How to Invest in Bitcoin
Are you interested in learning how to invest in bitcoin? If so, you have come to the right place. Cryptocurrency is considered by some to be an “experimental investment.” However, it’s quickly become a great asset for many investors’ portfolios.
Stocks, bonds and mutual funds are traditional investments. Yet, more people are considering investing upwards of 10% of their portfolio’s in bitcoin. Why is this popular cryptocurrency more enticing than ever before?
Learn How to Invest in Bitcoin
While bitcoin sounds like the perfect match for investors, there are some red flags to consider before investing. For example, bitcoin comes with a high degree of risk. It’s also subject to much more volatility than the stock market.
Before you learn how to invest in bitcoin, it’s important to understand what it is in the first place. So, what is bitcoin? It’s a decentralized digital currency that can be sent from peer-to-peer through different networks. More so, this is done without the need for any mediator.
These transactions take place through a public ledger known as the blockchain. It’s similar to making purchases with the U.S. dollar.
When a consumer makes a purchase, banks and credit card companies must verify the accuracy of the transaction. Bitcoin does the exact same thing, but at a lower cost. It uses a system known as hashing. A hash is a complex mathematical problem.
First, the blockchain checks each transaction for accuracy. Once a computer solves the hash, it will permanently store the transaction as a block on the blockchain. At this point, there’s a bitcoin reward. This process is known as bitcoin mining. And the successful miners receive new Bitcoin.
There are many ways you can buy bitcoin, or any other cryptocurrencies. The most popular options include traditional stockbrokers, bitcoin ATMs and cryptocurrency exchanges.
Different Ways to Invest in Bitcoin
Now that you have a basic understanding of the blockchain, you can begin to learn how to invest in bitcoin. Cryptocurrency exchanges and traditional stockbrokers are the two most popular options for bitcoin buyers.
Cryptocurrency exchanges charge a fee for bitcoin transactions. This is often a percentage of the purchase price. The most common crypto exchanges are Coinbase, Binance, Gemini and Coinmama.
Coinbase is easily the most popular of the bunch, though Binance is the world’s largest exchange in terms of volume. Most U.S. buyers go with Coinbase because it’s much easier to setup an account. You can link your bank account and have immediate access to bitcoin and many other cryptocurrencies.
Coinbase charges a fee of about 0.5%. Binance, on the other hand, charges a 0.1% fee, along with a withdrawal fee. If you would like to bypass fees altogether, you may want to consider a traditional stockbroker.
Robinhood was the first traditional broker to get in on the action. Their stock-trading application offers bitcoin trades with no fees. It works in a similar light to stock transactions.
Outside of cryptocurrency exchanges and investment brokers, you can also invest in bitcoin through:
- Peer-to-peer exchanges
- Bitcoin ATMs
- Bitcoin futures
- Grayscale funds
You can buy bitcoin directly from its owner through a peer-to-peer exchange. However, it’s important to be cautious in these types of transactions. There are also more than 3,000 bitcoin ATMs across the country.
How to Store Your Bitcoin
You can’t learn how to invest in bitcoin if you don’t know how to store the cryptocurrency properly. When you sign up for bitcoin trading, you will need to provide some information. This often includes your Social Security number, a bank account, credit card or debit card.
We do not recommend using a credit card for bitcoin purchases. Most credit cards come with higher interest rates. And, borrowing money for investments is usually a bad idea.
You will also need to have a digital wallet to store your bitcoins. In general, there are two kinds of digital wallets: a hot wallet and a cold wallet.
Both have their benefits. Hot wallets are faster than cold wallets, but a cold wallet provides extra security measures. You can usually access your wallet through an app or your computer. For instance, Coinbase offers free online hot wallets for its users. It also insures any losses due to a security breach, which has happened in the past and is always a possibility when storing bitcoin.
Cold wallets cut some risk out of the picture. These are portable devices that allow you to download your bitcoin directly. Now you can carry your bitcoin around with you.
Two popular cold wallet providers are Trezor and Ledger Nano. The cost of cold wallets varies and can reach upwards of $200.
Understanding How to Invest in Bitcoin
Bitcoin is growing in popularity for many reasons. The current stock market volatility is a key factor in itself. For more information about the latest investment opportunities, sign up for our daily e-letter below. The experts at Investment U provide up-to-date tips and trends on cryptocurrency, traditional stocks and everything in-between.
You should always be cautious when investing, but this holds much more meaning with bitcoin. Now that you know how to invest in bitcoin, you can begin to enhance your portfolio in new, exciting ways.
About Corey Mann
Corey Mann is the Content Manager of Investment U. He has more than 10 years of experience as a journalist and content creator. Since 2012, Corey’s work has been featured in major publications such as The Virginian-Pilot, The Washington Post, CNN, MSNBC and more. When Corey isn’t focusing on Investment U, he enjoys traveling with his wife, going to Yankees games and spending time with his family.