exchange platforms are growing in use in countries with problematic inflation and economic conditions, especially Venezuela. These platforms offer censorship-resistant avenues for citizens in countries like Venezuela to buy into Bitcoin and fiat currencies that are much more stable than their local currencies.
Alternative Methods for Increased Access Around the World
Access to investing in Bitcoin has never been more abundant. However, significant strides still need to be made to reach the ideal levels that support a global, decentralized value system. In particular, the primary avenues for acquiring Bitcoin with fiat currencies through centralized exchanges are tightly regulated and subject to KYC/AML processes. Decentralized exchanges don’t have the volumes or widespread popularity to rival centralized exchanges.
Most investors in Bitcoin reside in countries where Bitcoin is more of a speculative investment or part of a professional focus rather than stemming from direct needs for an alternative medium of value. In countries like:
- Venezuela
- Zimbabwe
- Argentina
Investing in Bitcoin hinges more on a legitimate need to seek alternative currencies due to adverse economic conditions. Increasing access to such areas of the world is an important initiative, and several developments may broaden access outside of solely the proliferation of decentralized marketplaces.
Bitcoin ATMs
Bitcoin ATMs are one avenue to grant easier access in localities, often available in convenience stores and supermarkets. According to CoinATMRadar, there are more than 4,200 Bitcoin ATMs in the world, dispersed over 76 countries.
Leading BTC ATM manufacturers include Genesis Coin and General Bytes. Many ATM services also offer bi-directional buying/selling of bitcoins for fiat currencies. You can even buy Bitcoin at Coinstar machines in select locations in the U.S. now. However, the regulatory frameworks for these services are complicated and unclear in the U.S. due to cross-state money transmission laws.
Other Alternative
Means for investing in and using Bitcoin include emerging projects focusing on Bitcoin vouchers and credit sticks. Azte.Co is a Bitcoin voucher service enabling people to buy Bitcoin at convenience stores in cash or with debit/credit cards using the Azteco voucher. You can top up a Bitcoin account by simply using the Azteco voucher like you would for topping up a phone, and the details are available on their website.
Other Methods Similarly
OpenDime is a service where users can physically exchange Bitcoin credit sticks. The credit sticks are secure USB sticks that contain the private key within the device itself. Such functionality enables Bitcoin to be transferred between parties locally with assurances that the private key is not compromised as long as the stick is sealed.
Users can even pass around the stick multiple times. OpenDime has some intriguing long-term implications, and its emergence in economies with weak economic conditions will be something to watch closely.
Financial instruments
using Bitcoin is also on the rise, with services like Celsius Network and BlockFi permitting users to take out loans with their BTC holdings as the underlying collateral. Lenders on Celsius Network can earn interest through their P2P lending pool, which the borrowers pay out directly in Bitcoin.
Lightning Network
More advanced Bitcoin users familiar with its second layer, the Lightning Network, also have the potential to earn BTC through relay fees and watchtowers. Watchtowers are services that monitor the Bitcoin blockchain for their clients to identify transaction breaches on the LN and issue penalty transactions.
Relay fees can be acquired by LN nodes that connect to numerous peers and help route payments through the mesh network for users who are not directly connected with a channel to a party they wish to exchange BTC with. These developments are still very early, but they offer useful mechanisms for users willing to provide services to LN users to accumulate BTC in fees.
Spending Bitcoin
Numerous avenues for merchants to accept Bitcoin as payment are also available, including Coinbase Commerce, which is integrated with major e-commerce platforms like Shopify and WooCommerce. Merchants can opt to retain their BTC as an investment or exchange it directly for fiat.
Open-source projects like Lightning Charge, part of Blockstream’s Elements, are also available for merchants to accept LN BTC payments using a drop-in solution. The LN’s huge design space and rising number of applications should also help the network grow as a means of payment for online purchases over the coming years.
Other More Obscure Methods for Acquiring Bitcoin
Include Bitcoin puzzles. Bitcoin puzzles are digital art that individuals post to the Internet containing private keys to access locked bitcoins as the reward for solving the puzzle. They are not exceedingly prevalent, but some rewards have been highly lucrative, including a $2 million prize for a puzzle containing 310 BTC late last year.
Traditional Financial Instruments for Investing
Outside of the emerging alternatives for investing in Bitcoin, the convergence of traditional finance and blockchains is also set to create more opportunities for increased exposure to the asset.
Bitcoin ETFs
ETFs are investment vehicles for individuals or groups of assets that enable investors to speculate on the market price without owning the asset. Bitcoin ETFs allow more mainstream investors to access Bitcoin by investing in an ETF on a regulated exchange without having to purchase Bitcoin directly from an exchange.
Increasing regulation of Bitcoin in developed countries is likely to continue at an accelerated pace and open up broader access to investors who are hesitant to touch it using alternative means or unregulated exchanges.
Expanding Bitcoin Trading on Regulated Platforms for Broader Market Integration
The hesitation of many other countries to adopt regulatory frameworks for digital assets indicates that alternative means of investing in Bitcoin need to garner more widespread adoption to circumvent any censorship of access to the asset.
Proposals for Bitcoin and other digital asset trading on regulated platforms are underway in several countries, including Thailand’s TSE, which would become one of the first platforms to offer digital asset trading on a major regulated exchange. Bitcoin should be offered alongside other conventional financial instruments, including CFDs, derivatives, futures, and multiple fiat currency trading pairs on comprehensive platforms.
Binary Options & Contracts for Difference
Many brokers now offer Binary Options and Contracts for Difference on Bitcoin. If you have used one of these brokers before, you can also use them to trade Bitcoin. The difference between these and a typical exchange is that you do not own the underlying asset. You are merely trading based on price differences.
How to Invest in Bitcoin Anonymously?
One of the things people like most about Bitcoin is that it allows you to keep your information private. Buying your Bitcoin on a peer-to-peer trading platform might be the best option for those who want to stay extra private. If you're wondering how to do it anonymously, another good thing about peer-to-peer platforms is that you don’t have a middleman to pay a fee to. That’s right, 0% fees.
However, you must be careful when using these websites. Some Bitcoin sellers might try to steal your money, so always check that the seller you use has 100% positive feedback on their account.
How to Buy Bitcoin Safely Using LocalBitcoins Peer-to-Peer Platform
The recommended peer-to-peer trading platform is LocalBitcoins. Using LocalBitcoins, you can set up the terms and conditions of your Bitcoin purchase. Some sellers ask for ID, but others do not. LocalBitcoins gives you the option to:
- Find people who live local to you. Then you can meet up with them and pay in cash
- Deposit your cash into a seller’s bank account, go to your local bank, and send it to the bank account number that the seller gives to you
- Pay using a bank transfer. Send your money to the seller’s bank account using the bank account information they give to you
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What to Watch Out for After You Invest in Bitcoin
Bitcoin’s price swings can be extreme. Values rise and fall quickly, with little to no notice. A tweet from Elon Musk or a negative comment from a government official could send Bitcoin’s value into a tailspin.
It’s common for Bitcoin to lose over 20% of its value in just a few days. Because of this, you should carefully monitor Bitcoin’s price if you invest in it. Awareness of changes can help you determine when to sell your investment to maximize your profit or minimize your losses.
Don’t Overlook the Risks of Bitcoin’s Market Swings
Bitcoin has been one of the hottest investments of the past decade. However, the price swings can be scary and may not suit every investor’s temperament.
As noted, Bitcoin’s volatility can be extreme, and while some people see this as an opportunity to profit, others may panic and incur losses. Before investing in Bitcoin, understand the risks and be prepared for potentially losing money.
Regulatory Changes Could Impact Bitcoin’s Value
Bitcoin is still relatively new and operates independently of government regulations. However,
this also means that regulatory changes could significantly impact their value. For example, if a country were to ban Bitcoin, the price would likely plummet. If regulations emerged to protect consumers, Bitcoin's value could significantly increase. As an investor, you should stay informed about developments to understand how these changes could impact your investment.
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