7 Top Tips You Need to Know Before Investing in Bitcoin
2017 was very much the year for Bitcoin. It experienced exponential growth of around 1,400%, making early adopters of the cryptocurrency millionaires in the process. Although the value of Bitcoin dipped and plateaued slightly later, Bitcoin remains a hugely lucrative market to invest in. There must be a reason why Bitcoin has been the buzzword on the lips of many economists and financial traders, right?
Nevertheless, if you’re a novice when it comes to investing in Bitcoin and cryptocurrency in general, it’s vital that you do your research before parting with your hard-earned money. Our seven priceless tips will help to minimise the mistakes you make with your cryptocurrency trading.
1. Learn how to properly store your Bitcoin first
It’s important to learn to walk before you can run. Begin by learning the basics about the mechanics of buying and selling Bitcoin. You’ll need to read our reviews of all the leading Bitcoin exchanges first to discover the easiest and safest platforms to start buying Bitcoin. Coinbase tends to be a good starting point for any beginner investor, due to its intuitive interface and the ability to start purchasing other leading cryptocurrencies too such as Ethereum, Bitcoin Cash and Litecoin.As with all financial investments, it’s vital that you learn how to protect your assets. In this case, you’ll need to ensure your digital assets are comprehensively guarded against the threat of cyber-attacks and scammers. There are purpose-built Bitcoin wallets designed with security at the forefront. Ledger Nano S is the world’s most secure Bitcoin wallet, while TREZOR is also popular as it generates private keys to your Bitcoin wallet offline, away from prying eyes.
2. Keep your eyes peeled on the market cap
A common mistake newbie crypto-traders make is to make investment decisions based purely on coin price. In reality, the value of a cryptocurrency is only valid once you’ve taken into consideration the current circulating supply. If you’re considering buying Bitcoin, try not to focus too heavily on the current value of the coin and instead consider the percentage of the total market cap you are purchasing. The closer a cryptocurrency gets to its market cap, the greater the demand will be to sell at a later date.
3. Is it worth investing in Bitcoin mining?
The industry for Bitcoin mining has accelerated at a rapid pace. In the earliest days of Bitcoin, the average home computer could be used to crack the cryptographic puzzles and earn new Bitcoins. Unfortunately, in 2018, the only way Bitcoin mining is done profitably is within specialised data centres. These warehouses are jam-packed with machines built solely for the purposes of mining Bitcoin. A home mining operation would cost in the millions to set up today, which means it’s probably best to consider investing in Bitcoin that’s already in circulation instead.
4. Consider diversifying your crypto investments
It’s all too easy for Bitcoin investors to become infatuated with the cryptocurrency. The reality is that Bitcoin is just one of thousands of other cryptocurrencies available to invest in that could be used to offset some of your risk in Bitcoin. Smart cryptocurrency investing is the same as trading the stock markets or forex – you need a risk management strategy. Don’t put your eggs in one basket! Instead, hedge your bets by investing in some of the up-and-coming altcoins experiencing growth equal to or better than Bitcoin.
5. Set a clear profit target when opening a trade
As Bitcoin is still a relatively new market to invest in, it’s very difficult to know when the right time is to buy and sell your Bitcoin. The volatility in the value of Bitcoin is unlike anything you’re likely to have experienced before with financial investments, so it’s important that you set clear profit and loss targets when opening a trade on Bitcoin. Most beginner Bitcoin traders fail because they fall in love with their investments and don’t know when to let go of a bad position. By setting an exit point for profits and a stop loss should the trade go against you, it’s easier to minimise losses and live to fight another day. Typically, the most extreme daily movements in the value of Bitcoin can be up to 3%.
6. Be prepared to handle FOMO
The dreaded fear of missing out (FOMO) is also another newbie mistake among Bitcoin traders. Should newcomers to trading Bitcoin log in to their chosen cryptocurrency exchange and witness double-digit growth in Bitcoin in the last 24 hours, they will invest regardless in fear of missing out on further price moves. What these investors don’t consider is that they have often missed the value in the price move that day – buying the asset high, rather than the old adage of buying low and selling high. The most profitable Bitcoin investors accept that they cannot catch every positive market move on Bitcoin. Instead, they will bide their time and strike when the market conditions are most favourable e.g. the price has bottomed out and is ready to move up again.
7. Accept that Bitcoin is a volatile, high-risk opportunity
Finally, if you’re going to handle Bitcoin investing mentally, you need to get your head around the fact that it’s going to be a bumpy ride. The volatility in Bitcoin is enough to scare off even the most experienced of traditional investors. Nevertheless, if you’re prepared to adopt a strict risk management strategy and consider diversification in other cryptocurrencies when necessary, there is no reason why you cannot turn this high-risk investment opportunity into a profitable one.
Be sure to review the top 40+ exchanges available to buy Bitcoin from here. The platforms ranked at the top of the table will have the best user ratings and are therefore considered the most trustworthy exchanges to trade Bitcoin using fiat currencies. Kickstart your crypto-trading journey today and choose the Bitcoin broker that’s best for you at Best Bitcoin Exchange!