Bitcoin is a new kind of currency that is beginning to achieve global appeal. In light of the recent rapid evolution of Bitcoin’s value, an increasing number of individuals are participating in this digital currency with the hopes of generating enormous gains over time. This article covers the fundamentals of investing in Bitcoin and ways to make Bitcoin part of your investment portfolio. Remember that we are discussing long-term investment, which is distinct from Bitcoin trading for short-term profits.
Bitcoin and cryptocurrencies are still a very new asset type and low market cap compared to stocks and gold; hence the price can fluctuate largely and very volatile. For others, investing in the very unpredictable and volatile cryptocurrency market might not seem like a sensible option. Idealistically, you would have steel nerves, the willpower and concentration to overlook short-term rewards, and the fortitude to hold your asset until the appropriate time.
If you’re committed to owning a small portion of the crypto market, you need at least be aware of the most effective strategies for maximizing your investment.
1. Dollar Cost Averaging Method
This technique is ideal for novice investors since it eliminates the requirement to join the industry at the optimal time. You don’t have to worry about waiting for the price of Bitcoin to drop; instead, you may buy at frequent intervals to reduce the risk and store your cryptocurrencies in a cold, secure wallet.
For instance, if you have $100 to spare each week, you can purchase Bitcoins each week. Some weeks $100 may purchase more Bitcoin, while other weeks it may purchase less. You must just be consistent enough to adhere to your normal pattern and make purchases, when necessary, without consulting Bitcoin price charts. You do not wait for the price to drop simply because the charts show a downward trend; instead, you immediately purchase Bitcoins.
Using the dollar cost averaging strategy, when you plan to sell your Bitcoins, your gains will likewise average out. If you buy using the lump sum strategy, you may not come near to profits, but if you sell at the correct moment (when the value is high), you will still make a substantial profit.
2. Lump Sum Investing Method
The lump sum strategy is a riskier way to invest in Bitcoins because you will purchase them at a single price point. If you have $100,000 to invest, you will want to buy as many Bitcoins as possible, so you wait for the price to drop. To optimize your investment, you will be required to purchase Bitcoins at the lowest feasible price. This strategy requires you to “time” the market in order to purchase at the optimal time.
Obviously, this is easier said than done when dealing with a volatile asset like Bitcoin. It is exceedingly tough to estimate when the next price drop will occur so that you can buy at that price. Attempting to time the market can give inexperienced investors significant worry and headaches. You may find it difficult to sell your lump sum investment in the near future since you will be waiting for the optimal time to sell in order to maximize your profit.
You will attempt to forecast the highest price point, and you would berate yourself if you sold too early and lost the opportunity for a much larger profit. The advantage of the lump sum investment approach is that if you can purchase at the lowest price and sell at the maximum price, you will make a significantly larger profit than if you had bought Bitcoins using the dollar cost averaging method.
3. Crypto Hedge Fund Investing Method
Investing in a Bitcoin hedge fund may be preferable if you do not wish to understand the fundamentals of investing through dollar cost averaging or lump sum methods. This approach, however, is best suited for individuals who can afford to pay the management and performance fees.
The management charge is paid upfront; some funds need a 2% management fee, so if you invest $100,000, $2,000 will go toward the management fee, leaving $98,000 for cryptocurrency investments. Furthermore, your hedge fund manager will receive a portion of your profits. Some managers want a 20% performance fee, so if your investment yields a profit of $50,000, $10,000 will be deducted as an incentive fee.
The hedge fund method may not be suitable for all investors, but if you look past the fees, you might consider a hands-off approach to investing that could be highly rewarding for you and your hedge fund management.
How To Succeed In Bitcoin Investing
Bitcoin investment is similar to stock investment. Both are high-risk, high-reward investments that are not suitable for everyone. Bitcoin is much more volatile than stocks, therefore if you want to invest in this or any other cryptocurrency, you must be familiar with the following techniques.
1. Have A Solid Plan In Place
Neither invest naively nor because everyone you know has purchased Bitcoins. In order to invest successfully, you must have a sound plan outlining your entry and exit points. Your plan must be consistent with the investing strategy you want to pursue. Therefore, if you use the dollar cost averaging strategy, you must have a concrete plan for how much and how frequently you will purchase Bitcoins.
For lump sum investments, you must know in advance the price at which you will purchase Bitcoins and buy at that price (don’t wait for it to drop). You must evaluate the expenses associated with investing in hedge funds and determine the optimal timing to invest.
2. Be Prepared For Volatility
This is the most important strategy to master. Everyone is aware that Bitcoin is an extremely volatile asset, with prices fluctuating by hundreds of dollars within minutes. You may believe that you already know it will be volatile because you have viewed charts and graphs and practiced using a demo Bitcoin exchange account.
You persuade yourself you can manage the danger. When thousands of real money is at stake, though, the situation is considerably different. Especially if you’ve earned those funds through hard labor! You may have worked for it for months or years, yet there is a very real possibility that you may lose everything in a matter of minutes.
The best course of action is to completely disregard the dips. If you don’t do something to unwind and take your mind off of Bitcoins, you will literally go insane. Investing in Bitcoin is comparable to a roller coaster ride; you must hold on very tightly until the journey is over!
3. Keep Calm And Don’t Panic
This is a pretty simple statement to make to anxious investors, but it is an entirely different experience to be the panicked one. The idea of losing thousands of dollars is enough to induce a mental collapse, which would inevitably lead to crazy decisions. If you are unable to think clearly, you may consider cutting your losses immediately without considering the long-term consequences. If you played your cards well, your Bitcoins would be significantly more valuable than when you purchased them. However, you will never experience this if you sell in a panic.
4. Keep Perspective
Bitcoin investment is a long-term financial endeavor. It differs from day-to-day trading, which requires a great deal of technical analysis to generate a profit. When investing in Bitcoin, it is necessary to zoom out of Bitcoin price charts and consider the big picture. Avoid glancing at the daily, weekly, or monthly charts because doing so will only cause you tension.
Consider how far Bitcoin prices have advanced. From merely a few cents at the beginning to thousands of dollars presently and according to analysts, this rising tendency will continue for many years to come, so if you can ride through the highs and lows of Bitcoin, you will have a highly lucrative investment portfolio within the next few years.
5. Patience And Discipline Are Keys To Success
Investing in Bitcoin is a long-term endeavor. You must exercise patience when the price of Bitcoin and your investment fall. Since its inception in 2009, Bitcoin has been on an upward trend, so you only need to ride out the troughs until you reach the right crest at which you’ll be satisfied to sell your Bitcoins.
In the realm of Bitcoin investment, there will be numerous troughs and peaks. You must just have the discipline to stay on to your investments and not be frightened when prices drop too low. Similarly, do not get overly thrilled when the price increases. A strong strategy, perseverance, and self-control will lead to Bitcoin investment success.
Do not berate yourself if you purchased Bitcoin at a price far higher than the current price. And there is no point in being furious with yourself if you sold your Bitcoins prematurely and the price has since increased. Nobody is able to forecast the future. Therefore, the best thing for you to do is to focus on making a profit and not to consider “what if” scenarios, as doing so won’t help you at all. The saying goes that hindsight is always 20/20. If everyone could see the future, we would have all invested in Bitcoins when they were initially introduced by Bitcoin’s originator, Satoshi Nakamoto.