Investing in Bitcoin is a polarizing concept. Some people are diehard Bitcoin fans and defenders, and it’s not hard to see why. It recently crossed the $16,000 mark, and it’s seen a meteoric rise in the past year.
At the same time, investing in Bitcoin remains a risky gamble, and as with any volatile investment, just as much as it goes up, it also has the potential to go down.
Regardless, if you’ve made up your mind that you’re going to take the risk, what should you know about how to invest in Bitcoin?
Choosing an Exchange
Before you invest, you’ll need to learn about Bitcoin exchanges.
Exchanges are an essential cornerstone of investing in cryptocurrency, and you want to find an option that is highly focused on security and providing safeguards for users. As Bitcoin investment has gone mainstream, most of these exchanges have started focusing even more on regulation and ensuring security for everyone involved, which is good news for investors.
While for the most part exchanges are safer than at any other point in terms of cryptocurrencies, there are still exchanges that don’t meet rigorous standards, so do your research.
Sometimes the best way to determine the Bitcoin exchange that’s right for you is registering for accounts on several platforms, taking a look around and deciding the interface and system that works best for your preferences.
A few key points to focus on include the weekly deposit limits, which may not be an issue for you if you’re not going to be investing a lot, as well as Two Factor Authentication.
Coinbase, just as an example, is one of the top cryptocurrency wallets, and it has good features that work well for new investors.
With Coinbase you can link it to your bank account and create auto-buys, but in the technical sense, it’s not actually a Bitcoin exchange. Instead, you’re buying directly from the firm, so it can be tougher to make fast investment moves.
While Coinbase is referred to as an exchange, if we’re going with the actual classification, it’s a Bitcoin wallet.
Be Aware of Cyber Thieves
Even when you’re using a secure site like Coinbase, there are still hackers and cybercriminals that can target you, and they are successful in many cases. You need to be cautious on your end, and not assume your exchange is going to do all the work for you.
You may receive emails with phishing attacks an example, so you should never follow links that are included in an email or enter private information. Also, always verify that you’re on the site or app that you intend to be, before inputting anything or taking any action.
When you’re choosing a wallet or exchange, look for one that offers insurance if something including a breach of physical or cyber security occurs, or employee theft. Many exchanges offer policies that will cover digital currency if this occurs.
Something else to know before investing in Bitcoin or any cryptocurrency is that if you invest U.S. dollars and you’re a resident of the U.S., your account is covered by the FDIC up to $250,000.
There is another option for investing in Bitcoin that might work better for more traditional investors, and that is a fund that invests in cryptocurrency.
Exchange-traded funds or ETFs can help eliminate the need to go through a Bitcoin exchange or wallet, but you still have the cryptocurrency exposure in your portfolio. There are several Bitcoin-based ETFs awaiting SEC approval, and a few currently available that track Bitcoin, much like funds will track the S&P as an example.
One example is the Bitcoin Investment Trust, which was opened by Grayscale Investments in 2013. They’ve since introduced the Ethereum Classic Investment Trust as well, but do be aware that most of the Bitcoin funds have pretty high management fees.
There are even companies that are letting investors buy Bitcoins for retirement funds.
Finally, another way to invest in Bitcoin and cryptocurrency that’s more in line with traditional investment strategies is through a hedge fund, but as with any hedge fund, you have to be a qualified investor.
One example of a cryptocurrency hedge fund is available through BlockTower. There’s also the Cryptocurrency Fund L.P. which is a U.S.-based niche fund based entirely on the cryptocurrency market.
The route you take regarding investing in Bitcoin or cryptocurrency will depend on your preferences, as well as your objectives and the amount you initially have to invest. If you’re nervous about wading into this risky investment venture, you may go with something like Coinbase, or an ETF, while wealthier or more adventurous investors might opt to go the hedge fund route.