Although Bitcoin is a risky investment, there are techniques to mitigate your risk. The Bitcoin (CRYPTO: BTC) craze is far from finished, as the cryptocurrency continues to rise in value. Bitcoin’s price may be down now, but can easily rise about 100% in a couple of months, as investors rush to cash in on the digital currency craze.
Despite its popularity, it is still a very dangerous investment. While some investors believe it will be a game-changer, others are less confident. Its price has also fluctuated dramatically, plummeting by nearly 20% on three consecutive times since January of this year.
Nobody knows what the future holds for Bitcoin, and not everyone is willing to take on the risk of investing in digital currency. However, if you’re set on investing in Bitcoin, there are steps you can take to reduce your risk and better secure your funds.
1. Make sure your portfolio is well-diversified
It’s always a good idea to have a well-diversified portfolio, no matter where you invest. However, if you’re thinking about investing in Bitcoin, a well-balanced portfolio is essential for limiting your risk.
If Bitcoin takes a turn for the worst, the more diverse your portfolio is, the less influence it will have on your entire investments. If you choose to invest in individual companies, try to buy at least 10 to 15 different firms from various industries. Alternatively, you can invest in index funds or exchange-traded funds (ETFs), which offer immediate diversification because each fund has hundreds or even thousands of equities.
It’s also a good idea to keep your main portfolio as steady as possible. For example, you may put the majority of your money into S&P 500 index funds and then put a little amount of money into Bitcoin. That way, even if Bitcoin doesn’t perform well, you’ll still have the majority of your money.
2. Invest in an Exchange-traded Fund (ETF)
Direct Bitcoin investment is feasible, but it might be time-consuming. Cryptocurrencies move differently than traditional equities, and in order to invest in Bitcoin directly, you’ll need to build a digital wallet and register with a cryptocurrency exchange. This can also be a security issue since if you forget your digital wallet password, you won’t be able to access your savings.
The price of Bitcoin would be mirrored by a Bitcoin ETF, but you wouldn’t be investing in Bitcoin directly. In other words, the ETF would allow you to invest in Bitcoin through a regular exchange just like any other asset.
The Securities and Exchange Commission (SEC) has yet to approve any Bitcoin ETFs located in the United States. Bitcoin ETFs are available in Europe and Canada, and some experts predict the SEC may legalize them in the United States within the next year or two. If and when that happens, it will make investing in Bitcoin easier (and safer) for Americans.
Keep in mind, though, that having a varied portfolio is always vital, even if you buy in a Bitcoin ETF. Make sure the majority of your money is diversified over a range of companies in addition to a Bitcoin ETF, just as you would if you were investing in Bitcoin directly.
3. Think about Crypto Stocks
- The safest method to invest in Bitcoin may not be to buy Bitcoin at all, but rather to buy cryptocurrency stocks.
- A corporation that is involved in the cryptocurrency market in some form is known as a crypto stock. Crypto stocks include the following:
- Tesla: Elon Musk, the firm’s CEO, just announced a $1.5 billion investment in Bitcoin, and the company now accepts Bitcoin as a means of payment.
- Square: The firm allows users to accept cryptocurrencies as payment, including Bitcoin. Since October 2020, it has also acquired more than $200 million in Bitcoin.
- Salesforce: Despite not being directly connected with Bitcoin, the firm develops blockchain solutions, which are the technology that underpins cryptocurrencies. Salesforce might gain if Bitcoin becomes more widespread.
The key to investing in crypto equities is to do so because the firms are reliable, not just because they deal in cryptocurrency. Regardless of what happens with Bitcoin, strong firms will perform well in the long run. However, if Bitcoin proves to be a life-changing investment, these stocks might see much bigger gains.
Is now the right moment to buy Bitcoin?
There are several ways to invest in Bitcoin, some of which are riskier than others. Keep in mind, however, that Bitcoin is still a very volatile investment at the end of the day. Even if you do everything you can to reduce your risk, only invest money you’re willing to lose.
Although Bitcoin has the potential to be a profitable investment, it is not for everyone. If you decide to invest in Bitcoin, make sure you do your research and invest properly to keep your money secure.
Bonus Tips for Beginners:
How to Invest in Bitcoin and Other Cryptocurrencies
On the market, there are various distinct cryptocurrencies, each with its own basic worth. Cryptocurrencies may appear one day and then disappear the next, rendering an investment useless. That’s why it’s crucial to have a bitcoin investment strategy in place and understand how to control your risk.
Beginners in cryptocurrency trading should consider transaction prices, the types of cryptocurrencies available on the platform, and unique features such as instructional resources and other features that match their interests and objectives while using a Bitcoin Wallet.
There are a number of bitcoin exchanges from which to choose. Several companies, like TradeStation, Coinbase, eToro, and Gemini, provide a straightforward, secure, and convenient way to keep and trade Bitcoin. Consider how cryptocurrencies will fit into your entire portfolio while investing in them.
When it comes to investing in cryptocurrency, experts recommend taking a balanced approach, according to experts. Due to the asset’s volatility, which may cause its value to vary significantly, a small part of your investment portfolio, between 2% and 5%, might be safely allocated to crypto, according to Putra. Some concerns have been raised on crypto safety, but there is no need to worry because the mainstream wallets are very secure, they use app shielding technology to protect their source code.
Cryptocurrencies are one of the least connected assets to equities and bonds, according to Putra, making them an effective hedge against those asset classes for investors trying to diversify their portfolios.
Investors may be able to utilize cryptocurrency as an inflation hedge. Putra recommends looking at cryptocurrencies as a bond alternative because bond yields aren’t keeping up with inflation.
Low-interest rates across bonds, according to Putra, are causing a global reshuffling of capital out of bonds and into more inflation-protected assets.
Investing at the wrong time, despite stories of wealthy investors, can result in rapid and catastrophic losses.
While the possibility of becoming wealthy by investing in cryptocurrencies is alluring, it’s important to understand the characteristics of cryptocurrencies. To begin with, this is a very volatile market. A fast-flying item might possibly descend just as swiftly. However, there are always crypto mining options, such as Helium Mining.