Bitcoin Investing 101: Understanding the Different Strategies to Invest in Bitcoin
Many people see bitcoin as a digital currency that will transform the way we trade and pay for goods and services. However, not all governments around the world agree to the term “currency” that is applied to bitcoin.
Although there are already merchants that accept bitcoin as a medium of exchange, the bulk of bitcoin transactions comes from traders and investors who speculate on fluctuations in its value.
There are risks associated with bitcoin investing, of course. But if you have an appetite for risk, you can always put your capital in it. Here are the various ways to invest in bitcoin.
Bitcoin is a volatile financial asset. In spite of the absence of a generally accepted index, experts suggest that bitcoin can fluctuate ten times versus the US dollar, in a relatively short period of time. At this rate of volatility, traders and investors can expect making lots of money, as well as losses.
If you want to start trading and investing in bitcoin, you need to register with an exchange and buy the asset using a government-issued currency. It’s crucial to choose reliable bitcoin exchanges.
In the United States, you can choose Coinbase as your online bitcoin wallet and platform for bitcoin exchange. In Canada, Bitbuy and Coinberry are the top two picks. Over in the UK, Coinfloor is the safest platform to buy and trade bitcoins.
Some investors want to wager on bitcoin’s value going down, especially during an over-inflation. In this situation, short selling strategy enters.
Short selling strategy means borrowing bitcoin at a certain price (for instance, $50) and selling it to another person at the same price. Then, when the value of the asset goes down (say, $25), you can repurchase it at a lower price to return it to your lender.
The profit you make here lies in the difference between the original price at the time you borrow the bitcoin, and the price when you buy the asset to give it back to your lender.
Short selling is, of course, is risky and speculative. There’s the possibility of loss, especially when the market doesn’t go in your favor. Before you think of using this strategy, it’s crucial to know leverage options and margin calls.
HODL is a popular slang in bitcoin investing. It’s an acronym which means Holding On for Dear Life. This strategy involves buying bitcoin at a certain price and wishing that the value of the asset increases over time.
Most investors who use this strategy believe in the profitability of bitcoin in the long-term. In the United States, it’s also an excellent way to make use of bitcoin capital gains tax incentives. This allows investors who held and sold bitcoin for more than a year to have lower or zero percent tax rate, depending on the tax bracket where they belong.
If you want to have a more immediate return, you can purchase and sell bitcoin at the end of a period of sustained increases in bitcoin prices. This strategy provides you a higher rate of return by relying on the market ups and downs. When the market favors you, there’s profit. However, it’s crucial to keep in mind that it also comes with risks.
Bitcoin is a highly volatile asset. If you want to invest in it, you should know about the risks and how to strategize your way to prevent them. The strategies mentioned above are the best ways to enter the field of bitcoin investing. You should study and understand them so that you can make profits from your investments.