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Ways To Invest In Bitcoin

WAYS TO INVEST IN BITCOIN

May 29, 2021 | 

JOHN K MWANIKI |  0 Comments| 

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Bitcoin has remained the most promising investment in the crypto world in the last decade. Currently, it is performing very well as more institutional investors buy the asset, and it is also garnering support from major banks. Recently Tesla Inc, one of the renowned companies, bought $1.5billion worth of bitcoin. At the same time, Paypal made a significant move by announcing that it would support cryptocurrencies as a payment method through its platform.

Despite the boom in cryptocurrencies, bitcoin is still a risky investment due to its high volatility. It depreciates as fast as it appreciates. This year, it has seen heavy fluctuations dropping by around 20% on three occasions since January 2021. When it comes to bitcoin, some investors believe that it is the absolute gamechanger on the financial market, while others are not as optimistic about its potential.

Some retail investors find it challenging to invest in bitcoin because it is still shrouded in mystery, with banks and mainstream brokerages refusing to handle it. Not everyone can stomach the high risks of bitcoin investments, but its volatility presents more profit opportunities for risk-takers. If you are determined, there are always better ways to minimize your risks and invest safely. Discover the various ways to invest in bitcoin.

Purchasing stand-alone bitcoins

One of the various ways to invest in bitcoin is by buying the coin or a fraction of it on a cryptocurrency exchange such as Coinbase or Binance and holding them for as long as you wish. But first, you have to establish an account with the exchange, provide your personal information and deposit the money you will use to buy the digital coins. Keep in mind that some exchanges have a minimum deposit amount required to purchase bitcoin.

From there, you set up a bitcoin wallet that only you can access and store your bitcoins. Like stocks or ETF, you now have access to bitcoin's price and performance, and you can buy or sell anytime. You can trade online, including exchanging your bitcoin with another currency. However, you must ensure the safety of your bitcoin wallet.

Bitcoin trusts and funds

If you would like to invest in bitcoin but are not comfortable handling or owning bitcoin yourself, you can invest by buying shares in a publicly-traded bitcoin trust. Just like mutual funds and ETFs (Exchange-Traded Funds), bitcoin funds and trust provide a portfolio that trades or holds the digital asset.

The Grayscale Bitcoin Trust (GBTC) provides the best way to buy bitcoin since it monitors the currency and trades through the traditional financial market. Grayscale offers some benefits that make a bitcoin investment more digestible. For instance, GBTC shares are eligible for holding in certain IRA, Roth IRA, and other investor accounts and brokerage. That simplifies access for all levels of investors in multiple accounts. Note that the fees for funds and trust can be relatively high.

Through crypto stocks

One of the safest ways of investing in bitcoin is through crypto stocks. A crypto stock refers to a company involved in the bitcoin world in one way or another. Examples of crypto stocks include:

  • Tesla- Tesla Inc's CEO Elon Musk, earlier this year invested $1.5billion in bitcoin and announced that the company would support bitcoin as a form of payment.

  • Square- since October 2020, the company has invested in more than $200billion worth of bitcoins and accepts it as a form of payment.

  • Salesforce- this company develops blockchain solutions, the underlying technology behind bitcoin. It is not directly involved with bitcoin, but if the currency gets into the mainstream financial market, the company will benefit.

When investing in crypto stocks, you should focus on the company's solidity and not just on the fact that it is involved with bitcoin. A solid company will prosper despite what the future of bitcoin is, and if it turns out to be a game-changer, the stocks will have higher returns.

Financial and investment apps

Recently several financial and investment apps are getting into the cryptocurrency space. A good example is Paypal that late last year, began allowing its customers based in the US the capability to sell or make purchases with bitcoin and other three cryptocurrencies (Bitcoin Cash, Etherium, and Litecoin).

For many potential investors, the challenge is opening an account with exchanges that are not regulated and going through the identity verification process. People with PayPal accounts can now skip all that. But the downside to buying bitcoin via PayPal is that you cannot transfer your coins to your wallet or anyone else. Additionally, you cannot transfer your bitcoin to a crypto exchange for trading other altcoins.

Mining bitcoin

Mining bitcoin is also among the ways to invest in bitcoin. It involves solving cryptographic puzzles in a process known as proof of work to earn bitcoin as a reward. However, you need to invest in mining, which can be financially draining, including high electricity and powerful computers.

Note that there are special servers specifically designed for mining digital currencies. In most cases, miners combine their resources to form mining pools and then share the profits. 

Tips for reducing your risk exposure when investing in bitcoin

  • Ensure your security- crypto exchanges and wallets are still susceptible to hackers, and you have to keep it safe and secure. Always use a secure internet connection and do not store large amounts of bitcoin in your software wallet.

  • Start small while increasing your investment portfolio- bitcoin is very unpredictable, so it is better to start small and gradually increase your investment. Only invest in an amount you are willing to lose.

  • Maintain a buy and hold sentiment- given the high volatility of bitcoin, focus on investing for the long term to boost your chances of profiting.

  • Keep taxes in mind- bitcoin is under the property category and not money; therefore, it is subject to taxes like other investment assets.

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