4 Things You Need to Know to Invest in Bitcoin
by Startacus Admin
If investing in Bitcoin is on your mind, check out these key things that you should consider before you begin...
Cryptocurrencies have gained popularity as an investment asset in recent years. But a lot of the people investing in cryptocurrencies have no idea what they are or how they work; they just assume they will increase in value. But like any asset, cryptocurrencies can go down just as easily as up.
Bitcoin is the most popular cryptocurrency to invest in, and the easiest. Before you dive in, here are four things you need to know.
Work Out How to Store Your Coins First
Before you purchase any Bitcoin, you are going to need a wallet to store them in. Some websites will enable you to buy Bitcoin and will also provide storage for you. However, this storage isn’t designed for long-term use, and you are encouraged to move your Bitcoins into a personal wallet as soon as possible.
When you trade cryptocurrencies on exchanges, you can either move the necessary funds into your account as you need them, or you can leave the funds in your account ready for when you need them. Even then, you are encouraged to only keep as much on the exchange as you need and to move substantial funds off the exchange as soon as you can.
There are plenty of Bitcoin wallets out there. If you will be trading multiple types of cryptocurrency, it is worth getting a wallet that supports numerous coins. There are some premium options available, but you can get a decent Bitcoin wallet without having to spend a penny.
Learn How to Read the Market Cap and the Price
A common mistake among people who are new to cryptocurrency trading is to base their decisions purely on the price trends for a coin. While the price of a currency over time is obviously important for assessing its value and deciding whether to invest, it is not the only metric you should use.
You need to put this figure in context by finding out the currency’s market cap. The market cap tells you how much of the cryptocurrency is in circulation. When you assess the value of Bitcoin, don't just look at how much a single Bitcoin is worth. Instead, look at the cost of the coin as a percentage of the overall market cap. You can usually find this information on the same websites that provide real-time price updates.
Depending on how much Bitcoin you want to sell and how you want to sell it, you might be able to make more money from selling your Bitcoin privately than on an exchange. For example, chaingers.io gives you the latest peer-to-peer bitcoin price, along with the street prices for sales through several other mediums. Along with the peer-to-peer Bitcoin price, this site also shows prices for sales via bank transfer, PayPal, and numerous different payment types.
Mining Isn’t Worth It
Mining is the process by which transactions on the Bitcoin network are verified. Users contribute their computing power to solving mathematical problems. In the process of solving these problems, miners not only help to verify that transactions on the network are genuine; they also enable the creation of new Bitcoins. Every time a new block is added to Bitcoins blockchain, new Bitcoins are created and divided among all the Miners that contributed computing power to find it.
The dynamics of mining are complex. However, while it is possible for anyone to buy the hardware needed to mine Bitcoin, to do it commercially and actually make money from it requires a significant investment. This is virtually impossible for most people at this point in time. That's not to say that you can't mine Bitcoin for fun. You might even be able to mine Bitcoin economically - just don't expect to make significant returns from it.
If you want to make money from Bitcoin, you are better off spending your money on Bitcoin or other cryptocurrencies instead of building a mining rig. Once you have built the rig, you then need to pay for the electricity you use, which can be very expensive. Globally, industrial mining operations in China and Russia are heavily distorting the market and driving up the resource cost of mining new blocks. The state sponsors some of these operations, and the miners enjoy subsidized electricity.
You Should Diversify Your Portfolio
Cryptocurrencies experience wild price fluctuations; they can soar or crash without warning. As with any asset, you can minimize your exposure to these swings by diversifying your portfolio. If you hold multiple different coins, you won’t be as severely affected by any one of them crashing.
Anyone can start trading in cryptocurrencies, as all the tools are freely available. But before you start buying coins, you need to know what you are getting into. Bitcoin is not guaranteed to make you money. Plenty of people have lost money in Bitcoin investments. However, as long as you go in with both eyes open, there’s no reason why you can’t invest in Bitcoin safely.
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Published on: 23rd October 2020
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