A beginner's guide to investing in Bitcoin

Investing in Bitcoin

Bitcoin is gaining traction every day. The cryptocurrency is seen as ‘digital gold’ as well as an easy way to transfer money around the world. It has piqued the interest of many investors and those in financial management due to its high growth rate, with a return on investment (ROI) of 30% during its lower periods. How easy is investing in Bitcoin and what is required to do so?

What if you have $1000 you’d like to be investing in Bitcoin? Is it a viable option and should you invest the whole amount at once, or test the waters first?

Should you be investing in Bitcoin?

Yes and no. Unlike traditional investments, such as savings accounts or purchasing property, Bitcoin is very volatile, and far more so than the two examples given. Over the past few months, the currency has gained massive traction, but it slumped by 25% in January.

If you’re thinking about investing in Bitcoin, it would be best to invest money that you don’t mind losing over the short term. Due to the exchange being in real-time, and without the need to invest through brokers, you can put in $100 just to see how it does. From there, the amount can be easily increased or decreased depending on the market.

For now, Bitcoin may not be the kind of investment that should be looked at as an alternative to stocks or retirement funds.

Towards the end of November in 2013, Bitcoin was worth $1124 / 1BTC, but during the middle of December, it was $622 / 1BTC.

In recent months, investing in Bitcoin has gained tremendous traction. In January, it was worth just over $1129 / 1 BTC and hit over $2400 / 1BTC in May. The recent developments are due to a range of factors, such as Japan adopting the cryptocurrency and the scaling agreement.

The easy, passive investment

The first and easiest way to start investing in Bitcoin is by simply purchasing the cryptocurrency. By buying a fraction or even a whole Bitcoin and not touching it, it’ll gain and decrease in value as the market fluctuates over time. You don’t actually use Bitcoin in order for it to appreciate or depreciate in value, which means there’s no need to spend it.

Investing is an easy process and as simple as transferring money. Those wanting to purchase Bitcoin will first need a Bitcoin wallet, such as Copay or Luno. Most Bitcoin wallets are perfectly fine for basic usage, but you should research each one beforehand. Once you’ve registered for an account, you can purchase Bitcoin using your credit card or a bank transfer.

From there, it’s a matter of watching for fluctuations in the currency and diversifying your investment (paying out) when you feel the need to.

The more advanced and high-profit way

Much like stocks and other tradable commodities, Bitcoin can be bought and sold via an online exchange. This operates similar to the stock market and is recommended for those of you who are a bit more financially savvy.

Instead of leaving money in your Bitcoin wallet to see if it grows or loses value over time, it can be traded with other users. Users can place an order for the currency and sellers can propose prices for the purchase. Due to the nature of Bitcoin, all transactions are completely secure – utilizing Blockchain technology – and anonymous as well.

Spending and transferring your Bitcoin

There is a bit of confusion around what exactly you can do with Bitcoin. It is a currency, after all. And much like any currency, Bitcoin can be used to purchase physical and digital goods. For example, Russia’s largest online retailer, Ulmart, recently announced it would accept Bitcoin as a form of payment for purchases.

Another usage for Bitcoin is the ability to transfer money across borders. You can purchase $100 worth of the currency, digitally send it to a friend in Japan, who can then exchange it for Yen. The cost of doing this is extremely minimal and a fraction of what traditional money transfer companies charge.

For more information on Bitcoin as a commodity, take a look at our article on Bitcoin and ecommerce. The article details how it is controlled and why businesses should care about it.