Top 4 Bitcoin Investment Strategies you can’t afford to miss!
Bitcoin is a digitized currency system which enables users to buy, store and use money virtually. It is a decentralized monetary system created by an anonymous person named Satoshi. It is basically a highly complex software algorithm consisting of a chain of transactions.
However, for an investor, more than these technicalities, it is important to understand how to go about buying, storing and then deploying a relevant strategy to invest Bitcoin.
The first and most important thing needed to get started with Bitcoins is a Bitcoin Wallet. Bitcoin wallet, like a bitcoin, is not physical in nature. It is also a software program just like net banking used for storing and using bitcoins. All Bitcoin wallets contain private keys for the security of Bitcoin holders. This private key is a reference or like an address of the wallet.
To invest in Bitcoin, an investor must establish a Digital wallet. There are different types of Bitcoin wallets, namely Desktop wallet, Mobile wallet, Web wallet and Hardware wallet. You can also learn more about Bitcoin from https://bitqt.org/
Let’s have a glance at each:
- Desktop Wallets: As the name suggests, Desktop wallets are installed in users’ desktop, and the user has complete control over the wallet. These wallets are stored as the address where the user can send or receive bitcoins. They also allow users to store private keys.
- Mobile Wallets: These Bitcoin wallets tend to be iOS or Android system compatible. These wallets like desktop wallet function as storage spots in mobiles. Mobile wallets facilitate QR payment via QR code scanning.
- Web Wallets: Web wallets are wallets available at an online site and are accessible from any device, either mobile or desktop. It is vital to select a web wallet after proper research and diligence as it stores private keys online.
- Hardware Wallets: These are the most secured form of wallets. It involves the storage of Bitcoins in physical equipment. This Equipment can be connected to devices via USB port. Thes wallets are very safe as least number of thefts have been reported to be associated with these wallets. They are even immune to virus attacks. However, these wallets are the only type of Bitcoin wallet which are not free of cost.
While it is ultimately, the investors call to decide the appropriate wallet type; however, no matter what the wallet type is, the investor needs to be extra cautious when it comes to wallet security. Bitcoin wallets have always been a high-value target for the hackers. Choosing a strong and highly complex password combination and opting for offline bitcoin storage or cold storage facility is recommended for added safety.
How does Bitcoin wallet work?
All the transactions in the public ledger of Bitcoin called the Blockchain are carried out from Bitcoin wallets. Whenever a transaction occurs, there is an exchange from more than one Bitcoin wallet. Every individual Bitcoin will use its secret data to sign in and validate transactions. Wallets can safely keep as much bitcoin as possible.
Cashing out from a Bitcoin wallet can not be done directly. It is done with help from Cryptocurrency exchanges which can handle the transaction on behalf of users and find a suitable buyer to convert the value to bitcoin into needed cash.
Bitcoin Investment strategies
The world is becoming dependent on the Internet more than ever, and as a result, this shift to the virtual world is attracting avenues and interest to the digital form of currency as well. It’s no surprise that Bitcoin, the most popular and secure global digital currency, is attracting the interest of a lot of investors.
Let us understand some of the most popular Bitcoin investment strategies:
Cost averaging investment strategy:
This strategy involves buying a fixed amount of Bitcoins at regular intervals, just like Systematic Investment plans in mutual funds. It is simply buying to accumulate for investment purposes. This is a simple and famous way of investing and reduces the risk of gaining and falling prices. It helps the investor to build their portfolio over time. This strategy allows the investor to participate in the market swings automatically, sometimes buying at higher levels and sometimes low. But the overall cost basis should be below the value of the total investment.
This strategy is quite suitable for the type of investors who don’t want to keep watch on rising or falling trend-charts but want an automated low-risk investment mode.
The cost averaging method would be a safe play as long as prices keep climbing; however, with modern trade trends in cryptocurrency, even this method is becoming risky.
As the name suggests, this investment strategy aims at equitable distribution of Stocks and bonds in such a manner that a balanced investment plan which balances both risks and return is created. Stocks earn investors huge returns but also make them lose as drastically when the market falls. On the other hand, bonds don’t make investors earn as much as stocks, but they do hold good even when the market starts to fall.
In this strategy, the investor would be purchasing the same amount of each currency they are investing in. For example, the investor has 2000 bucks, and he would divide it into 500 each under four different types of currency.
To create a balanced Portfolio investor needs to consider several factors like underlying objective behind investing ( is it to become rich or make enough money for meeting expenses); time in hand( is the investor young or planning for retirement) and risk tolerance( if the investor is ready to embrace the roller coaster of market fluctuations or wants to play it safe)
This strategy works best for investors who do want to invest in a diverse portfolio of coins but are not sure as to which one to choose exactly. This strategy gives exposure to different types of currencies and also an opportunity to study which one is giving a good return. The balanced portfolio investment strategy aims at counterweighting the losses by stock falls.
The drawback to this is that the investor will fail to maximize the investment from the currencies which tend to outperform others and have to bear the losses of underperforming currencies since they hold a balanced portfolio with a diversified mix.
This strategy is suitable when the investor knows for sure which currency will definitely outperform others. Unlike a balanced portfolio where the money is equally distributed over different currencies, under this strategy, the maximum investment will go one one currency type only.
For example, the investor knows for sure that ‘Bitcoin’ will outperform the rest of cryptocurrencies then it would make sense to invest the majority of money in bitcoins.
This strategy is suitable for investors who have done extensive research into currencies and have an obvious idea on which currencies will surely yield maximum return.
The only limitation with this strategy would come in case the investor has chosen the wrong currency. Hence as beginners, investors should go with a balanced portfolio investment strategy.
Once the investor has created a solid portfolio of currencies and has earned enough profit, the next strategy would be reinvesting the profit. Investors can start to brand out to other currencies which might have better prospects. By using this strategy, investors can make the most out of their current profits.
However, an investor must also keep in mind when to reinvest the profit and when to cash it out to avoid future losses. It is best suited for limited investment lovers.
Avoiding Bitcoin Scams
While the Bitcoin investment market is surely an enticing world; however, it is also important to keep in mind that such digital investments are also prone to scams. Part of investing in Bitcoin also involves being aware of the many scammers and types of scams in the space.
While there is no rulebook to avoid scams, still some precautionary measures can be taken.
The investors must always go with what sounds true as something that sounds true might actually be. Investors must be aware of Aggressive advertisements. Advertisers tend to exaggerate potential gains which might not be realistic. Investing can never be risk-free; hence it is imperative to recognize that and accept that.
Investors must also try to avoid projects where the main selling point is “referral bonus”.These are usually the scams or projects having little or no money at all. Such scams usually instigate to bring in family and friends while scammers keep enjoying the money themselves. Hence investors must be alert.
Another common scam practice is exit scam. It is a relatively common practice of absconding with the funds of investors. The fraudsters might put an initial offering as a means of funding a future project, and once the investor contributed enough money, the creator of the scam disappears.
The operators of a DarkNet market might take away all the held funds. Buyers and sellers can’t exactly turn to law enforcement for catching the scammers.
Another risk with Bitcoin investment is that those are prone to cyber-attacks and hacking. Hence it is important to take all possible security measures.
As a beginner, it would always be advisable to weigh all pros and cons, do thorough research and best to go for trusted and well-known cryptocurrency consulting firms to take constructive advice.
Digital currency is the future. With proper study and taking precautions, investors can surely capitalize on this budding and ever-increasing market.