How to invest in Bitcoin

Bitcoin is a cryptocurrency -a digital currency that exists only in virtual form and is not a physical currency. Bitcoin is the first cryptocurrency and was introduced in 2009. It uses the technology of cryptography to access and use the currency. Only a person who knows the key or code can use this currency, ensuring no one can access it without your permission. Bitcoins became popular a couple of years back with interest in them growing. Just like stocks, bitcoins are traded in exchanges.

The year 2017 was a landmark with bitcoins being traded at $20,000.  This was an all-time high. Since then it has come down and is trading at below $10,000. If you had invested in bitcoins when it started, you would have made a good profit on your investment. The problem with bitcoins is that many countries have banned it and trading is not allowed. It is a high-risk investment. Stocks are also risky, but the stock market is regulated. Bitcoin markets are not regulated and hence pose a higher risk.

This is a lucrative investment option and has the potential to earn huge returns. At the same time, the possibility of huge losses also exists. If you are willing to take a risk in return for big rewards, you can consider investing some money in bitcoins. Don’t invest more than 10% of your total investment in bitcoin. If you have decided to invest in bitcoin, here is a guide that will tell you all you want to know about the investing process.

Digital wallet

Real currency notes can be stored in a purse or wallet. A virtual currency like a bitcoin can be stored in a digital wallet. There are two kinds of wallets, namely hot wallet and cold wallet.

  1. Hot wallet: A hot wallet is where the bitcoin you purchase is stored on a cloud server. This can be easily accessed ensuring quick transactions. There are various websites that offer the facility of creating a hot wallet. Once you create a hot wallet, you can then link your bank account to the wallet. This allows you to transfer money and start buying bitcoins. You must note that hot wallets have been the target of hackers in the past.
  2. Cold wallet: This is a physical device using which you can access your bitcoins. You can create cold wallets using websites. Since the bitcoins are stored on the device, which is physically in your possession it is much more secure. The downside is that transactions on cold wallets take more time.

Cryptocurrency exchanges

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Just as stocks are traded on a stock exchange, you can buy bitcoins on cryptocurrency exchanges. Since bitcoins are virtual currencies, the exchanges are also virtual and hosted on various websites. You can register at these cryptocurrency exchanges and start buying bitcoins. You may need to link your bank account, so that you can buy bitcoins from the exchange.

The exchanges charge a fee for the transactions you carry out. You can do some research online before deciding which exchange to use. You need to check if access to the exchange is allowed in your city/state/country.

Bitcoin ATMs

Bitcoin ATMs are just like the regular ATMs of banks where you can withdraw cash. A bitcoin ATM allows you to purchase bitcoins. You can easily search for Bitcoin ATMs that are near your location. In the ATM, you can connect to your wallet by using a QR code. You can then insert cash into the machine. The bitcoins are then purchased and transferred to your wallet. Each bitcoin ATM has its own procedure that you must be aware of before transacting.

Peer-to-peer

This method involves buying bitcoins from peers or other bitcoin owners. You can visit such peer-to-peer websites where you can find people who are ready to sell bitcoins. You would pay them money as per the applicable rate and the bitcoins would be transferred to your wallet by the seller. While dealing with individuals or meeting them privately, you need to exercise caution.

Buy stock instead of bitcoin

There is one more option to invest in bitcoin, which is buying stocks of a company that invests in bitcoin. This is an indirect way of investing in bitcoin. You can buy stocks in a trust or company that deals with bitcoins. Their stock price would usually be proportionate to the value of bitcoins. Since professionals do the buying and selling of bitcoins, your risk is reduced.

Systematic purchase of bitcoins

Just as you buy stocks and mutual funds regularly, you can use the same approach with bitcoins. You can setup regular withdrawal of money from your wallet to buy bitcoins. This helps you to beat the market. When the price of bitcoins is less, you can buy more of them. When the price goes up, the overall value of bitcoins you have increases.

Some things to keep in mind while investing in bitcoins

  • Bitcoins work on cryptography or the use of keys. It involves a public key, which is like your user ID. The private key is like a password that you use to transact. You need to safeguard the private key to ensure safety.
  • If you want to buy bitcoins anonymously, you must note that if you link your bank account, then eventually your purchases can be traced back to you by authorities.
  • You can buy bitcoins in part also. If 1 bitcoin costs 8,000 and you have only 4,000 in your account, then you can buy 0.5 bitcoins.
  • You need to track your bitcoin investment regularly, just like you track stocks. If prices are falling, you can consider selling to avoid big losses.
  • The bitcoin market is extremely volatile and is thus risky. If you cannot tolerate risk, it is best to keep out of this market.
  • If bitcoin prices rise to a high, you can sell your bitcoins in full or partially and then re-invest later when the prices come down. Failing to do this can make you lose the chances of making a profit.
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