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How To Invest In Bitcoin – A Detailed Guide For Beginners

Regiena Regunathan
WRITTEN BY
UPDATED
August 05, 2022

With all the hype around cryptocurrencies, it’s not surprising many people are wondering how to invest in Bitcoin (BTC).

 

If you’re unfamiliar with crypto, buying Bitcoin can sound pretty abstract. The good news is that it’s easy to understand once broken into actionable steps. In this article, we’ll tackle the complexities of investing in Bitcoin and make it easy for even absolute beginners to start their crypto journey.

 

 

One thing to keep in mind is that Bitcoin is a highly volatile currency, just like all cryptocurrencies. You may be experiencing FOMO, but remember that you need to be prepared to accept the risk and know what you’re getting into. It’s best to have an investment game plan in place before diving headfirst into buying Bitcoin.

 

5 Simple Steps To Invest In Bitcoin

 

1. Choose a crypto exchange

 

To begin, you’ll need to decide where you want to buy Bitcoin. There are a number of ways to purchase BTC, including:

 

  • Crypto exchanges
    These help to facilitate the transaction of buying and selling Bitcoin, similar to a brokerage in the world of stock investing.
  • Paypal
    It’s possible to buy cryptocurrency using a PayPal account linked to a bank account or other form of payment. A second choice is to buy cryptocurrency from a third-party vendor using the available funds in your PayPal account.
  • Credit Card
    The procedure for buying Bitcoin using a credit card is the same as the procedure for buying it with a debit card. To complete the purchase, you must enter your credit card information into the exchange or online trading company.
  • Bitcoin ATMs
    Bitcoin ATMs function similarly to physical Bitcoin exchanges. People may put cash into a machine and use it to buy Bitcoin, which is subsequently sent to customers’ online wallets.

 

Today, we’ll be focusing on crypto exchanges since they provide a wide range of functions and more coins for trading. The convenience of investing via a crypto exchange is the main reason many take this route. You can purchase, trade, and hold cryptocurrencies by signing up for the crypto exchange of your choosing.

 

Some of the most famous crypto exchanges include Coinbase and Gemini, but you’ll want to do some research before you settle on one.

 

coinbase mainpage

 

One of the most important factors to consider when picking a crypto exchange are the fees that can be incurred. The two common ones you’ll encounter are:

 

  • Trading fees
  • Withdrawal fees

 

What are trading fees?

 

Trading costs may be levied as a fixed proportion of the total amount of cryptocurrency you purchase or sell. Alternatively, the crypto exchange you choose may charge a specific percentage depending on whether your order is a maker or a taker.

 

Maker-taker fees, which are based on market price swings, are commonly used by exchanges with active trading facilities. If you choose to buy Bitcoin at the market price, you will be charged the taker fee which is usually higher than the maker fee.

 

However, you may place a limit order to purchase Bitcoin at a specified time. Alternatively, you may specify a price that you wish to buy at and wait for the market to reach that level. This is referred to as a limit order, and it comes with a “maker” cost.

 

As a consumer, you’d hope to pick the exchange that offers the lowest fees, however, obsessing over the details of maker and taker fees might be unproductive because you have no control over whether your order is handled as a maker or a taker.

 

Instead, think about total costs and any savings you could get by investing a certain amount of Bitcoin through that exchange.

 

What are withdrawal fees?

 

When you withdraw Bitcoin from a platform, many exchanges impose a fee. For example – if you wish to move your crypto to a safe third-party wallet or another exchange, you may encounter this fee. The withdrawal costs are usually different depending on the coin.

 

 

2. Choose your crypto wallet

 

coinmarketcap wallet

 

Next is to select and sign up for a crypto wallet.

 

Don’t be fooled by the name – unlike a traditional wallet, which carries physical cash, crypto wallets don’t truly ‘keep’ your cryptocurrency. Instead, your assets are stored on the blockchain, where only a private key may be used to access them.

 

Crypto wallets essentially store the secure digital codes that are required to interact with this blockchain network. They help verify that you own your crypto assets and enable you to transact them. It’s important not to lose your private keys – you’ll lose access to your assets!

 

Understanding the two types of crypto wallet

 

There are two kinds of crypto wallet: a hot wallet and cold wallet.

 

  • A hot wallet is linked to the internet, and typically quicker and simpler to exchange or use cryptocurrency. However, your assets can be exposed to cyber assaults that result in theft.
  • A cold wallet isn’t directly connected to the internet, and in this sense can be considered more secure. However, they’re typically less convenient.

 

Head to our popular guide on the Best Crypto Wallets for a deeper dive into finding the right crypto wallet for you.

 

 

3. Fund your crypto wallet

 

This step is pretty simple. Once you’ve selected your crypto wallet, you’ll need to link your bank account to it to fund the wallet.

 

There will be some standard information required upon funding your account like your ID, salary range, etc. The info required will vary based on the exchange you choose. Fill in all the information correctly and submit your request.

 

You can fund your account either via credit or debit cards or bank transfers depending on the crypto exchange. Depending on how you load your account, you may incur varying costs – normally, bank transfers are less expensive than card choices.

 

 

4. Place an order for your Bitcoin

 

Once a payment option has been selected, you can place an order for your Bitcoin.

 

It’s possible that you will be able to place both market and limit orders. A market order indicates that you want to buy cryptocurrencies right now, at the current market price. You will place a limit order if you wish to pay a certain price for the coin.

 

Once the Bitcoin has reached the price of your choice, your order will go through and you will have successfully invested in Bitcoin.

 

 

5. Manage your Bitcoin investment

 

From now on, all you have to do is manage your investment.

 

Depending on your investment strategy, you may want to hold the coins for a long period or wish to sell them off once the value appreciates, reaping the profits. Getting familiar with charting tools like Tradingview can help you monitor the movements of the market, as well as joining communities and forums of Bitcoin enthusiasts. The more you learn, the better!

 

Just remember – it’s best to have an investment strategy when it comes to Bitcoin as it is a highly volatile asset. For example, if you do decide to invest in Bitcoin, start with a small percentage of your income or savings before going all in or have a diversified investment portfolio to cushion the risks faced with Bitcoin investment.

 

 

Make Sure You Understand Bitcoin First

 

bitcoin deco logo

 

Before you jump into investing, it’s important to have an understanding of what Bitcoin is and how it works.

 

What is Bitcoin?

 

Bitcoin is digital money that runs independently of any central authority or government monitoring. In other words, it’s decentralized digital money that may be bought, sold, and exchanged without the use of a middleman such as a bank.

 

Systems like Paypal rely on the old banking system for authorization to wire funds whereas Bitcoin is decentralized – anybody, anywhere in the world, may send Bitcoin to each other. In fact, it’s even possible to find jobs that pay in Bitcoin rather than a traditional salary (more on the pros and cons of accepting Bitcoin as payment here).

 

Wait, but what’s a blockchain?

 

A blockchain logs and records each Bitcoin transaction, and has the same function as the banking system or a bank’s ledger that records the movement of money in and out of a customer’s account. However, unlike a bank’s ledger, the Bitcoin blockchain is decentralized and dispersed over the whole network. Since it’s not under the authority of any corporation, government, or third party – anybody can join it.

 

The blockchain is a connected set of data built up of components called blocks that include data about every transaction. The entries are then connected in a chronological sequence, forming a digital blockchain. The blockchain is one of the most significant aspects of Bitcoin, as it monitors the assets of each individual, similar to how a bank manages assets.

 

I’ve heard people say that Bitcoin is ‘mined’. How?

 

Mining rigs are specialized computers that run the calculations necessary to validate and record a new transaction. In the beginning, a standard desktop PC was strong enough to participate, allowing anybody who was interested to try their hand at mining.

 

Mining one Bitcoin in October 2019 requires 12 trillion times the computational power it did when Nakamoto mined the first blocks in January 2009. The computers necessary these days are big and frequently owned by corporations or large groups of people pooling their resources.

 

The Bitcoin network runs a continual raffle in which all of the world’s mining machines compete to solve a complex mathematical problem. Every 10 minutes or so, a winner is chosen, and that winner adds new valid transactions to the Bitcoin ledger and is rewarded handsomely

 

 

Why Was Bitcoin Created In The First Place?

 

To understand why Bitcoin was created, let’s take a look at who created Bitcoin.

 

The concept of Bitcoin was initially disclosed online in late 2008 by Satoshi Nakamoto in a white paper. Bitcoin was a big breakthrough in computer science when it first arrived since it solved a basic difficulty of online commerce.

 

The one question that was running through everyone’s mind was – How can you conduct a transaction without a middleman?

 

The goal of developing this digital cash system is to eliminate the need for third-party middlemen in digital monetary transactions. Third parties pay considerable fees in providing these services, which are passed on to end-users and might limit transactions.

 

 

Is Bitcoin A Good Investment For You?

 

Before you decide on whether Bitcoin is a good investment, think about your personal objectives and what you want to achieve by investing in something. Ask yourself these questions before you invest:

 

  • Do I have the risk appetite to invest in Bitcoin?
  • What does my investment horizon look like?
  • How soon would I need access to my investments?
  • Am I comfortable with rapid declines and losses in my investment?
  • How much am I willing to lose?
  • What am I investing for?

 

Bitcoin, like all other cryptocurrencies, has no fundamental value. It is not backed by any physical object and is not controlled by any regulatory body to keep its constant value.

 

Unlike stocks, the value of Bitcoin is unrelated to the profitability of any single company but is determined by market demand. The value of Bitcoin will rise as more people purchase it and will fall as fewer people purchase it.

 

As cliché as it may sound, you should do your homework first and make sure you know what you’re getting into with crypto investments. Make sure that any crypto investments you make do not interfere with other objectives, including financing your major savings goals, like the real-estate purchase.

 

 

3 Important Tips For Investing In Bitcoin

 

Still unsure if you should invest in Bitcoin? Here are some tips for you to consider.

 

1. The saying “Go big or go home” does not apply here

 

There is no shame in starting small. Just because you see people investing large amounts does not mean you should.

 

Many individuals are still dubious about the viability of cryptocurrencies. It’s okay to be interested, but don’t feel compelled to invest an amount you are not comfortable with simply because everyone is doing so.

 

Don’t just succumb to the fear of missing out – you should always aim to protect your wealth.

 

2. Analyze your risk tolerance

 

At the risk of sounding like a broken record, analyzing your risk tolerance is the way to go when it comes to any form of investment. If the risk is too much to bear, perhaps consider other investment options.

 

3. Diversification is key

 

In order to optimize your profits, diversify your assets to limit the amount of risk you’re exposed to. Diversification can aid in risk management and decrease the volatility of an asset’s price changes. However, keep in mind that risk may never be totally avoided, no matter how well diversified your portfolio is.

 

If you’re looking for diversification ideas, check out our article on the best investment ideas to date.

 

 

So, will you be investing in Bitcoin?

 

There’s no doubt that Bitcoin is a highly volatile asset with significant and rapid price fluctuations. It offers the potential for large profits but also carries considerable risk.

 

Before coming to any conclusions, think it through and do your own research before following the hype and investing in Bitcoin. To protect yourself against market volatility, we’d always recommend diversifying your investment portfolio. Good luck!

 

 

Regiena Regunathan

About The Author

Regiena is a full-time banker and passionate content writer. She loves all things books and coffee-related and finds solace in being tucked away with either.