Why invest in Bitcoin BTC? What are Bitcoin investment pros and challenges? Here is everything you need to know about Bitcoin investing.
Taking a quick trip down memory lane - had you bought a single Bitcoin back in 2009 - you would have paid less than 1 cent. And today? The digital currency is trading at over $18,000.
Put simply, this means that had you invested $100 into Bitcoin just over a decade ago, you would now be looking at returns of $179 million.
Indeed, this is nothing short of phenomenal. As such, it goes without saying that a lot of retail clients are now looking to invest in Bitcoin. The key problem is that a lot of people don’t quite understand how this cryptocurrency works - which is why they are reluctant to take the plunge.
This is where we come in. This Ultimate Guide on How to Invest in Bitcoin will tell you everything you need to know - in plain English. This includes an explainer on what Bitcoin is, how you can make money investing in Bitcoin BTC, and crucially - how to make an investment today.
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How to Invest in Bitcoin in 5 Easy Steps
To invest in Bitcoin, the first step is to Open an accout with a regulated exchange, depost funds, select Bitcoin from the platform list, and lastly check & confirm that coins have added to your Wallet.
This guide on how to invest in Bitcoin will break everything down in Layman’s terms so that you do not make a purchase blindly. But, if you don’t quite have the time to read it all of the ways through, this is what you need to do to invest in Bitcoin right now.
Step 1: Open an account with a regulated broker or exchange
Step 2: Deposit some funds with a debit/credit card, e-wallet, or bank transfer
Step 3: Choose how much Bitcoin you want to invest
Step 4: Confirm the investment
Step 5: Leave your Bitcoin stored until you decide to cash out
What is Bitcoin?
Before we get to the nitty-gritty of how to invest in Bitcoin, it makes sense that we briefly explain what this innovative technology actually is. Put simply, Bitcoin is a digital currency that was launched in 2009.
It is not owned or controlled by any single person, government, or central bank. As a result, this makes Bitcoin ‘decentralized’. It is also transparent, as each and every transaction that is posted to the Bitcoin network is available to see on the public ledger - known as the ‘Blockchain’.
In order to buy Bitcoin, you can do this through an online exchange or broker. You can store your digital coins in a private wallet which can be downloaded to your desktop device or mobile phone. Or, you can leave the coins at a regulated broker for safekeeping.
Like any asset class with value, the price of Bitcoin goes up and down throughout the day. Whether it rises or falls is dependent on market forces via demand and supply. The overarching objective of investing in Bitcoin is, therefore, to sell your coins for more than you originally paid.
How Does the Invest in Bitcoin Process Work?
The easiest way to understand a Bitcoin investment is to think about a traditional asset like stocks.
For example, you would buy shares in a company because you think it will increase in value. Then, when you get around to selling the shares, you hope to do so at a higher price.
Crucially, this is no different from investing in Bitcoin. That is to say, you will be holding onto your Bitcoin until you are ready to sell. You can do this through your chosen Bitcoin broker - less fees.
Nevertheless, here’s a basic example of how the Bitcoin investment process works:
- You open an account with an online Bitcoin broker
- You deposit $500 and invest the full amount into Bitcoin
- At the time of the purchase, Bitcoin is worth $15,000
- You hold on to the coins for five years
- When you get around to cashing out, Bitcoin is worth $50,000
- This translates into a price increase of 233%
As per the example above, you originally invested $500 into Bitcoin and made returns of 233%. This means that in total, you turned $500 into $1,665.
Why Should you Invest in Bitcoin?
There are many reasons why you might decide to invest in Bitcoin.
1. Unprecedented and Unrivalled Returns
We noted earlier than since it was launched in 2009 - Bitcoin has grown from a fraction of $0.01 to a five-figure asset class. This represents returns in the millions of percentage points. It is for this reason that more and more people are looking to gain exposure to Bitcoin.
Even in recent years, Bitcoin has outperformed virtually every financial marketplace there is. For example, the S&P 500 Index has gone from 2,090 points to 3,629 points - growing by 73% along the way. Sure, this represents superb returns for investors.
However, during the same 5-year period, Bitcoin has gone from $387 to 52-week highs of $19,400. In real terms, that's a 5-year increase of almost 5,000%. As such, had you invested $500 back then, your Bitcoin purchase would now be worth over $25,000!
2. Uncapped Returns
There really is no knowing just how big this digital currency can get over the next 5, 10, and 20 years. Crucially, Bitcoin should not be compared to a Tech growth stock like Tesla or Square.
Sure, these promising stocks have returned triple-digit gains this year. But, there is only so much longer that these stocks can continue to grow at this pace. This is in stark contrast to Bitcoin - largely because of what it represents.
At its core, Bitcoin is a digital currency - meaning that it is highly conducive as a means to pay for goods and services. This is something that we are already seeing - with the likes of Japan now home to over 250,000 Bitcoin-accepting stores.
Additionally, Bitcoin is also referred to as a store of value like gold - which we cover shortly. All in all, as Bitcoin is a borderless phenomenon, its long-term potential is virtually limitless.
3. Store of Value
Bitcoin operates as a great store of value. After all, its supply is finite at 21 million coins. It is expected to reach this figure in 2140.
When it does, no more Bitcoin will ever be produced. Much like gold, this ensures that in theory - the value of Bitcoin will continue to rise indefinitely.
Ready to invest in Bitcoin?
How to Invest in Bitcoin - Various Options Available
There are several ways in which you can invest in Bitcoin. Without a shadow of a doubt, the easiest way to do this is to use an online broker. In doing so, it’s just a case of opening an account, depositing some funds, and then deciding how much you wish to invest.
However, it is also possible to invest in Bitcoin via a specialist ATM.
Let’s explore how this works.
There are now more than 12,400 Bitcoin ATMs across 71 different countries. If you're not familiar with how these work, they are specialist ATMs that allow you to invest in Bitcoin. You will be required to enter cold-hard cash - which is then converted to Bitcoin.
Then, the Bitcoin ATM might print a receipt that contains a unique wallet code. You then need to download a Bitcoin wallet, scan the QR code found on the receipt, and the coins will be added to the wallet.
You are 100% responsible for keeping your Bitcoin safe. This means that you should never allow anyone to gain access to your wallet - as they would have the capacity to transfer the coins out.
It is for this reason that Bitcoin ATMs are not the best way to invest in this digital currency. In fact, if you choose to invest in Bitcoin in this way, expect to pay huge fees. For example, we have come across Bitcoin ATMs that charge a markup of over 10% - sometimes more.
The easiest and most cost-effective way to invest in Bitcoin is via an online Bitcoin broker. In doing so, you can invest from the comfort of your home. There are hundreds of online platforms that allow you to buy Bitcoin, so we’ll explain how to choose one for your personal needs later on.
But, the main premise is that you simply need to open an account and make a deposit with an everyday payment method. Regulated brokers like eToro allow you to fund your Bitcoin investment with a debit/credit card, e-wallet, and bank transfer.
Once you have invested in Bitcoin at your chosen broker, you might be able to leave the coins stored on the platform. But, you should only do this if the broker is fully-regulated and employs institutional-grade security practices.
If not, then you might be best to withdraw the Bitcoin out to a private wallet. As we noted earlier, you can download a Bitcoin wallet to your desktop or mobile device. There are also hardware wallets available - which are recommended for large purchases.
How to Choose an exchange Platform to Invest in Bitcoin
With so many brokers and exchanges competing for your business, knowing which platform to go with can be a daunting task.
To help clear the mist, below we have listed some of the factors you need to look out for when choosing an exchange platform for your needs.
Important Factors When Choosing a Bitcoin Exchange:
1. Licensing and Reputation
You wouldn’t use an unregulated broker to buy shares or bonds, would you? As such, you should only invest in Bitcoin with a platform that has the legal remit to do so.
The key problem here is that hundreds of cryptocurrency exchanges operate in an unregulated manner. This is because Bitcoin is classed as legal tender in most nations - so regulation is somewhat of a grey area.
The good news is that there are regulated platforms like eToro that allow you to invest in Bitcoin in a safe and secure manner.
This is because the broker is regulated by the FCA (UK), ASIC (Australia), and and FinCEN (USA). For those of you based in the USA, you’ll be pleased to know that eToro is registered with FinCEN as a Money Services Business.
2. Pricing and Commission
As you likely know - brokers are in the business of making money. As such, your chosen Bitcoin trading site is going to charge you a fee when you make an investment. Most brokers charge a variable commission which is then multiplied against your stake.
For example, if the broker charges 2% and you invest $1,000 - you will pay $20. You would again need to pay this 2% commission when you sell your Bitcoin investment.
eToro, however, allows you to invest in Bitcoin commission-free. Not only is this the case with Bitcoin and 15 other digital currencies - but heaps of stocks and ETFs, too.
3. Minimum Bitcoin Investment and Payments
In the vast majority of cases, your chosen Bitcoin broker will have a minimum investment in place. Baring in mind just how volatile Bitcoin is, you’ll want to choose a platform that allows you to invest small amounts.
eToro, for example, allows you to invest from just $25 into Bitcoin. This is great for keeping your stakes low and ensures that you do not invest more than you can afford to lose.
When it comes to payments, this is also a crucial metric that you need to explore before opening an account. This is because some brokers only allow you to deposit funds via bank transfer.
This is a slow process that can take many days to complete - both in terms of deposits and withdrawals. This is again why eToro is so popular with Bitcoin investors, as it supports instant payment methods like debit/credit cards, Paypal, Skrill, Neteller, and more.
4. Storage and Cashing Out
While the above metrics have focused on the initial investment process, you also need to think about storage. After all, Bitcoin is a decentralized digital currency and thus - it needs to be stored safely in a private wallet.
As we covered earlier, a lot of Bitcoin investors will store their coins in their own wallet - which gives them full control over the funds. However, this does mean that you stand the risk of being hacked. It is also less convenient when it comes to cashing your Bitcoin investment out.
With that in mind, you might be best off leaving your coins at your chosen broker. But, this is on the proviso that the platform is heavily regulated. After all, you will be entrusting your investment with the provider in question - so top-notch security practices are a must.
This is once again why we suggest licensed platform eToro. Not only does the broker hold three regulatory licenses and have institutional-grade security controls in place - but you can cash out your Bitcoin investment at the click of a button - 24/7.
Tips on How to Invest in Bitcoin and Make a Profit
Seasoned investors from all asset class sectors are able to make consistent profits because they have a clear strategy in play. While there is no one-size-fits-all strategy in the Bitcoin scene, we would suggest considering the following tips before you make an investment.
Top tips on how to invest in Bitcoin:
Tip 1: Set Some Financial Goals
There are many ways in which you can approach a Bitcoin investment. For example, some people invest to make a quick profit by timing the market well. In other cases, you might be looking to invest in Bitcoin over many, many years.
Either way, it is important to set some clear and realistic financial goals before you invest in Bitcoin. This might be something as basic as setting a price target. For example, you might decide to keep hold of your investment until Bitcoin hits $50,000.
Tip 2: Dollar-Cost Average Your Bitcoin Investments
While Bitcoin is the best performing asset class over the past decade, it is also the most volatile. This can make an inexperienced investor nervous and subsequently cause sleepless nights. After all, you are risking real money when you invest in Bitcoin.
For example, Bitcoin went from $10,000 to $5,000 in a matter of a fortnight in the first quarter of 2020 - representing a decline of 50%. You might have been super-tempted to cut your losses when this freefall occurred.
However, those that held on saw Bitcoin hit $19,000 just 8 months later. Crucially, this highly volatile price action can be avoided completely by engaging in dollar-cost averaging. This means that you invest a fixed amount periodically.
For example, you might invest $200 in Bitcoin at the end of each month. In doing so, your cost price will constantly vary and thus - average out over the course of time. This means that you don’t need to worry about short-term volatility.
Tip 3: Diversify Your Bitcoin Investment
Diversification is important with all asset classes - but even more so when investing in Bitcoin. Put simply, this means that you should never put all of your eggs into one basket - namely Bitcoin.
For example, you might want to dedicate 10% of your investment into cryptocurrencies and the rest into more established and stable asset classes like stocks and bonds. In taking such an approach, diversification protects you in the event that your Bitcoin investment doesn’t quite go to plan.
How to Invest in Bitcoin Today - Step-by-Step Walkthrough
So now that we have covered the ins and outs of what a Bitcoin investment entails, we are now going to walk you through the purchase process.
By following the steps outlined below - you could make your first Bitcoin investment with eToro in less than 5 minutes!
How to invest in Bitcoin in 6 easy steps:
Step 1: Open an eToro Account
To get the ball rolling, head over to the eToro website and open an account.
You will need to provide some personal information - such as your name and country of residence.
You’ll also need to create a username/password and confirm your contact details. All of the above should take no more than 2 minutes.
Step 2: Upload Some ID
By using eToro to invest in Bitcoin, you are using a heavily regulated broker. In turn, this means that you will need to upload some photo ID as per anti-money laundering laws.
This includes your passport/driver’s license alongside a document that verifies your residency status. The latter can be a bank statement or utility bill. eToro usually verified the documents instantly.
Step 3: Make a Deposit
You will need to make a deposit if you want to invest in Bitcoin at eToro. This needs to be at least $200 - although you need to invest the full amount into Bitcoin. On the contrary, you can allocate just $25.
In term of supported payment methods, this includes the following:
- Debit Card
- Credit Card
You can also deposit funds via bank transfer.
Step 4: Search for Bitcoin
As soon as you have made a deposit at eToro, you can proceed to invest in Bitcoin.
The platform doesn’t specialize exclusively in Bitcoin, as it also offers trading shares, ETFs, and CFD trading services. As such, you can search for Bitcoin to go to the respective investment page.
Step 5: Complete Bitcoin Investment
To complete the Bitcoin investment process at eToro, you simply need to enter the amount that you wish to invest. This needs to be at least $25. Finally, click on the ‘Open Trade’ button.
In doing so, your commission-free Bitcoin investment will be processed instantly. The coins will then be added to your eToro portfolio.
Step 6: Cashout Your Bitcoin Investment
Although you likely won’t be looking to cash out your Bitcoin investment for several months or years, we should quickly explain how this is done at eToro.
When the time does arise, simply head over to your portfolio and elect to sell your Bitcoin. You can sell all of it in one go and just a small percentage of your investment.
Either way, as soon as you confirm the sale the cash will be added to your eToro balance. You can then withdraw the money back to your debit/credit card, e-wallet, or bank account!
Have you considered investing in BTC?
How to Invest in Bitcoin - The Bottom Line
In summary, although investing in Bitcoin might seem like a daunting task - it really doesn’t need to be. As we have explained in this How to Invest in Bitcoin Guide, the process can be completed in less than 5 minutes.
By using our top-rated broker eToro, you’ll be able to invest from just $25 without paying a single cent in commission. Most importantly, your investment is safe - not least because eToro is licensed by the FCA, CySEC, and ASIC - and registered with FINRA in the US.
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eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.
How much should I invest in Bitcoin?
There is no ‘right’ amount of money to invest in Bitcoin. After all, it depends on your personal budget, financial goals, and appetite for risk. With that said, you can invest in Bitcoin from just $25 at eToro - which is an inconsequential amount for most.
Is Bitcoin a good investment in 2021?
Bitcoin is more than quadrupled in value in 2020 - subsequently outperforming most asset classes. Whether or not this trend continues into 2021 remains to be seen. This is why you are best advised to dollar-cost average your investments.
How do I start investing in Bitcoin?
The easiest way to start investing in Bitcoin is through a regulated online broker like eToro. All you need to do is deposit some funds with a debit/credit card, e-wallet, or bank account - and then choose how much you wish to invest.
Can I invest $100 in Bitcoin?
You certainly can. In fact, platforms like eToro allow you to invest from just $25. This is because Bitcoin can be fractionated and thus - is highly conducive for smaller investments.
Can you lose money on Bitcoin?
Yes, like all investments Bitcoin can lose you money. This will happen if you cash out your Bitcoin at a lower price than you originally paid.