At the beginning of 2017 if you had bought a bitcoin the price of that coin would have increased by almost 8 times. If you had bought bitcoin at the beginning of 2016 value of the same would have increased by 20 times.
So the million dollar question rather 100 billion dollar is “should I invest in bitcoin”.
Before I go further for beginners let me clarify bitcoin is not an asset class like stock or bonds it is just a currency rather a digital currency and currency values moves differently from other asset classes. So let us jump into 5 things you should know before investing in Bitcoin.
Bitcoin is not a company, it is a currency
A lot of people think of Bitcoin as some sort of company who you are buying into. It is not. Bitcoin is a cryptocurrency or digital currency run as an open source project and controlled by the community. Investing in a currency is different from investing in any other asset. Value of stocks go up as profits go up but currencies do not make a profit as such. The key factor which can grow the value of a currency is its widespread adoption resulting in lot more demand and utility. So before you invest in bitcoin do remember it is a currency.
Investing in Bitcoin or the Bitcoin ecosystem
Investing in bitcoin is not same as investing bitcoin ecosystem. You can choose to invest in bitcoin as well as invest in bitcoin ecosystem. So you can invest in bitcoin mining or companies related to bitcoin mining. You can also invest in exchanges which facilitate bitcoin-based transactions.
Understanding the purpose of your Investment
Like with any other investment once you start investing in bitcoin be very clear on purpose of your investment. Are you looking to trade in bitcoin or you are looking to invest for long terms. If you are looking to trade in bitcoin then make sure you have the right technical analysis for you to make a call. If you are looking to invest for long-term, then it is pertinent that you understand bitcoin ecosystem in detail. Look up a history of bitcoin. Follow news on bitcoin. Read and understand the risks bitcoin faces from the regulation perspective, community challenges, and Fork challenges.
Bitcoin investment portfolio approach
Any investments in bitcoin should be done as part of the portfolio approach. Personally, I would classify bitcoin or any other crypto investment as a very high-risk category investment so will allocate my resources accordingly. It is very important to not lose sight of basic personal finance principles while making investments in bitcoin. Please sit with your financial planner and chalk out how bitcoin investments fit into your financial plan. Assets come and go sound investment principles do not change.
Securing your Bitcoin Investments
For bitcoin investments, it is not just about investing but also how do you secure these investments. While you can keep the bitcoins in the exchanges and hold them on exchange provided wallets. I would not recommend that. Many exchanges have been hacked in past and sometimes exchange might block your account, as a result, your bitcoins can be stuck. I recommend once you buy bitcoins move them to a personal wallet. I recommend using hardware wallets.
Finally, do we have the answer on Should I Invest in Bitcoin? Probably not. As you would have realized it is not a simple decision it will vary from person to person, from the nature of investment you want to make. Risk you are comfortable with. But I am sure with some of the guidelines above you will take a more informed decision.
If you have any questions please ask in comments.
Disclaimer: The opinions expressed in this blog are the author’s own and do not reflect the views of Paisabazaar.com. Paisabazaar.com does not assume any responsibility or liability for the same.