4 Things You Should Know Before Investing in Bitcoin
Promises of overnight crypto millionaires are everywhere. Before you put your hard-earned cash into Bitcoin, here is what you really need to know about how it works, where it came from, and the risks involved.
Promises of an imminent cryptocurrency market boom and Bitcoin’s opportunity of a lifetime are everywhere. The next big bitcoin hype cycle is already underway and the price is about to skyrocket! People just like you are becoming overnight millionaires!
Before you put your hard-earned cash into this new form of digital money, we want you to know what you’re getting into.
1 What Is Bitcoin?
First, Bitcoin is a concept, not a tangible investment like real estate, precious metals, or an ice cream stand. In essence, when you buy Bitcoin, you’re buying a string of digits stored on a worldwide system of connected computers. But because the supply of these digital coins is limited (only 21 million of them can come into existence) and many have been lost for good (estimated 4 million), their value increases when more people want to purchase them and hold on to them.
The value of Bitcoin, therefore, is whatever the price someone is willing to pay for it. And be warned at the outset: Bitcoin is an extremely risky way to invest your money. Yes, you can make a great deal of money, but you can also lose every penny you put into it, not unlike playing the roulette wheel at the Bellagio in Vegas. Its value can soar and plunge in a matter of minutes.
Therefore, if you want to move into the world of cryptocurrency, do so only if you can afford to lose what you invest.
2 Bitcoin's Background
Bitcoin was created in 2008 and made public in early 2009 by an anonymous inventor who used the name Satoshi Nakamoto. The idea was to take currency and financial power out of the hands of banks and governments who have historically mismanaged and harmed the U.S. dollar and put the power into the hands of the people. No longer can bad actors or a select group of few control the world’s most dominant currency.
Bitcoin moves from one place to another by means of a network known as “blockchain.” Blockchain is a technology consisting of a complicated program that manages and validates each transaction to ensure legitimacy. Some experts say the blockchain shows promise far beyond just financial transactions and cryptocurrencies. Some speculate it will be the next generation of the internet yielding improvements in medical records, personal identification, property management, and supply chain.
“I do fundamentally believe that blockchain technology will ultimately change the way money moves from one place to another,” says David Bach, author of “Smart Couples Finish Rich.”
3 Should You Invest in Bitcoin?
Those who trade in cryptocurrencies see great promise in the technology, as well as the concept behind it.
“Bitcoin is not a get-rich-quick scheme,” according to Scott Melker, a crypto trader, advisor, and consultant. “Buying Bitcoin is a hedge against bad actors, infinite money printing, hyperinflation, and corrupt governments. It is deflationary, decentralized, transparent, and immutable, offering an inexpensive way to transact across the globe without a third party.”
At the same time, however, experts caution that:
- it is an extremely volatile currency
- you shouldn’t trade Bitcoin unless you can afford to lose your investment
- it can be very technically challenging
In July of 2010, one Bitcoin was worth five cents. By December of 2017, the price of a single Bitcoin had risen to nearly $20,000. As a result, many people jumped on the Bitcoin hype train thinking they were getting in early at a cheap price, only to have bought the top of the cycle. By August of 2018, one Bitcoin was worth $6,000. The price recovered slightly, but by the beginning of this year, Bitcoin had lost half its value, and it’s normal for the price to fluctuate as much as 30 percent in a single day.
4 How to Invest in Bitcoin
If you decide you’d like to get involved in the cryptocurrency market, the process has become easier, but many of the popular platforms can still be technically challenging to navigate.
There are hundreds of exchanges to buy it from including Coinbase Pro (the most popular in the U.S.), Kraken, Binance, or Gemini as some of the most popular. Bitcoin can also be bought from other Bitcoin owners, Bitcoin ATMs, and some traditional stockbrokers such as Robinhood and Tradestation.
You will also need to set up a virtual “wallet” to store your Bitcoin. This option will be provided—along with instructions—when you sign up with one of the exchanges.
Keep in mind that, unlike bank accounts, Bitcoin is not insured and can be stolen especially when left on exchanges. If this happens, the currency is gone for good.
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