How to Invest in Bitcoin – What Strategies Exist?

Despite its skeptics, Bitcoin continues to prove that it has staying power. As a positive side effect of the success of Bitcoin, we have seen an explosion of cryptocurrencies and altcoins in the last five years and that is why you may be thinking about investing in Bitcoin.

While Bitcoin and other altcoins are not without their limitations, there are many good reasons for the growing popularity, and many good reasons to hop on the bandwagon.  

Features of Bitcoin

For starters, Bitcoin is a purely digital currency. That means that there is no asset backing it. It also means that its value is not controlled by any central banks, which makes it a truly non-fiat currency. Because of this, Bitcoin has filled a need in the financial world. 

The creator of Bitcoin, Satoshi Nakamoto, developed the non-fiat currency in 2008 in reaction to the economic crash caused by a mortgage crisis in the United States. After the American government and financial institutions proved how irresponsible they were capable of being, Satoshi decided it was time for a new financial solution.

Bitcoin has made global transactions without limitation possible, so long as you have internet access. It has also made cryptocurrencies a valuable asset, opening up a new world of wealth for those with non-traditional assets, lower-income brackets, as well as unstable governments. 

This phenomenon is referred to as Kimichi Drift or arbitrage. Essentially, this means that Bitcoin is even more valuable in countries with unstable governments and economic situations. 

This is the case in countries such as China, North Korea, and Venezuela. In these unstable nations, Bitcoin is more valuable because the value of the local fiat currencies has plummeted or is unstable. 

The proliferation of Bitcoin has created new opportunities for those suffering from the economic collapse of their political and financial institutions.  

Scarcity and Utility

Because there is a maximum Bitcoin is designed to be rare and resists inflation. Due to its design, Bitcoin remains the most valuable cryptocurrency which relies on the characteristic cryptographic design and blockchain application. The success of Bitcoin possible because Satoshi was the ability to develop a secure digital currency that cannot be forged. 

It is also a scarce cryptocurrency because it cannot be infinitely mined; there is a maximum of possible Bitcoin. At the point when Bitcoin reaches 21 million mined, it will no longer be possible to mine Bitcoin. At that point, Bitcoin will simply be in circulation to be spent and held as a valuable asset.

Investment Strategies

how to invest in bitcoin

Now that your interest is piqued, you are likely wondering if you should invest in Bitcoin. And what investment strategies people are applying.

Buy and Hold

Many people have Bitcoin and use for numerous and various kinds of transactions. Nearly 300,000 Bitcoin transactions are made per day. However, there are also many who keep Bitcoin as a long-term investment; so they buy and hold. There is certainly merit to buy and hold the strategy. In 2040, Bitcoin will no longer be minable, as such it stands to reason that its value only will increase as we get closer to that day. Moreover, holding increases value for all investors, as it reduces the volatility of the asset.

Long Positions

Other investors would rather have more immediate returns. In this case, an investor can buy Bitcoin to sell it at the end of a price rally. This means gambling a bit on the volatility of the currency, as the seller hopes to sell at a higher rate than what they bought it at. Certain sites and exchanges will facilitate these kinds of investments, so the site will even lend you money with the hope of a profitable return for all. 

Short Selling

Short selling is when an investor buys at a certain price with the hope that the value will drop to earn on the difference. Essentially, to short sell, the investor borrows the asset from a lending company, hopes it will drop, buys it at the lower price, only to sell it for more than they paid.

This works for valuable stocks because a price rally is expected. But it is only a profitable strategy if the asset actually drops. To do this you will also need some kind of brokerage company to lend you the initial amount. Bitfinex is an example of a company that provides this service. 

Exchanges 

While many transactions take place peer-to-peer, it is advisable for new investors to use an exchange. This is because an exchange offers you services that will likely be very helpful to you, as you begin your foray into this new investment.

Exchanges are helpful for many reasons as they can broker deals for you, offer more ways to invest and purchase altcoins. That means you can use PayPal and credit cards to buy Bitcoin. And there are also purchasing options, such as short selling or long positions.

The downside is that by using an exchange the investor has less anonymity. Presently most exchanges require ID verification and often must adhere to specific national policies for data collection. 

But there are more private exchanges with greater decentralization out there that have fewer KYC requirements

Another note about cryptocurrency exchanges is that they come with fees for their services, as well as exchange rate fees. So it is important to remember to know what you are signing up for and always read the fine print. 

Social Trading 

Because Bitcoin is a digital currency, traders and investors do not rely on traditional stock exchanges or portfolio managers to help with trading advice.

Enter the world of social trading, where digital personalities offer personal insights into market movement. Because Bitcoin is not a traditional asset, it is important to use other information sources to interpret financial trends and to know when is best for you to invest. 

So, social trading relies on social platforms to gain market insights. This has become a common practice, and is, in theory, a great way to share information. 

HedgeTrade’s app has developed its own platform that aims to take social trading to the next level to ensure transparency and reliability. So be sure to check that out.

A Volatile Asset

But before you learn how to invest in Bitcoin, it is important to understand that it is a volatile asset, and why that is the case. At the time of writing this article in November 2019, Bitcoin is valued around $9,000 USD. However, back in July 2019, it reached a high of around $12,500!

This is not uncommon for Bitcoin, nor is it uncommon for any new assets to behave like this (even more traditional ones). The bottom line is that no one really knows how long Bitcoin will remain valuable. But this is not an inherently bad sign for future values.

Economies and assets change with the times; in times long past the Western economy foundation was based on the exchange of earl gray tea and tulips. So, it is important to understand why Bitcoin is valuable now, and why it might remain that way over the long-term.  

Digital Gold

You will often hear Bitcoin compared to gold. This is because Bitcoin is designed to work the way that gold once did; as a rare commodity that is not backed by any other asset. 

However, because it is not backed by other valuable assets, such as real estate or precious metals. That means that Bitcoin’s value is somewhat speculative. But remember, this is also how gold’s value works, gold is valuable for being gold, which has liquidity and resists gross inflation. That means that there are going to be regular trends of extreme volatility

Below is a projected graph of Bitcoin’s inflation compared to its increase in value over time. 

how to invest in bitcoin
Image from Buy Bitcoin Worldwide

What is clear is that Bitcoin is valuable now because it is filling a need. Bitcoin is a rare, purely digital currency, that is impossible to forge. And in an increasingly borderless world, it stands to reason that Bitcoin will be around for a while.

When Should You Invest in Bitcoin?

Now that you know how to invest in Bitcoin, it’s time to discuss whether or not you should. Given that Bitcoin is proving to be very valuable but it’s also a volatile asset, it is important to invest wisely. In the current crypto market, it’s helpful to use social trading tools. Additionally, learning about time and value analyses that are available from multiple exchanges. It may always be a good time to invest, but you will definitely pay more or less depending on the market swing. So start to watch Bitcoin’s movement.

Because Bitcoin is a global currency, is affected by the global climate, and less so by an individual economy. As I mentioned earlier, that also means that Bitcoin’s value varies depending on the location it is being used in.  

Where to Buy Bitcoin

Depending on what country you are in there are different ways to buy and different regulations to be concerned with.  

Coinbase is one of the largest Bitcoin brokers. It’s also available in the United States, UK, Canada, Singapore, and most of Europe.

For more information on how to invest in Bitcoin, be sure to visit our blog to read about Bitcoin Technical Analysis or learn 4 Great Ways to Earn Bitcoin

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