A few of your friends invest in bitcoin. Or maybe it’s crossed your mind to fold it into your investing goals and portfolio. After all, there are some major benefits to being part of the crypto-investing world.
Investing in cryptocurrency like bitcoin offers a great way to make transactions without having to wait for banks to intervene, explains Dr. Joe Duarte, author of “Cryptocurrency 101” and the voice behind Smart Money Passport. “It’s also a great way to add some diversification to long-term portfolios,” he says.
Curious about buying bitcoin and how to get started? Let’s jump in:
What is bitcoin, and how does it work?
Formally launched in 2009, bitcoin is the first widely accepted cryptocurrency.
To back up a little, cryptocurrencies are decentralized digital assets which allow you to send, receive, and store value on the blockchain, which is a shared, immutable ledger. Crypto uses cryptography—math based in coded algorithms that secure and verify transactions—for extra security.
Using decentralized networks, crypto transactions are recorded on the blockchain. Because most cryptocurrencies operate on a decentralized platform, they don’t depend on third parties like a bank to conduct and verify transactions.
While bitcoin is prone to volatility, historically, it has outperformed a lot of traditional assets over the long term.
In a broader sense, cryptocurrencies like bitcoin are similar to currencies as both a store of value and a means to conduct transactions, says Duarte. But, he continues, because they’re digital assets that exist only online, “you’ll never show up to the grocery store and pay for vegetables with a bitcoin that you hold in your hand.”
Should you invest in bitcoin?
Generally speaking, when you invest in bitcoin, you have the potential for high returns. Plus, it can be a way to diversify your investing portfolio.
If you’ve been wanting to get started with investing in cryptocurrency like bitcoin, now might be the time to do it, says Duarte.
Prices have come down on major cryptocurrencies like bitcoin, which means you can take advantage of price dips and get more for less. Plus, crypto ETFs are more available to the average investor. By investing in ETFs, you can expose your portfolio to crypto without owning it directly.
Along with holding bitcoin, you can also use it to pay for things—although not groceries, as we’ve already established. But some major retailers and chains accept direct payments through crypto payment processors. If you’re a gamer, you might be able to pay for video games and in-game items using bitcoin.
Do you run a small business or work for yourself? If so, you might be able to send money to or receive money from international clients.
How does bitcoin serve your financial goals?
Just like you would when you invest in stocks and bonds, you’ll want to figure out how investing in cryptocurrency ties into your financial goals.
Here are a few questions to ask yourself when deciding to invest in bitcoin for the first time:
- Do you intend to invest in crypto like bitcoin for short-term or long-term goals?
- Are your crypto investments speculative or income-producing?
- What is your comfort level with risk?
- How does crypto play into your investment portfolio?
Because cryptocurrency is highly volatile, it’s generally recommended that crypto makes up a small percentage of your investing portfolio—no more than 5%. To err on the side of caution, consider starting out with an even smaller percentage. You’ll also want to invest only as much as you are comfortable losing.
How to start investing in bitcoin
If you’re ready to get started on your bitcoin-buying journey, there are a handful of options for doing so, which include centralized exchanges, financial apps, or brokerage platforms. Exchanges are likely the easiest and most direct option. Here, we’ll guide you, step-by-step, on how to go about it:
1. Choose a crypto exchange
When you’re just starting out, it’s probably easiest to choose a crypto exchange platform. These centralized exchanges work similarly to stock exchanges, and they each have their own rules for buying, selling, and trading crypto.
When deciding on a platform to open an account, you’ll want to check the main services and features. It’s also a good idea to consider whether the platform has a user-friendly web and mobile interface that’s easy to navigate.
Plus, you’ll want to check the fees, security measures, customer support, and educational resources. These platforms can include tutorials, learn centers, price charts, and technical indicators.
Before setting up an account, it’s important to do your homework, says Duarte. “Be sure you understand the risks and benefits and have clearly stated goals as to what your plan for the crypto you’re planning to own is ahead of time.”
2. Create an account
Setting up an account is fairly straightforward, and works similarly to opening a bank or investment account. You’ll need to provide basic information and verify your identity.
Next, you’ll need to select a payment method, such as linking a bank account or debit card, online payment platform, or a wire transfer.
3. Place a trade
To buy bitcoin, select it as the cryptocurrency you’d like to purchase and enter the dollar amount. You’ll also need to pick an order type: market order, limit order, or stop-loss order. After you’ve reviewed your order, you can confirm your trade to place it.
Because major cryptocurrencies such as bitcoin are high in price, they’re available to purchase as fractional amounts or “partial bitcoins.” The minimum investment for bitcoin is usually below $10.
4. Choose between a custodial and non-custodial crypto wallet
When you invest through an exchange, you’ll need to decide whether you want to store your bitcoin in a custodial or non-custodial crypto wallet.
Crypto wallets don’t store your actual crypto. Instead, they store your private key, which is an alphanumeric code that’s generated by your wallet to give you proof of ownership and access to spend and make transactions.
A custodial wallet is one where the crypto exchange stores and manages your private keys and, in turn, your digital assets. The main advantage is that should you forget or lose your password, your crypto won’t be lost. A non-custodial wallet skips the third party, meaning you’ll have complete control over your private key and crypto.
FAQs
Is $100 enough to start investing in bitcoin?
Yes, $100 is enough to start investing in bitcoin or other types of crypto. You can buy bitcoin for less than $10.
How much money should I invest in crypto as a beginner?
A beginner shouldn’t invest more than 5% of their overall investing portfolio in bitcoin or other cryptocurrencies. Since crypto is so volatile, a rule of thumb for any investor—but especially a beginner—is to invest no more than you are comfortable losing.
Should beginners invest in bitcoin?
Yes, crypto beginners can invest in bitcoin. But if you are a beginner who has never invested money anywhere, start with more stable, familiar options, like a retirement account. Once you have your investment portfolio established, there’s no reason you can’t invest a small percentage of that portfolio in bitcoin.
Created by the Commerce team at Business Insider with SoFi Crypto.
