An investor’s guide to cryptocurrencies: 5 things you need to know about Bitcoin

16 Jan 2019
Getting Started

If you’re looking at investing in cryptocurrencies, Bitcoin is a reasonable choice to start with – if for no other reason than it’s the cryptocurrency that’s been around the longest, with the most extensive track record in valuations and trades.

Bitcoin arrived in the world in late 2008, when someone using the name ‘Satoshi Nakamoto’ published a paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System”. The first Bitcoin itself was actually mined a few months later, in January 2009. All of the hundreds upon hundreds of other cryptocurrencies around today have come on the heels of that initial Bitcoin.

So what else do you need to know to get started as a Bitcoin investor today? Consider the following:

1. Know what you’re getting into
Unlike fiat money – dollars, Euros, yuan, etc. – Bitcoin is not backed by a government or central bank. That means your Bitcoin investments won’t come with the government protections given to, say, bank deposits or stock purchases. And unlike commodities like oil or gold, Bitcoin doesn’t have a traditional recognition of utility or value on the world market. In other words, Bitcoin can be worth as much or as little as the market decides it’s worth, and can swing wildly from highs to lows in a short period of time. The more you can read about and research Bitcoin basics – resources like this are a good place to start – the better.

2. Don’t over-extend yourself or expect to get rich quick
The fundamental bit of advice for any type of investment – don’t invest more than you’re comfortable losing – applies to Bitcoin investing as well. And so does the standard warning against get-rich-quick schemes. Yes, some people like the Winklevoss twins made fortunes by getting in on ‘the ground floor’ of Bitcoin. But that moment has long passed. Smart Bitcoin investing today will depend on more strategic, longer-term thinking.

3. Choose your tools, partners and advisors wisely
Buying and selling Bitcoins is generally easiest using any of a number of cryptocurrency exchanges, which allow you to pay for purchases and cash out by linking transactions to a debit card or bank account. Again, because your Bitcoin assets aren’t protected like other types of investments, it’s best to research your choice of exchange carefully: some (Mt. Gox, among them) have fallen victim to major hacks or crashes, so look for providers with solid track records, reputable backers and fair terms and conditions. Be sure to exercise equal caution with the people and organisations whose investment advice you consider.

4. Keep a close eye on market conditions
Base your decisions on when to buy or sell on more than just Bitcoin’s price – it’s also wise to track transaction volumes and other market trends via technical analysis. New developments on both the technology and regulatory side can also have significant impacts on your investment strategy: look, for example, at how the market was hit hard by the recent Bitcoin Cash hard fork and the Securities and Exchange Commission’s decision to reject yet another proposal for a Bitcoin exchange traded fund (ETF). Many different market factors – including potential manipulation and other odd developments – can affect how appealing, or not, Bitcoin investments will look on any given day.

5. Don’t panic
Despite the differences between Bitcoin and other more traditional forms of investment, there’s at least one way in which they’re similar: smart investors take the long view. Short of Bitcoin diving to a value of zero and dying, investments in the digital currency will always have ups and downs that you should be prepared to ride out. Yes, 2018 has proven to be a bad year for Bitcoin investors, but – as this chart shows – investments made in any other year in the past would still be worth more today than they were before.

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