Should I Invest in Bitcoin? Is It Safe?
Last Updated: 3/24/19
I get about 2 emails a day from people around the world who are asking one very simple question: “Should I invest in Bitcoin?”. In this post I will give you the most detailed response I can give to this very tricky question.
Investing in Bitcoin is a very general term that can mean a lot of things. For example, buying and holding, trading, mining, etc. It’s important to understand what it is you’re investing in, and more important, to understand how the investment will work. Never invest more than you can afford to lose and educate yourself enough before getting involved in any investment.
If you want a more detailed answer to the question “Should I invest in Bitcoin”, keep on reading. Here’s what I’ll cover:
- The Many Forms of Investing in Bitcoin
- Buying and Holding
- Trading Bitcoins
- Mining Bitcoins
- Various Bitcoin Investment Schemes
- Conclusion – is Bitcoin a Safe Investment?
Before we begin, a word of advice: Bitcoin is a very risky asset type. It is extremely volatile and even the most solid Bitcoin investment should be treated as a high risk investment. For example, in the past Bitcoin’s price fell over 80% in the course of several months.
Bitcoin is not a company or a stock, it’s a currency. If you still don’t understand what Bitcoin is, watch this video. As a currency, the basic form of investing in Bitcoin simply means buying the coin. However, there are additional ways to invest in Bitcoin, as we will cover in the following chapters.
The most common form of “investing” in Bitcoin is buying the currency in hopes it will appreciate in value (also knowns as “hodling”, see the origins of the term here). If you’re planning on using this method, only do it when you strongly believe the prices will go up. While nobody can tell the future, there are some things you can do to gain more confidence in your choice.
For me, the most important rule of thumb is: Don’t take anyone’s advice about what will happen with the currency, do your homework, learn about Bitcoin and come to a conclusion for yourself.
A few pointers for buying and holding Bitcoins:
- Never invest more than you are willing/able to lose – Bitcoin is a very risky investment and you should keep that in mind at all times.
- After buying Bitcoins, make sure to move them into your own personal wallet and never leave them on an exchange. My personal recommendation is to use a hardware wallet. If you can’t afford a hardware wallet, try a paper wallet.
- Make sure to buy Bitcoins only from exchanges that have proven reputation.
- Buy Bitcoins through Dollar cost averaging – This means that you don’t buy all of your Bitcoins in one trade but instead buy a fixed amount every month, week or even day throughout the year. This way you average the price over the course of a whole year. Here’s a short video to explain this concept:
Bitcoin trading is different than buying and holding. When you are trading Bitcoins it means that you are actively trying to buy Bitcoins at a low price and sell them back at a higher price in relatively short time intervals.
Trading successfully requires knowledge and practice. The trading market is occupied by very large players who are just waiting for newbies to come in and throw their money away by trading aimlessly.
Some people would like to invest their money into mining Bitcoin. However, for the past few years mining Bitcoin is only profitable if done on large scales. This means you will need to get expensive mining equipment and hopefully have access to free electricity.
From my perspective, it’s much more cost effective to buy Bitcoins with this money instead of using it to buy mining equipment.
You may have heard of all sorts of sites that allow you to mine Bitcoins through the web. This is known as cloud mining and from what I saw these sites fall into one of the below two categories:
- They are complete scams that will run away with your money and will never actually use it to mine Bitcoin.
- They are not scams, but they are bad investments since you will probably get more Bitcoins if you just use that money to buy Bitcoins instead of paying the site.
If you want to learn more about my take on cloud mining, read this post.
Almost every other day I get a question about a site or company that claims to double your Bitcoins, give you insane daily interest on your Bitcoins or help you invest them in some sort of complex and obscure ponzi scheme. These sites can be categorized mostly as scams or HYIPs (high yield investment programs).
What these sites usually do is they take money from people around the web with the promise to give them good return. They will then start off by paying these returns through money they get from new sign ups and create a big buzz around the site. Usually they will also have some sort of referral program so that users can bring in their friends.
This will go on for around 3-4 months until one day the website will just go offline and the money will be gone. No more payments will be made and a lot of people will get mad that they got scammed.
I have reviewed many Bitcoin investment sites in the past 3 years (e.g. Bitconnect, USI Tech and more) and I have yet to find a site that I can say is legit or safe to invest in. Any site that promises you something that is too good to be true is probably just a facade for scammers trying to steal your coins.
How can you find out if a site is a scam for yourself? Easy, use our Bitcoin scam test tool.
STAY AWAY FROM SITES THAT CLAIM THEY WILL DOUBLE YOUR COINS OR GIVE YOU DAILY INTEREST ON THEM.
By now you can probably see that there is no simple answer to this question. It’s not just a matter of should you invest, but also a matter of how to invest. Like I said in the beginning, start by educating yourself (you can use our free 7 day crash video course). Learn about the currency, what affects it, what are its advantages and disadvantages, etc.
After you feel you’ve acquired some basic education, it’s time for you and you only to answer this question. When you start out, start small and learn as you go. You’ll probably make some mistakes, everybody does. You can consult with others and read information online but never follow someone’s advice blindly.
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