May 18, 2024

Bitcoin Investment: 5 tips to invest in the crypto asset

Since Bitcoin came into existence in January 2009, the virtual digital asset (VDA) has established itself as the largest cryptocurrency in the world. More than 350 million individuals globally invest in Bitcoin, and the launch of Bitcoin ETFs earlier this year has only ensured its rising popularity and acceptance as an alternate currency, especially among young investors. Bitcoin has also been instrumental in the rise of other cryptocurrencies, the development of blockchain technology and overall growth in the number of individuals associated with it.

However, all cryptocurrencies, including Bitcoin, remain unregulated to date and come with the risk of significant volatility. The price fluctuations have long kept millions of investors far away from the world’s oldest cryptocurrency, but the adoption rate of it has increased considerably in the last couple of years. In fact, India is currently the world’s second-largest cryptocurrency market by estimated transaction volume, which underlines its rapidly rising popularity.

New investors in Bitcoin must keep their minds open, and do their due diligence before deciding to invest in Bitcoin, as it does not only offer a huge payday but also stark uncertainty at times. Purchasing or mining Bitcoin can often be tricky, so here are some tips that will offer some insights to beginners thinking about entering the crypto market.

Understand the basics

Before beginning to invest in Bitcoin, users must emphasise understanding the practicalities and core aspects of the cryptocurrency, its price action and its volatile nature properly. Having a strong understanding of what a user is investing in helps them to make informed decisions, reducing the scope of incurring losses.

Miners use their knowledge of the blockchain system to create extra coins and record transactions, find the right time to purchase or sell, as well as predict market volatility. It also helps investors understand the tax regimes in their respective countries in a better way, helping them to attain financial freedom with ease.

Set risk appetite

Most of the users who enter the Bitcoin market, do so to make significant profits in a short period. However, while Bitcoin has generated considerable returns in the past few years, it has also dipped periodically when thousands of investors incurred huge losses. This is why investors must establish their risk appetite beforehand, setting down some ground rules on how much loss they can bear and when to sell, if they are not prepared to incur more losses. Setting a risk appetite helps investors avoid risking all their capital, allowing them to buy on the dips and improve the chance of making profits.

Prepare for price fluctuations

Cryptocurrencies, especially Bitcoin, are known widely for price fluctuations. As an example, on March 14, Bitcoin traded for $71,827 ahead of the halving event. Following the halving event, on May 1, it dipped to as low as $57,038, highlighting its highly volatile nature. There are a few strategies that can help investors manage their portfolios properly in case of price fluctuations, which emphasise passive investment strategies for the long term, in contrast to the active strategies used by traders and investors alike to make short-term gains. New investors must understand the fact that for a cryptocurrency like Bitcoin, only long-term holding offers capital appreciation, along with considerably low expenses and taxes.

Maintain distance from trading bots

Similar to established investment avenues like the equity market, Bitcoin also comes with trading bots that claim to provide accurate investment tips that include buying recommendations. However, the majority of the time these trading bots are proved to be scams and unreliable at best. Many beginner investors have lost a significant portion of their capital by making decisions based on information provided by these bots, as no algorithm exists in reality that provides 100% accurate recommendations. Some of these bots are also known to be promoting fraudulent activities such as phishing, leading to serious losses.

Come up with a long-term goal

Similar to other investment avenues, investors looking to park their capital in Bitcoin should also establish a long-term financial goal which will drive their investment strategy in the domain. A financial goal could be anything, from purchasing a house to retirement. The trading strategies vary depending on the financial goal an individual has, as their general goal needs to be synonymous with their trading positions along with their risk management techniques. Also, the more prolonged an investor’s financial goal is the more chance of making a profit through Bitcoin, as has been underlined by top Bitcoin experts around the world.

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