Bitcoin Investment - How to get started?
In late 2021, Europe was recognised as the largest crypto-currency economy in the world, with the continent receiving more than €870 billion in crypto in the same year.
In fact, according to an analysis by blockchain data firm, Chainalysis, countries from central, northern and western Europe accounted for 25 percent of all global cryptocurrency activity.
Digital currencies, such as bitcoin, can no longer be considered a blip on the radar or a financial fad. Rather, this phenomenon is a very real and tangible part of our financial future.
According to financial experts, investors of all ages should be looking to add cryptocurrencies to their portfolios, but stresses that education is key. One of the golden rules for investing is understanding what your money is being put into, and the potential risks associated with that investment.
With that in mind, we’ve put together this introductory guide to Bitcoin – the OG coin of the crypto world – and other digital currency 101s that’ll help you make your own decision on whether investing is right for you.
What is Bitcoin anyway?
Bitcoin is a virtual currency that is now widely accepted as a form of payment: essentially it’s considered money. The major difference between traditional money and cryptocurrencies such as bitcoin is that they’re considered ‘decentralised’: this means that no one person, group, government or entity has control over the currency, so there’s no third-party involvement required for transactions.
If we delve into our history books, we’ll find that Bitcoin was dreamed up in 2009 by Satoshi Nakamoto. While this name suggests an individual single-handedly developed this complex form of currency, it’s actually shrouded in mystery. No one knows who Satoshi is, or whether it’s a single developer or a group.
While this makes Bitcoin all the more exciting, it hasn’t limited the success or value of the coin. In fact, it’s the most well-known cryptocurrency in the world, and has inspired the creation of countless other coins.
Why is bitcoin value so turbulent?
Bitcoin’s price is known to rise and plummet by thousands of dollars over the course of just a few days, so investing isn’t for the faint of heart. An understanding of what causes these fluctuations might alleviate some of the stress associated with holding a bitcoin wallet.
There are many factors that contribute to bitcoin value rising and falling so dramatically. Firstly, bitcoin value is greatly influenced by supply and demand. This is because there’s a finite number of bitcoin available: 18.7 million are in circulation, and nearing the maximum threshold of 21 million.
Additionally, the worth is greatly affected by investor and user sentiments, evolving government regulations, and media hype related to bitcoin news, such as Elon Musk hinting that Tesla will start to accept bitcoin as payment.
Should I invest in bitcoin?
The answer to this question is different for everyone: regulations vary from country to country, and appetite for risk varies from person to person. As with any financial decision, a strong understanding of bitcoin’s pros and cons is essential.
According to financial experts, digital currencies can be a great way to diversify a portfolio. The percentage allocated to digital currencies will depend on each individual’s appetite for risk, though an article in Forbes suggests 1-2% is a good place to start.
It’s also important to understand the bitcoin taxes, which are specific to each country. Generally speaking, in Germany if the crypto-currency is held for less than 12 months, it’s taxable unless the profit is less than €600. Over on the Atlantic coast, Portugal currently does not consider bitcoin to be a foreign currency or a financial asset, and therefore profits from trading crypto are not taxed which makes the nation a crypto haven.
How do I get started?
A bitcoin wallet is the first accessory you’ll need to store and spend your stash cryptocurrency. It works much like a traditional wallet, but rather than holding cash, it’ll be holding your public and private keys and allow you to access your coins.
Wallets can be downloaded for free from the Google Play or Apple app store, and may use software connected to the Internet (a hot wallet) or be a completely offline device (cold storage) which looks a bit like a USB device.
Where can I buy bitcoin?
Buying bitcoin is becoming more and more easy. It’s no longer for the tech-savvy and those in the know – it can now be purchased from mainstream platforms, or exchanges, such as PayPal and Robin Hood.
Once you’ve selected an exchange, you’ll need to verify your identity and connect a payment option, which is usually a debit or credit card or a linked bank account. From there, it’s as simple as placing an order to purchase bitcoin. There are several ways to do this: Coinbase, for example, allows for recurring purchases for those with a set-and-forget mindset. Much like the stock market, many will say that investors shouldn’t try to time their bitcoin purchase. The volatility will come and go through the journey of holding the crypto, and there’s little chance of avoiding it.
Other options in the crypto-sphere
While Bitcoin is the OG of the crypto world, there are now more than 19,000 digital currencies to choose from. Dogecoin, for example, is a meme coin – which means it was inspired by internet jokes, or ‘memes’, and gains popularity based on this alone which then pushes the value up. Ethereum, Tether, Binance and Cardano are some other names that might sound familiar and with good reason: Forbes names them the top coins to invest in during 2022.
And the final word…
Decisions around financial products should always be made after research has been undertaken, and personal circumstances are considered. Investopedia, the world's leading source of financial content on the web, has a clear and concise warning that we absolutely agree with:
“Bitcoin and other cryptocurrencies are highly volatile and illiquid, and they are vulnerable to slippage and price manipulation. Before investing, make sure you understand the risks associated with virtual assets”.