With global cryptocurrency markets on an extended losing streak, Bitcoin continues to lead the way, down 55% year-to-date, and over 70% since its peak in November last year. While this has led to falling conviction among long-term investors, a few others point to the beginning of a new growth cycle, especially for beginners who’ve missed out on its unprecedented rally over the past two years.
As with most things crypto, it’s hard to predict if the coin has bottomed out, or what the future holds for Bitcoin, and the broader ecosystem. Pundits who have proclaimed the demise of the currency on each bottom have been proven wrong time and time again, so it is very much possible that the current all-time low is nothing but an opportunity for substantial wealth creation in the coming months.
We are not going to make the mistake of making predictions, but if you are planning to invest in Bitcoin for the first time, this article lays out certain best practices to ensure a responsible, and safe experience.
Familiarizing yourself with the cautionary tales of the millions of Bitcoin investors who burnt their fingers during the previous bear markets, should help you avoid the same pitfalls.
1. Choosing The Right Wallet & Exchange
Before investing money in Bitcoin, you first need a place to store it, and crypto wallets are the perfect place. They come in two major types, a hot wallet, which is software-based and connected to the internet, and a cold wallet, which comes with physical hardware, similar to a flash drive, and is usually not connected to the internet.
Once you have the wallet setup, the next step is to decide on the right cryptocurrency exchange to buy your first Bitcoin. Here again, there is a lot to consider, especially with regards to regulations, taxations, and individual policies of each exchange.
For example, a few exchanges are SEC-regulated, and come with extensive KYC norms, while others such as ByBit have totally embraced the anarchy of cryptoland.
2. Know Your Risk Profile
The core essence of responsible investing is only risking the money that you can afford to lose, which rings especially true when dealing with cryptocurrencies. The internet is filled with stories of people betting the house on Bitcoin, or investing their kid’s college funds in pursuit of quick wins from crypto trading, only to be faced with an irrevocable setback to their financial health.
Ideally, average investors without a substantial portfolio already should never invest a lump sum into Bitcoin, or any other cryptocurrency for that matter. Since Bitcoin allows fractional values all the way down to 8 decimal points, you only have to abide by your exchange’s minimum deposit and trade values, which often starts at just $10 to $20 while getting started.
3. Never Borrow To Invest
Warren Buffett’s decades-old wisdom still holds true, but is apparently falling on deaf ears off-late, with millions of investors chasing cheap credit, and leverage in order to maximize gains.
This is in some ways an extension of the previous point, as leverage is often a double-edged sword, and while it might generate outsized returns, investors might also end up owing more than they’ve invested.
Another big no-no is the use of a credit card to buy crypto, which not only extends losses like other forms of leverage, but has its own set of drawbacks. Given the risks involved with crypto transactions, credit card issuers charge a transaction fee between 3% to 5%, and also consider this a cash advance, levying an additional one-time fee in the same range, making it a losing proposition for investors.
By keeping these simple, yet effective tips in mind, most investors can avoid the common pitfalls that have been witnessed far too much in recent years. Crypto can still play a salient role in investor portfolios, and with the right approach, diversification, and risk management, there could be no time like the present to get in on Bitcoin.