Bitcoin made headlines over the past few years for making a lot of people rich. At the same time, many people lost a lot of their investments once the Bitcoin bubble burst. Cryptocurrency can make you a lot of money but, then again, you need to know what you’re investing in.
Are you thinking about buying Bitcoin and investing money in it? Did crypto get your attention and pique your curiosity? We’ve put together 5 things to know before buying Bitcoin. Knowing this can help you assess if this cryptocurrency is right for you.
- Bitcoin Is Risky and Volatile
Bitcoin, and crypto in general, are some of the riskiest investments you can do. Crypto is extremely volatile, which means its price changes rapidly every time. It can change day to day and even hour to hour – which is something that a few day traders take advantage of.
The price of Bitcoin can jump up in a matter of hours which, for some, is a great way to make a quick buck. As long as you buy low and sell high, that should give you a good chunk with your return on investment. However, the problem is that the flip side is possible too.
Depending on your payment solutions, your cryptocurrency purchase can be posted immediately or after a while. If its value falls, there’s a chance to lose money if you don’t hold. Bitcoin changes in value heavily due to supply and demand, market trends, and even regulations and legislations.
Know the risk when you start buying Bitcoin. Watch market trends and see if you’re buying at a low point for the currency so you can start low and eventually buy high. Never sell if you’re losing money at the crypto’s current value.
- Bitcoin Transactions Are Transparent
Bitcoin, for all its criticisms, is one of the most transparent investments that you can do. Unlike stocks and bonds whose trading can be hard to follow, crypto in general uses blockchain, acting as a distributed ledger for the entire network. Every transaction is public and can be verified, traced, and found within Bitcoin’s blockchain.
Every transaction that you do, from buying to selling Bitcoin, is detailed as public information available. You’ll see real-time updates, with purchases broadcasted throughout the network. For all its transparency, Bitcoin is extremely anonymous too.
Unlike banks, Bitcoin is tradeable only through your Bitcoin wallet. It doesn’t ask for any pertinent personal information like name, address, or any identifying information. Bitcoin is also easy to move without too much cost.
Unlike the average fiat currency, you don’t need third-party services to move Bitcoin. The only fee you’ll experience is the blockchain fee, paid as a way to pay for the energy cost used for the transaction. For those buying from service providers, you’ll pay an extra 1 to 2% for the “spread”, which is the difference in value for how they buy and sell Bitcoins.
- Bitcoin Is Not As Bad For The Environment As You Think
If you’re an environmental warrior, you likely heard about criticisms about Bitcoin mining and its environmental sustainability. The geography of Bitcoin mining changed over the past few months, mostly due to changes in the legislature in China, where many Bitcoin miners existed.
Due to national policy, China is now banning any Bitcoin mining activities within the country. The crackdown led to crypto miners dropping by around 50% overnight, cutting down on the impact of Bitcoin mining on the environment. This helped cut down the environmental impact of the entire system.
In addition, Bitcoin miners are moving to countries where renewable energy is cheaper. As the entire process itself is dependent on the renewable energy used by mining devices, knowing is half the battle. For those looking to go into Bitcoin, you can look for providers who guarantee net-zero emissions or something close.
- You Can Buy Small Amounts of Bitcoin
Bitcoin value can be extremely high, going up to the hundreds of thousands in value per Bitcoin. Even then, you don’t have to buy a full Bitcoin to get into the cryptocurrency. This basic concept is something many brand new traders fail to realize, especially if they’re doing everything themselves.
Most buyers can purchase a very small fraction of a Bitcoin, divisible by up to eight decimal places. This puts the minimum you can buy at 0.00000001 bitcoins, also known as a “Satoshi”. The Satoshi, working as Bitcoin’s cents, comes after the name of the alleged creator of the cryptocurrency, Satoshi Nakamoto.
Many trade amounts can start with a very low minimum, most within the range of $5 to $10. This equates to around 11,000 to 22,000 satoshis (0.00011 to 0.00022 bitcoins). You can start low and see where your money goes for now, and then invest higher when its value goes up.
- Don’t Invest for Fear of Missing Out (FOMO)
It’s hard to resist buying into a fad for a fear of missing out (FOMO). Considering the many crypto-millionaires and people buying homes with their crypto profit, it’s hard to deny the pull of such feats. When you hear of such details, be wary about coming in and going all-in with your investment, as you might be a victim of “herding.”
Herding is a type of social bias that makes you do what your peers do, believing that everyone knows better and you’ll reach the same success they did. The problem is that, as we noted, Bitcoin is heavily affected by supply and demand. As more people buy Bitcoin and its value grows, many also cash out and sell Bitcoin.
It’s important that, as you buy cryptocurrency, research every action that you do. Know what you’re buying. Don’t be that person who buys a currency thinking it’s on the low, only to discover that you’re sold falling crypto. Some people push people to buy and then move towards a pump and dump. Evaluate if this is the right investment for you.
The Bottom Line
There’s no free lunch when you’re investing money. Whether you’re buying Bitcoin, stocks, or other cryptos, you need to know what you’re getting yourself into. Do not buy more than your capacity and make sure to research the market before doing anything else.
Go only to trade providers you can trust. Rather than follow the crowd, understand the market yourself and see when’s the right time to invest. Bitcoin is a great investment portfolio that can make you a lot of money. If you can handle its level of volatility, this can be a fantastic way to get extra income.