What investors must know before investing in bitcoin

January 11, 2021
4 min read

source: nuwireinvestor

According to coinmarketcap as of the time of writing this article, the current price of Bitcoin is  $32,763. Sadly with all the potentials, which it has been showing, some people are still infected with skepticism towards it.

The narrative was different from around 5 to 10 years back. People felt no country will ever allow the use of bitcoin and other cryptocurrencies. So people were skeptical due to the following reasons;

  • Bitcoin is too risky
  • Lack of financial education to understand something so technical
  • It is still new. Let's give it time and see how it turns out

The truth remains that while you keep giving excuses not to invest in it, people are making a fortune out of it and creating businesses around it.

However, if you decide to join the moving train and invest in it, there are few things you must know about it. But before digging deep into what you should know, let me first introduce you to how to invest in bitcoin and other cryptocurrencies in the market. 

What Is Bitcoin Investment

Bitcoin is the most reliable cryptocurrency in the world today, ahead of ethereum and other assets.

Bitcoin investment is the act of allocating some funds to buy bitcoin, with the expectation that it is going to yield profit. The profit usually gotten from an investment is called a return. For example, if you had invested in bitcoin when it was still $12,000 about two months ago and you sell now when it is well above $22,000, you would have made a profit of $10,000 in two months, which is your return on investment.

Bitcoin investment can be a long term investment or short term investment. The short term investment is more like trading in bitcoin, where you buy it at a particular price and sell when the price of bitcoin reaches a certain amount. In contrast, long term investment is buying at a low price, holding it for an extended time before selling it at a high price. The difference between long-term investment and short-term investment is that you are leaving it for more than one year in the former.

Investing in bitcoin is like investing in every other thing like stock, gold, real estate, etc. your major purpose is to make profits, and the basic rule remains that you don't invest the money you can't afford to lose in anything.

However, to invest in anything, you must understand the basics and the same rule applies to bitcoin.

Bitcoin is a decentralized money

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Bitcoin is not like every other currency that you know. It is a decentralized digital currency. No person, group, or government has the power to influence bitcoin prices or have control over it. The receipt of all transactions carried out on it is stored on the blockchain. This is the first thing you need to know about it. Once you know this, you will know that the government does not have power over it.

Bitcoin is a digital currency and a store of value

Bitcoin is a real currency that can be used for what our traditional currencies are used for. We can use it to purchase goods and services and also for other commercial purposes. The only thing that differentiates it from our traditional currency is that we cannot print it into any physical form.

Bitcoin can also be used as a store of value and can be used as an asset that can be saved, retrieved, and exchanged later and still retain its purchasing power.

It is Risky

Bitcoin price is very volatile. The higher the volatility of an asset, the more the risk, and the lower the asset's volatility, the less risky it is. Bitcoin has high volatility, so it is risky, but I guess there is no gain without taking a risk. You can lose all your money on it and also you can make a fortune off it. 

In order not to lose all your money, that is where the next point comes in.

The first thing to have at the back of your mind whenever you want to invest in bitcoin is not investing all your savings in it. Invest what you are willing to lose, without much regret. Don't put all your eggs in one basket; diversify your investment.

You need to understand it.

Research is a critical aspect of bitcoin investment. You need to understand how it works, study the market, and understand the things that make bitcoin the price increase and decrease. It would help if you made findings on how to buy and sell it. How to be cautious, how to read it, and also, you need to listen to the news to understand it and get yourself in tune with the happenings in the world of cryptocurrency. Know the abilities of bitcoin and how you can use it.

Have a Strategy in Place

This is one important point to note if you want to invest in bitcoin. You need to have a ready-made strategy you want to use. The first rule here is to buy low and sell high, but you need to know the right time to buy and sell.

Once you have all these in place, you are ready to invest your money in bitcoin without losing a penny, and you will make a fortune off of it.

How to Predict Bitcoin Price

There are so many factors to consider to determine the price of bitcoin. If you understand the market and know what is happening in the world of cryptocurrency, you will be able to predict if the bitcoin price will rise or fall. Here are some of the factors that might influence bitcoin price:

  • The media
  • The economy
  • Security breach
  • Fear, uncertainty, or Doubt
  • Uncertainty of future bitcoin value
  • High profile loss

In conclusion, these are a few of the things you need to know before investing in bitcoin. Once you remember these and keep them at the back of your mind, you don't have any problem investing in bitcoin.

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