Have you ever thought about investing in bitcoins? Many people have thought about it but most consider this relatively new form of portfolio building to be too risky, then there are those potential investors who are basically risk-averse and will not invest in anything that is not a “sure thing”. In that case, death and taxes are probably your only option and neither of them is a good choice. So what must one do?
Well, start by doing what anyone would do when facing a risky situation, especially if the choice is a voluntary one and you have some time before taking the plunge. For example, if you want to sail around the world but can’t swim, you should learn to swim first, right? In the case of bitcoins, the best way to reduce your risks is to prepare yourself, mentally, informationally, and financially. Bitcoin price is critical to know.
1. Preparation: Get Your Homework Done
Homework in this case requires you to first learn some basics about bitcoins. Review what bitcoins are and why they have been successful and why not. How are they valued, what makes the value of bitcoins rise and fall and is there any logic in their volatility? Next, make sure you understand the term blockchain and learn everything about bitcoins. Finally, there is a well-known and well-worn white paper authored by Satoshi Nakamoto that is very short and still relevant even though it was first presented over 10 years ago. Read it and read it again.
I spent a great deal of time talking about preparation because that’s the most important. You want to know as much as you can before you invest your hard earned cash into digital currency. If you’ve done that the next four steps will be easier. Indeed, you can learn and practice them on the job, so to speak.
2. Measure Twice – Cut Once
If you are not familiar with that phrase, it’s an old carpenter’s idiom that reminds them to proceed with caution when cutting expensive lumber. You should adopt such a rule and practice it throughout your bitcoin ownership. Check for bitcoin prices often and use a lot of common sense here, like start small, don’t put in more than you can afford to lose; buy over a lengthy period — not all at once or in lump sums. Ask yourself, “Am I using good judgment?”
3. Diversify and then Repeat
Perhaps the worse risk you can take when dealing with digital currencies is to fail to diversify. In addition to Bitcoin, there’s also Bitcoin Cash, Litecoin, Ripple and Ether digital coins. If that’s too much digital currency for you, invest in stocks and bonds.
4. Keep your coins in Hot or Cold Wallets, Not in Exchanges
Why? Exchanges are digital online facilities. They can be penetrated by hackers just like online banks. You may buy on exchanges but quickly withdraw your coins and store them in an online (hot) wallet like blockchain or in a cold (offline) wallet to protect yourself from raiders.
5. Expect Volatility in the Bitcoin Market
Volatility in the bitcoin market is natural and is to be expected. So don’t be a “Day Trader” chasing after the coins. Buy and hold. Let the coins find and come to you.
Remember, especially if you are a beginner, and even if you are not, the best thing you can do is to thoroughly prepare yourself before investing. This will help you manage any risks that present themselves. Practice a lot of caution and pace yourself. Most likely you’ll be fine.