BTCFAQ.org / Investing

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You've decided that you're interested in investing in Bitcoin. There are many issues surrounding how to think about this investment, how to actually buy, and how to store and manage it. Read on for coverage of these issues.


Investing In Bitcoin

#1. What Bitcoin investment strategies are there?

Fundamentally Bitcoin is no different than any other type of asset, so the same basic strategies exist. Additionally, conventional investment wisdom concerning long term investments applies well to Bitcoin. Over the last few decades it's become well known that a so-called "passive" investment strategy in stock markets outperforms "active" strategies - i.e. don't try to pick winner/loser stocks. Another part of a "passive" long term strategy usually involves consistent, periodic investments into the market, or "dollar cost averaging" (DCA). Many long time Bitcoin investors advocate for this strategy. In fact, a Bitcoin enthusiast recently created a website to calculate past returns based on configurable DCA parameters, as an educational tool: https://dcabtc.com/

#2. The price is rising fast! Should I buy a lot quickly?!

No. Bitcoin has always been a volatile asset, and will continue to be for a long time. The rapid price increase you're witnessing will almost certainly be followed shortly by a rapid price decrease. If you're interested in investing in Bitcoin, be sure you understand it enough to have a strategy about how you want to invest and then carry out that strategy without getting caught up in emotional market changes. Be very wary of "Fear of Missing Out" or "FOMO" induced price crazes.

#3. The price just dropped dramatically! Now should I buy a lot quickly?!

Although buying a lot right now ("Buying the F****** Dip" or "BTFD") may be a better choice than buying a lot as the price is rising quickly, it is still likely a worse strategy than a consistent, long term, dollar-cost-averaging strategy. You may get lucky and "time the market" by buying at a local minimum, but for every person who succeeds at this goal there are many more who try and fail.

#4. The price is already so high. Have I missed out on all of the great returns?

No one really knows. But, if the collective wisdom of Bitcoiners is right, there may still be a lot of great returns to come. It's likely true that Bitcoin's earliest investors have already taken the biggest gains that Bitcoin has to offer, but that's to be expected because they were the people who took the most risk (they invested in something very new that almost no one had heard of...that took a lot of guts, foresight, and, above all, luck to be "in the know" so early). Despite the biggest gains being behind us, if Bitcoin can fulfill even a fraction of its potential, it's very possible that its market capitalization (and therefore price) will go much, much higher.

#5. Is Bitcoin like a stock? Bond? Cash? Gold?

Many long time Bitcoiners hold the view that Bitcoin represents a new "asset class" because it has properties that make it fundamentally different from everything else. Whether you entertain that idea or not, it's clearly difficult to cleanly categorize Bitcoin into the familiar investment buckets. However, it's a common belief by many Bitcoiners today that Bitcoin (at least for now) is something like a "digital gold" (in fact, it's easy to see that it was intentionally designed to mimic gold, e.g. Bitcoins are "mined" and the supply of easily mined Bitcoins decreased asymptotically over time). But, Bitcoin can do many things that gold will never be able to do. And Bitcoin's capabilities and features continue to grow and evolve over time. Bitcoin developers and designers hope that someday Bitcoin will support a global payment network (to rival or replace Paypal, Venmo, etc) and also be so stable in its price that many goods and services will have their prices represented in Bitcoin units rather than in Dollars and Euros...but there's much work to be done before then.

#6. Bitcoin is a currency, right? After I buy some, should I look for places to spend it?

The answer depends on your chosen investment strategy, but the prevailing sentiment right now is: No, you should not spend/sell your Bitcoin. Again, Bitcoin is seen by many as a long term investment that has a chance of rising in value dramatically. If you were to subscribe to this idea, you would want to buy Bitcoin and hold (or HODL, in Bitcoin parlance) for the long term. In 10-30 years, if Bitcoin has continued to fulfill its potential and enjoyed associated price increases, there may be a time when spending/selling Bitcoin makes much more sense because potential returns have already been made.

#7. After I buy Bitcoin, what then?

After you buy Bitcoin, you'll need to make some decisions about how you store and secure it. Storage and security of Bitcoin is an active area of research and development in the Bitcoin space, so best-practices recommendations are changing rapidly. Because of the rapid pace of change, it's probably more important for you to educate yourself about the conceptual goals and risks of storage/security, rather than choosing a specific process or means. There are many factors that should be balanced when making such choices and any choice you make will have tradeoffs. Your very first choice, after buying Bitcoin (perhaps via an exchange website), will likely be to simply let that exchange hold your Bitcoin for you. This option is the easiest, but also the worst in most other ways. Once you've bought Bitcoin and it's sitting on an exchange, you should make it a priority to learn enough to choose another storage/security option. Your educational journey should include researching "software wallets", "hardware wallets" (like Trezor, Ledger, and ColdCard), and "multi-signature" solutions (like Casa).

#8. How do I actually buy Bitcoin?

It depends where you live. Buying Bitcoin necessarily involves using a so-called "on-ramp" from your local currency to Bitcoin. Using your local currency means you'll be interacting with the traditional banking system, which must comply with all of the laws of its local jurisdiction. This fact may mean that you face hurdles to buying Bitcoin; if so, just be persistent, and keep seeking out information, even by personally asking for help. For a short, curated list of Bitcoin-buying resources that I'm familiar with, see here.