You missed out on the gold rush (I’m assuming you weren’t around in the mid-1800s), and now you’re worried you might miss the Bitcoin rush too.
There are many reasons people own Bitcoin. At the purest level, it is to have a decentralized form of currency that can’t be manipulated or politicized. This article isn’t about that. This article focuses on owning Bitcoin as a form of investment. Is it right for you and where do you begin?
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Bitcoin Returns
“500x return on investment? Sign me up!”
As with any new technology or idea, the early investors and believers reap the largest reward. For long-term bitcoin investors, it has been very rewarding indeed.
Investor beware. The newness of bitcoin, and cryptocurrency in general, contribute to its price volatility, which makes it a highly speculative investment. In 2013, Bitcoin’s price dropped a whopping 50% in ONE DAY. On December 10, 2013, Bitcoin reached a price of $1023, but for most of 2015, the price hovered below $250. If you purchased Bitcoin on December 10, 2013, by 2015 your initial investment had lost 75% of its value. On the flip side, in 2017 alone, the price of Bitcoin has almost TRIPLED year-to-date.
Is it right for you?
So, is investing in Bitcoin right for you? Depends on your risk profile and timeline. Always remember the linear relationship between expected return and investment risk.
If you have a low tolerance for risk, investing in bitcoin is ill-advised. Same applies if you have a short-term investing window (less than 5-10 years). However, if you have a high tolerance for risk and have a long-term investing window, investing in Bitcoin could be right for you.
Regardless of your risk profile or timeline, investing all your eggs in one basket is never a good idea!
How do I get started?
Step 1: Open an account at a Bitcoin exchange. These are exchanges where Bitcoin and other cryptocurrencies are traded. Examples of Bitcoin exchanges are Coinbase and Gemini. (Note: this process can take up to 5 days!)
Step 2: Fund your account. Either link a bank account or complete an EFT transfer. Each exchange has its own way of doing this, so follow their instructions.
Step 3: Purchase Bitcoin. You don’t have to trade whole Bitcoins, you can buy or sell fractions.
Bitcoins are stored in wallets. There are various types with varying security levels. Bitcoin.org is a great place to learn more.
Not interested in actually owning Bitcoin? There aren’t many ETFs or Index Funds that track Bitcoin yet. An example of one is GBTC – Bitcoin Investment Trust, which is traded on the OTC exchange (OTCBB).
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This article is not advocating Bitcoin as a suitable investment or the use of a particular exchange to trade Bitcoin. Not all investments are suitable for an investor, and all investments carry some level of risk. Always do your own research and understand the investment before investing.