4 Things to Know if You’re Thinking About Investing in Bitcoin

You can’t get on social media these days without seeing someone post an article, video, or comment about Bitcoin. This groundbreaking cryptocurrency is enjoying its fair share of attention and probably has you wondering, should I get involved?

What is Bitcoin?

For starters, it’s important to know that there is no actual “coin” for Bitcoin. Despite the name, the tender is entirely virtual.

“Bitcoin is a digital currency with no centralized control. That means no government can regulate it, and it also means there must be a universal system in place to track transactions made with it. That system is the block-chain, which stores the details of each transaction in a very large ledger,” personal finance expert Robert Farrington notes. “Those with a Bitcoin address have a public entry on that ledger identifying how many coins are owned, but there is not much personally identifiable information attached to those coins.”

Despite what you may have heard, there is nothing illegal about Bitcoin. Though it is possible that someone would use Bitcoin to purchase something illegal (because it’s not easily traced), the act of buying and selling Bitcoins is entirely ethical.

4 Things You Need to Know

If you’re considering getting involved from an investment perspective, it’s important that you do your homework and know what you’re doing. Here are some suggestions:

1. There are Plenty of Ways to Invest

One of the first things you need to know is there are lots of ways to invest in Bitcoin. You actually mine Bitcoin directly (which requires considerable tech skills and knowledge), invest in a Bitcoin exchange, or invest in a fund. As of December 2017, you can even purchase Bitcoin futures contracts.

Most people are going to invest in a Bitcoin exchange or fund, but there are still dozens of different options within these categories. While others can explain their preferences, it’s ultimately up to you to do your research. You never want to invest in something that you don’t fully understand yourself.

2. Proceed With Caution

Whether it’s real estate, the stock market, or a business venture, risk is present in every investment you make. The key is to formulate a plan and stick with it.

“Don’t chase Bitcoin prices. Decide on a entry point and stick with it,” cryptocurrency expert Tim Enneking says. “With Bitcoin, you’re almost always right in terms of foreseeable price action – it’s your timing that might be off. So, be patient, and let the Bitcoin price come to you.”

3. Know How and Where to Spend Bitcoin

This time last year, spending Bitcoin was difficult. Today, there are a growing number of businesses and services accepting the currency all over the world. Spendabit is a pretty neat search engine tool that lets you find products and stores that accept Bitcoin.

4. Always Diversify Your Portfolio

Regardless of how much money you have or what price point you’re able to buy into, always diversify your portfolio with a healthy mix of stocks, bonds, and real estate. Bitcoin certainly has its place, but don’t put all of your eggs in one basket.

Don’t Get Carried Away

There’s so much content on the internet about Bitcoin that it’s easy to get carried away. And while there have been some tremendous gains over the past few months, there’s still not a lot of predictability regarding the marketplace. Like any investment, you could get rich or lose the shirt off your back. Only invest what you can afford to lose and don’t let investment “gurus” trap you into making unwise decisions.