Bitcoin is often the first coin crypto investors show interest in, thanks to its outstanding track record. You see, Bitcoin value has risen from $3,237 in 2018 to over $65,000 in November 2021. Besides the steady increase in value, Bitcoin is also the leading coin in the cryptocurrency market. However, it is highly volatile and BTC prices are very speculative. Investing in Bitcoin for the first time is often complicated because it varies from buying traditional financial products such as stocks, bonds, and mutual funds. Fortunately, the investing process becomes easier when broken down into steps.
How to buy Bitcoin in four steps
- Make a decision on where to buy your crypto
- Select safe storage for your cryptocurrency
- Make your order
- Manage your investments
Before you purchase Bitcoin there are a few things you should know about digital assets investments. Debatably, crypto blockchains are vulnerable to cybercrime thefts. Privacy and security are therefore very important concerns to an investor. Here are tips to use when buying Bitcoin:
Useful tips when making Bitcoin investments
Have all the required information in hand. When opening an account, you will be required to provide your social security number and your preferred account number (bank, credit or debit number) that will be used to finance your purchases. A few of the platforms ask for a picture ID so you should have it as well.
Using a credit card to finance the purchase of Bitcoin is significantly discouraged since such a product has high interest associated with it. Besides, some of the exchange platforms do not accept credit card payments at all due to high processing fees and vulnerability to fraud.
Understand investors’ protection. Digital crypto-asset investments are not insured against theft and other severe losses under the Security Investor Protection Corporation. A few exchange platforms offer private insurance to users on their platform. However, it does not prevent an individual who has your private key from authorizing transactions.
Use private Wi-Fi or data connection. Hackers can come between you and the connection to access all your private information. Therefore, avoid opening an account or making transactions when using a public connection to keep your passwords safe.
Distribute your Bitcoin stash over different addresses. Remember that other users can see the public addresses you use. This strategy allows you to keep significant investments in addresses that are not often used for transactions and reduce the risk of theft.
Investing in Bitcoin
Step 1: Making a decision on where to buy
Cryptocurrencies can either be bought from exchanges or traditional brokers. Exchanges are places where crypto investors gather to exchange dollars for coins through selling and buying. They are considered convenient trading services because they offer broader features and options for coins than crypto trading places. Signing up for an exchange allows you to purchase coins and you can then withdraw them for safekeeping in your online wallet.
There is a variety of cryptocurrency exchanges in the crypto industry. However, they differ in fees and consumer protection policies. For instance, some exchanges allow investors to remain anonymous where they are not needed to use their personal information. Safe internet practices are vital for successful digital asset investments.
Traditional brokerages, on the other hand, allow investors to buy and sell Bitcoin. Robinhood was the first brokerage to offer Bitcoin and the platform does not charge any fees on the coins’ transactions.
Step 2: Selecting safe storage for your cryptocurrency
Cryptocurrency wallets are used to hold digital assets investments more securely. Keeping your coins in a personal wallet instead of the exchange ensures that you have control over private keys to your addresses. Private wallets are also less vulnerable to cybercrimes which lower the risks of losing your funds to a hacker. Bitcoin is stored in a hot wallet or a cold wallet. The two wallets differ in that with a hot wallet you will experience faster transactions while with a cold one you will experience a lower speed when making transactions although it’s more secure.
Hot wallets
Hot wallets are commonly referred to as online wallets and run on internet-connected devices such as laptops and phones. They are convenient as they allow easy access to BTC tokens when you want to make transactions. On the downside, they are susceptible to hacks where adequate security measures are not adhered to. Putting a strong password, two-factor authentication and a private internet connection are some of the safety measures you should consider when using a hot wallet. Notably, it’s best to use a hot wallet to store cryptocurrencies that are actively trading on the exchange.
Bitcoin tokens can be stored in a trusted exchange wallet or a third party hot wallet. Some of the best hot wallet providers are listed below.
- Coinbase. This Bitcoin exchange offers free hot wallet services and insures investments against security breaches such as hacks and fraudulent transfers.
- Blockchain. It is an online hot wallet and is debatably safer since it is not frequently targeted by hackers.
- Electrum. This software allows you to store your tokens in your internet-connected device.
- Mycelium. It is a mobile-friendly hot wallet for android and iPhone users.
Cold wallets
It is an offline or hardware wallet. As the name suggests, it is not connected to the internet which lowers the risk of exposure to cybercrimes. Cold wallets store investors’ private keys and allow them to access their portfolio without exposing their private keys. Generating a paper wallet off a website is one of the ways of securing Bitcoin investment. The process produces private and public keys that the person who has the printout paper is the only person who can access the Bitcoin stash or make any transactions.
Another way to secure Bitcoin investment in a cold wallet is through hardware wallets. A hardware wallet is a USB device where you keep your private and public keys. Paper and hardware wallets are the safest means of storing long term Bitcoin investments. Cold wallet providers include Ledger Nano and Trezor.
An quick way to set up your portfolio is having an exchange account where you buy and sell BTC tokens. You should also have a hot wallet where you hold your stash temporality before trading. Further, you should have a cold wallet to secure private and public keys with significant holding for longer periods.
Step 3: Make your order
You have a variety of options to fund your exchange account. You can use your hot or cold wallets, banks transfers, debit cards and credit cards. Please note that using certain options to fund your account will lead to varying transaction fees. For instance, electronic transfers cost less than other funding options.
After linking your wallet to the exchange, the next step is to place an order to buy Bitcoin. Depending on the exchange platform you decide to use, you can either buy Bitcoin by pressing a button or buy a fraction of shares by entering the Bitcoin ticker symbol, BTC. You will have to input the amount of money you want to invest in the digital cryptocurrency. The amount can be as low as $25 and in return, you will get a percentage of a whole Bitcoin. That’s because purchasing a whole Bitcoin can cost more than $65,000 which is too high for a first-time investment.
Step 4: Manage your investment
There are two primary plans to earn profits on Bitcoin investments. One is day trading, where holders buy tokens when the prices are low and resell them when prices increase. Another way is holding the tokens as long term investments for them to increase in value. If you manage your investments appropriately you will be able to earn massive profits from the leading cryptocurrency in the world.
Alternative ways of investing in Bitcoin
In addition to exchanges and brokerages, other Bitcoin trading services include Bitcoin ATMs, peer-to-peer owners, Grayscale funds and exchange-traded funds.
Bitcoin ATMs
Bitcoin ATMs function like typical ATMs, only they allow Bitcoin exchanges. Investors insert cash into the ATM to buy Bitcoin which is then transferred to hot wallets for users.
P2P exchanges
Peer-to-peer exchanges provide a connection between two investors and allow them to purchase Bitcoin directly from other owners. After creating an account, users post requests to purchase or sell their Bitcoins where other users can browse discover them. Bitquick, Bisq and LocalBitcoins.com are examples of P2P exchanges that allow for direct purchases of Bitcoins.
GrayScale Funds
It is a cryptocurrency assets manager with publicly Grayscale Bitcoin Trust in which you can make Bitcoin purchases from brokers to get a discount. Its initial costs are higher than a Bitcoin. However, users do not need to worry about wallets and storage.
Exchange-Traded Funds
This platform does not invest in Bitcoin directly. Instead, it invests in Bitcoin’s future contracts.
Conclusion
Bitcoin is a lucrative investment considering how its prices have skyrocketed over the past few years. However much it’s tempting to place all your savings on an exchange account, you should be extra cautious with digital asset investments. If you are unsure what amount to place on your portfolio, you should see a financial planner to figure out the right percentages.
