Investing $100K USD in bitcoins… Best practices?

Bitcoin Questions and AnswersCategory: QuestionsInvesting $100K USD in bitcoins… Best practices?

Tamer asked 1 year ago

I’m planning to Invest around $100,000 USD in bitcoins… and wanted to ask what are the best possible ways to start?

Side note: Don’t invest what you cannot afford to lose.  I’m at a stage where losing $100K  IS a bad thing… but it won’t kill me or put my life or my family members’ lives at risk!
Sure I will be upset if I lose that much of cash, but I still own my house and other assets as well as having good offline & online businesses to take care of the bills & put the kids at school! :)

ok, back to my question…
I have been researching bitcoins for almost a year now… time to go ahead and take the risk…
I plan to allocate $100K for this venture… and see how it goes!
My questions are all around best practices & advices during the initial investment phase:

1- Should I deposit all my fiat capital in 1 exchange?  or distribute across lets say 5 exchanges?
2- should I buy all the bitcoins that I need in 1 transaction  per exchange?
or its better to gradually convert the USD to BTC?
what are the advantages/disadvantage to doing so?
3- In general… which is better (from a bitcoin investor point of view)…
to do day/week trading? (i.e. buy/sell bitcoins within short period of time)?
OR to buy bitcoins and store it (hodl it) in a paper wallet for a month or two before cashing out and then repeating?
4- If I’m SELLING large number of coins, lets say 10 BTC or so…
is it advisable to cash out in 1 exchange?
or move the coins from the paper wallet to 3-5 exchanges and sell there?

Any other advice for a new bitcoin investor?   I found this article very useful, as well as this one.
Thanks for your thoughts.

1 Answers
Steven Hay answered 1 year ago

Hello Tamer,
It sounds like you’re on the right track by investing only money you can afford to lose. Of course, no one likes to lose any money!
To avoid the loss of bitcoins, I strongly advise you to consider purchasing a hardware wallet. You can learn more about these in our Wallet Reviews > Bitcoin Wallets > Bitcoin Hardware Wallets section up top. Essentially, they function as user-friendly paper wallets which help you to avoid some of the common pitfalls of paper wallets. It’s a lot easier to securely spend funds from a hardware than a paper wallet, for example, and hardware wallets do away with the need for a dedicated offline computer for key generation and signing either. If you’re planning to invest a significant amount, the low cost of a hardware wallet is certainly justified.
To answer your specific questions:

  1. Exchanges aren’t the only option. For greater financial privacy, you might consider over-the-counter (OTC) trades rather than exchanges. Direct purchases from trusted individuals won’t require you to submit a raft of identity verification documents, this is safer from a security perspective. Of course, it’s also more complex to arrange in a secure fashion. Certain exchanges, like Bitfinex and ItBit, offer an OTC service to introduce buyers to trusted sellers and oversee the process. I’d say $100k is close to the level where OTC trades become a consideration (ItBit’s minimum is 25 BTC). Decentralised exchanges like LocalBitcoins are another way to go. However, you’re unlikely to get your full order met in one trade this way, and will have to manage more of the risk yourself. Finally, spreading your purchases between various exchanges is only really beneficial if you intend to store your fiat or bitcoins on these exchanges for a prolonged period – which you absolutely shouldn’t do. Choosing one trusted exchange with deep liquidity will also mean you only need to go through the verification process once – it can be a lengthy wait and each entity you share your info with increases the odds of identity theft down the line. I should add that if you don’t intent to spend all your capital at once, there’s no sense sending the entire amount to any exchange. Let it sit in your bank instead, earning interest, and only send as much as you intend to use for purchases. Once verified, it should only take a day or two to fund an exchange account.
  2. Well, buying a set amount over time is known as Dollar Cost Averaging. Search that term for the details, it’s a pretty good strategy for building a position. The pros and cons here are that if you’re lucky enough to buy Bitcoin with all your money at the low, then you’ll maximize your profits as the price rises. However, as it’s highly unlikely you’ll get the timing right to buy in at the low, buying over time is likely to get you a better average price.
  3. I’d say it’s absolutely a far better strategy to buy and hold – and not necessarily with a timeframe of months but years, even decades. While I’m confident that Bitcoin will succeed in the long term, I have absolutely no idea where price will be in the next few weeks or months. In a few years though, I think the chances are very good that price will be higher than it is now. I would say you should invest a small % of your funds now, while price is volatile and market noise and chaos is high, and see if you’re able to hold this position through the turmoil. It’s an emotionally difficult thing to do, when you’re new to this. You’ll see all kinds of news and opinions which will make you want to sell – the FUD (fear, uncertainty, doubt) campaign is raging in full force right now. If you’re able to hold your small opening position through it all until Bitcoin recovers, then you should feel comfortable putting more in and holding for longer.
  4. Again, if you’re using a trusted exchange, it’s not really necessary to divide things up in this manner. It’s kind of a personal preference, but if you only send as much Bitcoin to the exchange as you wish to exchange at one time, you keep the risk low. Remeber that storing your fiat or bitcoins on an exchange is a no-no, they should only be used for trading. In and out. Let your bank and hardware wallet bear the burden of storage; that’s what they’re designed for, where exchanges are not (as proven by the various hacks). Our Buying Guides > Buy Bitcoin section should help you settle on a good exchange to use.


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