Investing in Bitcoin in 2017

Many people wonder is bitcoin a good investment. How is spending hard earned money on something that isn't tangible and isn't backed by something tangible a good idea? What you have to do is decide, after doing your own research, what you think the value of a single Bitcoin will be in 3-5 years and base your decisions around that.

Bitcoin is a highly volatile environment and there are swings of hundreds (and potentially thousands) of dollars of increased (and decreased) value daily. Recently, I watched the value of Bitcoin drop from almost $5,000 to $3,500 in less than 48 hours. Bitcoin is something you get involved with for the long haul.

Bitcoin Historical Chart

This post is not designed to provide financial advice. You are ultimately in control of whatever decision you want to make based on the information I am providing here. I tell all my people the same thing: "Never risk more than you are willing to lose." I would never suggest someone take their mortgage, college fund, life savings, retirement or anything else you absolutely positively need to live and start investing in Bitcoin. Start with a small amount of money and gradually add to it over time. When you reach a point you start to be uncomfortable if it were to disappear, you should stop.

Is It Worth Investing in Bitcoin?

I personally believe that investing in cryptocurrency, especially Bitcoin, is a good idea. Unlike the US Dollar (USD), there are only 21 Million Bitcoin that will ever exist in circulation. The math behind Bitcoin explains that the difficulty of the math problem that computers must solve to release more bitcoin into the wild will increase exponentially so that those remaining Bitcoins will take a near infinite amount of time to mine.

Unlike the US Goverment, who can print more money as they need it to solve whatever economic crisis they are currently undergoing, Bitcoin is a finite resource. There will be no more after all Bitcoin are mined. This means that you are acquiring, and holding, an asset that will be decreasing in supply and (hopefully) increasing in demand.

How to Start Investing In Bitcoin

So now that we've set the stage and gotten in the disclaimers, you are still reading. This means you are probably ready to learn the specific strategies on how to invest in Bitcoin.

If you are not ready (or willing) to go the traditional route, there is a traditional investment vehicle you can look into. More on that later. For now, we will cover the three traditional strategies.

Buy And Hold Strategy

This is the least risky strategy. This involves you buying bitcoin using an exchange and letting it sit in a Bitcoin wallet. This is basically the equivalent of taking a bunch of money and storing it under your mattress. You are banking that the value of Bitcoin will increase over time and you want to remain in complete control of your money. You don't want to give it to a third party (as explained below) to trade or multiply for you.

Buy And Trade Strategy

This is the most risky strategy for several reasons. You start, as you did above, by buying bitcoin and then going to a Bitcoin exchange (much like going to a brokerage account to trade stocks) to trade.

Trading simply means you are selling your Bitcoin when the price reaches a certain value and you expect it to go down and you will buy it back at a cheaper price later. This adds another layer because now, not only are you counting on Bitcoin to increase in value over time, you are also increasing the volume of your holdings.

Let's look at an example:

On Monday, you sell 1 Bitcoin for $4000. You now have $4000 USD sitting in your account on the Bitcoin exchange. On Tuesday, the price drops to $3000 USD and now, you are able to buy 1.33 Bitcoin with the $4000 you received yesterday. You have increased your holdings by 0.33 Bitcoin.

Trading is a complicated topic and requires a lot of knowledge of reading charts and looking at trends.  For that reason, we have written an entire section on trading Bitcoin you should look at if you want to know more about it.

Investing in Bitcoin Stock

If you prefer a more traditional route to investing in Bitcoin, you can look into something called a Bitcoin Investment Trust.  Most major brokerages offer this as part of your traditional IRA or investment portfolio.

What I don't like about this is that it's a relatively young offering and I'm not convinced that there's a direct correlation between Bitcoin price trends and the Bitcoin Investment Trust price. In addition, not all the money you invest in the GBTC goes to purchasing Bitcoin. Some of it is overhead and administrative fees. Request a prospectus from your investment advisor before moving on this.

In Conclusion

Hopefully this information has given you the ability to answer the question "Is investing in Bitcoin a good idea for me?" Everyone's situation is different and I cannot make advice for you on what you should do. My hope is that by sharing the knowledge I have learned so far and the experiences I have had, you are able to make an informed and educated decision about what you want to do.

Please always remember that you should never invest more money into cryptocurrency than you are willing to risk and watch disappear.