Have you thought about investing in Bitcoin?
Are you feeling overwhelmed by the endless amount of information on how to get started with crypto investments?
This guide will help you understand Bitcoin investments for beginners. You’ll learn how Bitcoin works and how you should plan your investing strategy.
This will also give you a good idea of investing in crypto if you look into other coins in the future.
Let’s start by looking into why Bitcoin investments have become popular.
What Bitcoin Is For
Bitcoin paved the way for different cryptocurrencies and remains the most popular coin.
It got started as an alternative form of currency for the digital world. As Bitcoin has risen in popularity, we’ve also seen it become an acceptable currency for physical goods and services.
But it’s also become an investment asset. As of this publication, the price of 1 Bitcoin has reached slightly above $60K. Many people have become millionaires and even billionaires from selling their Bitcoins.
Now you can decide what your approach toward Bitcoin should be. Do you primarily wish to use it as a form of money or as an investment asset?
Let’s look into the pros and cons of each approach.
Why should you consider using Bitcoin as a form of currency? What makes Bitcoin a great alternative to your fiat currency?
First, you want to understand how fiat currency works. Fiat currency refers to the money created by central banks. The legitimacy of this currency is determined by the government of the country.
For example, the U.S. Dollar is printed by the U.S. Federal Reserve. Its legitimacy is determined by the U.S. Federal Government.
While this might seem harmless, it also has several dangers. For example, what happens if the currency is no longer considered legal tender? Consider how many European countries abandoned their native currencies in favor of the Euro.
The French Franc was no longer the official currency of the French Republic as of 2002. Franc coins could get converted to Euros until February 17, 2005. Franc banknotes could get converted to Euros until February 17, 2012.
So what happens if you’re French and still have a few Francs lying around today? In short: they are worthless. They can’t get accepted as legal tender.
This means that the government has the power to decide whether your money can get used or not! This can be done on a whim and without the consent of the people!
No Gold Standard
Now let’s look at another issue with the current monetary system. Our current fiat currencies aren’t backed by gold bullion.
Before President Nixon took the U.S. Dollar off the gold standard, all fiat currencies were backed by the country’s gold reserves. This enforced a discipline on government spending. It also meant that the fiat currency’s purchasing power remained stable.
In 1944, the U.S. Dollar became the reserve currency of the world. This meant that foreign nations would purchase U.S. Dollars to hold them in reserve. The central banks of those nations would issue their native currency based on how many U.S. Dollars were held in reserve.
The U.S. Dollar remained backed by the country’s gold reserve. However, when President Nixon took the U.S. Dollar off the gold standard, it meant that central banks could print fiat currency at will.
What was the effect of this drastic change? It meant that the rate of fiat currency printing grew exponentially! It meant that the purchasing power of fiat currencies would weaken with each passing year.
This means that the fiat currency you hold today won’t be able to buy you what you want within your lifetime. No longer can you expect to save large sums of money and depend on the cash for your retirement.
This lack of discipline with printing money has not been challenged for decades. That is, until Bitcoin was born.
Bitcoin as Money
Since fiat currencies aren’t backed by a nation’s gold reserves, there’s an infinite supply of each fiat currency. The greater the supply of a fiat currency there is, the weaker its purchasing power becomes.
So what’s the solution if we aren’t returning to a gold standard anytime soon?
The answer is to have a currency that has a finite supply. Bitcoin can only have a maximum of 21 Million coins in circulation. This makes it a more stable currency than fiat currencies!
This is the first reason why you should want to consider buying Bitcoin. If you’re concerned about losing your purchasing power, you might want to use Bitcoin as your fiat currency loses value.
If you take this approach, you shouldn’t worry about the value of your Bitcoins in your local fiat currency. Your focus should be on accumulating as many Bitcoins as you can. The advantage of this approach is that you can take your time with accumulating your Bitcoin.
You should also research if there are any Bitcoin ATMs in your area. Services such as Byte Federal offer ATMs where you can dispense Bitcoin to your smartphone.
This also gives you an idea of Bitcoin adoption in your area. This is something you must keep an eye on as you start buying Bitcoin.
The major concern about Bitcoin as money is whether it’ll be considered a legal tender. El Salvador is currently the only country that has declared Bitcoin a legal tender. Other countries, such as China, have banned Bitcoin altogether!
Keep this in mind as you accumulate Bitcoin. You want to consider whether you’ll have the option of using it as currency in the future!
Bitcoin as an Investment
The second approach is if you wish to accumulate Bitcoin as an investment asset. This is the more popular approach at present.
Upon its release in 2010, each Bitcoin cost around $10 per coin. The highest price recorded as of October 2021 has been just above $66,000.
As you can expect, someone who bought 100 Bitcoins in 2010 could sell those Bit coins today and retire as a multi-millionaire! With this approach, you also want to accumulate as many Bitcoins as possible.
The current challenge with this approach is the high price of Bitcoin. Unless a Bitcoin price crash occurs, it’ll take time for the average person to accumulate whole Bitcoins.
You’ll also have to consider when you’ll want to sell your Bitcoins. For example, let’s return to our previous example of owning 100 Bitcoins since 2010. If, as of October 2021, one sold those 100 Bitcoins from 2010, they would make a profit of close to $6 million!
But what happens if you sell in one or two months? What if you wait for one more year before you sell your 100 Bitcoins?
There’s a chance that you’ll make an even greater profit. But there’s also the danger that the price will crash and you’ll make a lower profit. There’s also the danger that your Bitcoins will lose their fiat value altogether!
Investing in crypto is one of the riskiest investments one can make. Crypto investments can make fortunes and can also result in huge losses.
Make sure you set a date when you’ll sell your Bitcoin. You have to be comfortable with raking in the profit at the time, knowing you might miss out on a greater opportunity in the future.
How to Hold Bitcoin
Once you’ve decided your approach with Bitcoin, your next step is to determine how you’ll hold your crypto.
You need to hold your Bitcoin using a crypto wallet. You can either opt for a web exchange or a hardware wallet.
A web exchange is the easiest way to buy Bitcoin. You can use fiat currency or other cryptocurrencies to buy Bitcoin. A web exchange holds your Bitcoin for you. This is the same approach as a bank holding your fiat currency.
The major advantage of this web exchange is how convenient it is. The disadvantage is that a web exchange is more susceptible to hacking. It also doesn’t give you full control of your Bitcoin.
The alternative option is to buy a hardware wallet. This is a physical device that’s usually the same size as a USB flash drive. With this option, you hold all your Bitcoin. You can think of it as holding cash as opposed to storing your money in a bank or offshore vault.
If you value convenience, then a web exchange is the best option for you. If you value security, then you want to choose a hardware wallet.
Once you’ve decided on your crypto wallet option, you can start accumulating Bitcoin. Now let’s look at the future of Bitcoin and what crypto buyers should know.
Protect Your Bitcoin
Just as you’re protective of your fiat currency, you should take precautions to protect your Bitcoin.
The first is to understand how the Public Address and Private Address work. Each crypto wallet comes with each of these addresses.
The Public Address you can give to others when you wish to send or receive Bitcoin. The Private Address helps you access your wallet and view your Bitcoin accumulation.
You can think of your Public Address as your email address which you don’t mind sharing with others.
Just as you wouldn’t share your password with others, never share your Private Address. If your Private Address gets shared, anyone can hack your crypto wallet and steal your Bitcoin.
As you accumulate Bitcoin, you want to keep up with the latest news surrounding cryptocurrency.
As Bitcoin rises in popularity, many jurisdictions welcome its use. But one must also be aware of the jurisdictions that are clamping down on Bitcoin use.
Bitcoin Laws and Regulations
As discussed earlier in this guide, Bitcoin became a legal tender in one country yet got banned in another.
Whether you want to use Bitcoin as a form of money or an investment asset, you must keep track of your country’s laws and regulations.
Restrictions on Bitcoin as Money
For example, does your country allow Bitcoin as a form of payment? Even if your government hasn’t discussed plans to adopt Bitcoin as legal tender, many countries allow Bitcoin as a form of payment.
You want to keep an eye on countries that have banned cryptocurrency or might do so in the future. In such cases, you might get compelled to hand in your Bitcoin under penalty of the law.
One must remember that the governments and central banks of the world despise competition!
They don’t want an alternative form of currency to compete with their fiat currency. They understand that crypto buyers will use Bitcoin as a hedge against inflation — in the same manner that gold gets used for the same purpose.
As such, you want to make sure you’re in a jurisdiction that isn’t showing plans of restricting the use of Bitcoin as a currency.
Regulations on Bitcoin for Building Wealth
Since most Bitcoin owners use it as an asset for investment, most regulations revolve around the taxation of your cryptocurrency.
It’s always important to follow the laws and regulations of your jurisdiction. But you also want to ensure that the laws and regulations are favorable to Bitcoin investments.
For example, Singapore allows the purchase of Bitcoin and other cryptocurrencies. The country abolished its capital gains tax on Bitcoin as well. This makes it a favorable jurisdiction for building wealth with Bitcoin.
Countries such as the U.S., U.K., Russia, and Japan require extensive reporting on Bitcoin and other cryptocurrencies. These countries are likely to charge high levels of taxation on profits earned from selling or trading Bitcoin.
It’s likely that, in general, developing nations might have a more favorable attitude toward Bitcoin. Governments from such countries might see Bitcoin as a method for boosting their economy. First World nations that have been wealthy for generations might increase restrictions as Bitcoin’s popularity rises.
Start Investing in Bitcoin
Now you can start investing in Bitcoin and becoming part of the crypto community!
Your first step should be to determine whether you want to use Bitcoin as a form of money or as an investment asset. Afterward, decide on whether you’ll want to use a web exchange or hardware wallet to store your Bitcoin.
Make sure you keep track of your country’s laws and regulations on Bitcoin. This will be a crucial step for protecting your Bitcoin in the future.
You can find more great guides on investing in crypto on our website!