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Ways To Invest In Bitcoin

WAYS TO INVEST IN BITCOIN

May 29, 2021 | 

730 Views | 

JOHN K MWANIKI | 

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Bitcoin has remained the most promising investment in the crypto world over the last decade. It's currently performing very well as more and more institutional investors are buying the asset and it's also backed by major banks. Recently, Tesla Inc, one of the most prestigious companies, bought $1.5 billion worth of Bitcoin.

At the same time, Paypal has made a significant move by announcing that it'll 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 loses value as quickly as it rises. This year it's seen sharp fluctuations, falling by around 20% three times since January 2021.

Some investors think Bitcoin is the absolute gamechanger in the financial market, while others aren't so optimistic about its potential.

Some retail investors find it difficult to invest in Bitcoin because it's still shrouded in mystery and banks and brokerage houses refuse to deal in it.

Not everyone can handle the high risks of Bitcoin investing, but the volatility offers more profit opportunities for risk-takers. If you're determined, there are always better ways to minimise your risks and invest safely. Discover the different ways to invest in Bitcoin.

Buy single Bitcoins

One of the different ways to invest in Bitcoin is to buy the coin or a portion of it on a cryptocurrency exchange like Coinbase or Binance and hold it for as long as you want.

First, however, you need to set up an account with the exchange, provide your personal details and deposit the money you want to use to buy the digital coins. Note that some exchanges require a minimum deposit to buy Bitcoin.

You then set up a Bitcoin wallet that only you can access and buy your Bitcoins. Like stocks or ETFs, you now have access to the price and performance of Bitcoin and can buy or sell at any time.

You can trade online and also exchange your Bitcoins for another currency. However, you've to take care of the security of your Bitcoin balance.

Bitcoin trusts and funds

If you want to invest in Bitcoin but don't feel 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 trusts provide a portfolio in which the digital asset is traded or held.

The Grayscale Bitcoin Trust (GBTC) offers the best way to buy bitcoin as it oversees the currency and trades through the traditional financial market. Grayscale offers some advantages that make bitcoin investments more digestible.

For example, GBTC shares can be held in certain IRA, Roth IRA and other investor accounts and brokerages. This simplifies access for all investors with multiple accounts. Note that fees for funds and trusts can be relatively high.

About crypto stocks

One of the safest ways to invest in Bitcoin is through crypto stocks. A crypto stock is a company that's a stake in the Bitcoin world in one way or another. Examples of crypto stocks are:

  • Tesla:
    The CEO of Tesla Inc, Elon Musk, invested $1.5 billion in Bitcoin earlier this year and announced that the company will support Bitcoin as a payment method.
  • Square:
    The company has invested in more than $200 billion worth of Bitcoins since October 2020 and accepts them as payment.
  • Salesforce:
    This company develops blockchain solutions, the technology behind Bitcoin. It's not directly involved in Bitcoin, but if the currency gains a foothold in the financial market, the company will benefit.

When investing in crypto stocks, you should focus on the soundness of the company and not just the fact that it's involved with Bitcoin.

A solid company will be successful regardless of what the future of Bitcoin looks like, and if Bitcoin proves to be groundbreaking, the shares will generate higher returns.

Financial and investment apps

ways for maning bitcoins

Recently, several finance and investment apps have entered the cryptocurrency space. A good example is Paypal, which late last year started allowing its customers in the US to buy and sell Bitcoin and other three cryptocurrencies (Bitcoin Cash, Etherium and Litecoin).

For many potential investors, the challenge is opening an account on exchanges that aren't regulated and undergoing identity verification. Those who have a PayPal account can save themselves all that.

However, the disadvantage of buying bitcoin through PayPal is that you cannot transfer your coins to your wallet or to another person. Also, you can't transfer your Bitcoin to the crypto exchange to trade other altcoins.

Ways to Mine Bitcoin

Mining Bitcoin is also one of the ways to invest in Bitcoin. This involves solving cryptographic puzzles in a process known as Proof of Work to get Bitcoin as a reward.

However, you need to invest in mining, which can be financially demanding as you need high electricity costs and powerful computers.

There are special servers designed specifically for mining digital currencies. In most cases, miners join together in mining pools and then share the profits.

Tips for reducing risk when investing in Bitcoin

  • Pay attention to your security - crypto exchanges and wallets are still vulnerable to hackers and you need to keep them secure. Always use a secure internet connection and don't buy large amounts of Bitcoin in your software wallet.
     
  • Start small and increase your investment portfolio - Bitcoin is very unpredictable, so it's better to start small and increase your investment gradually. Only invest in an amount that you're willing to lose.
     
  • Stick to a buy and hold attitude - given Bitcoin's high volatility, you should focus on long-term investments to increase your chances of winning.
     
  • Keep taxes in mind - Bitcoin falls under the category of property, not money, and is therefore taxable like other investments.

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