Should You Jump On the Bitcoin Bandwagon?

Bitcoin After the Crowd Rushed In

Why Am I Hearing About Bitcoin Everywhere?

The numbers are jumping up and down second-by-second and day-by-day, where the value of this cryptocurrency was once six cents is now worth $3,394.18 to this minute of the day.

For a couple of years, Bitcoin was very affordable and upsurged in 2013, only to lose value, then increase again. What’s unique about Bitcoin this year is that the value for the cost of one coin only keeps increasing. Yes, $3,394.18 is the price you will have to pay including commission for you to own one Bitcoin.

Sure it’s incredibly volatile and that it may not always be steadily increasing, but the value is significantly higher than it has ever been before. Investors aren’t really sure whether we are witnessing the creation of a bubble or the beginning of worldwide acceptance.

So How Do You Invest?

Before you ask if you should invest into Bitcoin, it’s best to consider how you want to invest. There are a few ways you can invest, but the most common technique is probably the buy-and-hold method. The buy-and-hold method is simply the process of buying an asset (Bitcoin) and holding it because you have speculated that it will increase in value. If it does increase in value, you made gains. If it decreases, you lost some money. Because Bitcoin is so volatile and so convulsive, you have to take extreme precautions. These precautions are:

• Consider your risk tolerance — look at how much money you are honestly willing and able to lose if the value of Bitcoin were to suddenly collapse.
• Assessing the amount of time you are willing to hold your assets before selling them.
• Consider if this is really the best type of asset to invest in or if there are better alternatives.
• Buy your Bitcoins from trustworthy exchanges and store them in your personal wallet (can be either desktop or phone, in hardware, or on the Web). Do not leave your Bitcoins in the exchange. If the exchange gets hacked, you will lose your money.

A common but efficient technique for buying and holding an asset like Bitcoin and stocks is the use of dollar cost averaging. Dollar cost averaging is the process of buying fixed amounts of an asset each month, no matter if the value is increasing or decreasing. This means you shouldn’t buy all the Bitcoins you want in one trade, but rather spreading your transactions out over the course of the year. The dollar cost averaging technique is best used for awfully risky investments, but it’s not the best technique for less riskier ones. The reason for why it’s applicable is simple — dollar cost averaging keeps you from losing all the money you had overnight. Imagine you had invested a large sum into a couple of a company’s stocks one day. When the next morning rolls around, you hear that the stock market crashed or perhaps the company you chose to invest in tanked. Maybe the company you invested in had bad news spring up that harmed their reputation. Maybe that company believed they were infallible, and then filed for bankruptcy because they weren’t prepared for the stock market crash. Of course, this scenario is unlikely to happen (that’s why if you do decide to invest, you should keep an eye on current market conditions), but if it did happen, you would have lost all of your money in a blink of an eye. If you’re going to run in like a bull, at least know that you could possibly lose a whole lot of money.

Now imagine you had that same sum available to invest in that company, and you decided to take the dollar cost averaging approach. Instead of buying twelve shares of a company’s stock in one sitting, you buy just one each month. The next morning after you bought that one stock, you hear some devastating news regarding the market, the company’s industry, or the company itself. Because you used dollar cost averaging, you lost only a portion of your money instead of all of it. This same concept goes for buying Bitcoin or any other cryptocurrency.

As for less riskier investments (or investments without any significant risk at all), it wouldn’t be smart to use the dollar cost averaging technique. It wouldn’t make sense to invest a small portion of money into a savings account when you could invest all of it because only that small portion will be compounded. You’re only slowing down the time it takes for you to receive a nice return on investment (ROI).

If you decide to buy Bitcoin and you plan to use the dollar cost averaging technique, it is important to remember that you can buy Bitcoin in fractions. You don’t need to buy whole numbers of Bitcoin. Instead of paying $3,394.18 for one Bitcoin, you can pay $33.55 for 1% of one Bitcoin. You can pay $335.42 for 10% of one Bitcoin, it’s really up to you how much you are willing to risk from your first payment.

Other Ways To Invest Into Bitcoin

Another technique for investing into Bitcoin or any high-risk asset is swing trading. Although trading is technically more advanced than buying-and-holding, and is not recommended to brand-new investors. Swing trading is the exact opposite of the buy-and-hold technique. It involves buying at a low price and selling at a higher price within a short amount of time, whether that may be a few days to a few months. If done correctly, traders can earn remarkable profits from Bitcoin’s high volatility rate when trades are made during swings. The higher the risk, the higher the returns or losses.

Swing traders typically base their investment decisions on technical indicators rather than through fundamental analysis like buy-and-hold users (“hodlers”) do. Traders can discover whether an asset (such as stock or Bitcoin) has been oversold or overbought through technical techniques such as the Bollinger Band, the Relative Strength Index (RSI), and the Stochastic Oscillator. Fundamental analysis looks at a company’s financial statements, how the business may be managed, how they compare to their competitors, and how they sustain themselves in the market. On the other hand, technical analysis is a method for predicting price directions and changes from past data of the rates of volume at each price. Because technicians have confidence in the belief that they will repeat investing behaviors that has been shown throughout trading history, they rely on previous price patterns and market trends to make the “right” decision. There are many techniques used in the technical analysis process, but the oldest one that is still commonly used today is the Candlestick Analysis. This method effectively determines the current market emotions that surround Bitcoin. A great way to get started on using technical analysis is to try Bitcoin trading demos that are available on some websites.

The last technique used for buying Bitcoin, or in this case obtaining it, is through a process called Bitcoin mining. Mining is a process where Bitcoin miners can verify transactions and add these blocks of transaction records to the blockchain. It is also how new Bitcoin is made available to the public. Anyone can be a Bitcoin miner. Although, the catch is that you must be willing to waste a ton of electricity to run your computer and the software it needs to compute mathematical problems to be rewarded with Bitcoin. After you have done the work, you must prove that you actually did it with a hash, which basically compresses large amounts of data. Bitcoin uses a hashcash algorithm referred to as SHA-256 for a miner’s proof of work. Unfortunately, Bitcoin mining isn’t as lucrative or profitable like it once was, and it takes ages for you to see your ROI before you exceed your electricity budget. It is better to just buy Bitcoin straight from an exchange at this point.

To Buy Or Not To Buy

Keep in mind that there are a few disadvantages to making investments into Bitcoin. There are a lot of scams out there who say they will “double your Bitcoin” or “yield high returns” for you, and next thing you know your money is gone. There’s no buyer protection when you purchase from a vendor using Bitcoin, and there are still flaws within the system that hackers could exploit. Without a central authority to govern cryptocurrency, Bitcoin’s minimum value cannot be established and it’s value could fall entirely overnight if people decide to leave the system. The reason why you’re seeing high spikes in Bitcoin prices is because there is a huge demand for it with a limited amount supplied, meaning there is a shortage of Bitcoin. There will be about 21 million Bitcoin minted in total, and because not all 21 million have been released yet, the price for one Bitcoin will only continue to rise. For a while, the emotions of the Bitcoin market will be crazy, and the peaks and falls will continue to be unpredictable. After that, who knows. Maybe Bitcoin will replace fiat currency, or maybe Bitcoin’s popularity will diminish and other cryptocurrencies will be used. No one can really say what Bitcoin’s future will consist of, but all they can say is to keep watch and study it.

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