Do you want to invest in bitcoin and make money without buying bitcoin? If YES, here are strategies for investing profitably in bitcoin stocks, ETFs, mining companies.
A crypto currency is an alternative currency that is designed to serve as a means of exchange between people and businesses that are willing to accept them. Crypto currencies use an encryption method known as cryptography to secure the exchange of the crypto currency and to also regulate the mining and production of more units of the crypto currency. Crypto currencies are virtual currencies and as such, they are not “real”. You can’t touch or feel them because they exist only in a virtual platform.
According to a study by the University of Cambridge, over 5.8 million people have crypto currency accounts of which a majority of them contain bitcoin. Bitcoin was the first crypto currency to ever exist. It was created by a person called Satoshi Nakamoto whose real identity is yet to be ascertained. There are no physical bitcoins, only balances that are safeguarded in a public ledger in the cloud that is authenticated by a large amount of computing power. A bitcoin wallet acts to an extent like a normal wallet. It serves as a media by which individuals can send, receive or store bitcoins and also make purchases.
Investing in Bitcoin – Some Facts About the Bitcoin
- Bitcoin is a decentralized currency. This means that no one controls it; not even the founder of bitcoin. Governments and banks cannot also manipulate it in the same way that a normal currency is controlled.
- Bitcoins when bought or mined are kept in a virtual wallet. The bitcoin wallet is just like a physical wallet where cash and credit cards are kept.
- Bitcoin transfer has to pass through a private and public key for security purposes. When a payment is made from one party to another, it first passes through the private key before it then goes through a public key. The private key can be likened to an ATM pin that is meant to be kept secret and used to authorize bitcoin transactions while the public key can be likened to a bank account which serves as a public address to which other people can send bitcoins to. All bitcoin transactions are stored in a public ledger where it can be kept track of by anybody.
- Processing fees between bitcoin wallets is cheaper than the alternative that is offered by banks and other financial institutions as charges for wire transfer.
- Blockchain is a ledger of all the bitcoin transactions that have ever gone through it.
- Bitcoin can be said to be the first world wide currency due to the fact that it is acceptable throughout the whole world.
- There is a finite amount of bitcoins in the world and as such, more of it cannot be created.
- Only 21 million bitcoins can exist. It is estimated that about 70 percent of this number has been mined and brought into existence.
Investing in Bitcoin – How to Get Bitcoins
To own a bitcoin, you will need to have a bitcoin wallet. This is where the bitcoins you buy or mine will be stored just like a bank account. A wallet may take the form of:
- An online platform: this stores digital keys in the web. It is by far the most popular way to operate a bitcoin wallet. With an online platform, your bitcoins won’t be in your computer rather they will be stored in the server of the service provider. With an online platform wallet, you can access your bitcoins from anywhere in the world but they pose an additional security risk. Examples of such online platforms are coinr, coinbase, blockchain etc
- Desktop wallet: here bitcoins are stored in computers. This platform boasts of a wide array of features and also provides the highest security available. Desktop wallets are by far the safest means of storing bitcoins. Examples include bitcoin core, Armory, multibit etc
- Hardware wallets: these are devices which safely hold the private keys that are necessary for accessing the crypto currency. They are usually small and portable in nature. The make use of the plug and play option to control bitcoins. Example of hardware wallets include Trezor, keepkey, Ledger etc
- Paper wallet: like the name implies, they are customized wallets where the bitcoins are stored on paper. They are offline platforms that provide control of the keys that are used. Due to their offline nature, they are largely safe and free from hacking. However, in the case of fading or destruction of the papers, the bitcoins will be lost forever. Examples are bitadress and bitcoinpaperwallet.
There are several ways to acquire and own bitcoins. Some of them are:
Bitcoins are finite and as such all the bitcoin that will ever exist (21 million of them) has already been created but some are not yet available for use. New bitcoins come into circulation through a process known as mining. The mining process involves aggregating bitcoin transaction data to the global public ledger of past transactions. When any group of transaction is completed, it is known as a block.
By compiling current transactions into blocks and then solving the very difficult computational puzzle, the bitcoin is mined. This process is carried out by many people and whosoever solves the computational puzzle first gets to place a new block on the existing ones and also takes the accrued reward. The reward encourages people to mine more bitcoins and it comes in the form of transaction fees and a subsidy on the newly released bitcoin known as block reward.
The block reward is currently 25X BTC. The difficulty of the whole mining process is somewhat dependent on the computation power employed in the mining process. For example, if more computational power is employed in the mining process, it becomes more difficult.
Conversely if less computational power is used, the mining process less difficult. The reason for the adjustment is to keep the amount of blocks that are discovered constant. The difficulty of the bitcoin mining process is roughly adjusted every 2 weeks.
b. Peer to Peer Transfer: Individuals who wish to buy bitcoins can easily do so from people who already have the commodity. They can send it to each other via mobile apps or computers in the same way that a currency is sent digitally.
c. Commercial Exchangers
Sometimes called brokers, they are vendors who buy and sell bitcoins. To purchase bitcoin from exchanges all you need to do is to their website, select a means of payment and pay. The bitcoins will be transferred directly to your wallet.
For some commercial exchangers you will need to have a preexisting wallet while some like Coinbase can provide you with a wallet. Commercial exchangers accept a wide variety of payment options such as PayPal, Skrill, credit cards etc and as such, they are quite convenient.
d. Exchange platforms: This option is best suited for large purchasing of bitcoins and on a regular basis. The exchange platform provides a digital market place where they act as intermediaries for their customers and matches buyer and sellers on the exchange platform. Traders can buy and sell bitcoin using fiat currencies or altcoins.
e. ATM: Where a bitcoin ATM exists, it can be the easiest and fastest method of owing a bitcoin. Bitcoin ATM’s are like normal ATM’s but instead of dispensing money they send bitcoins to wallets. Companies like Lamassu produce ATM’s that can be used to directly purchase bitcoins.
5 Sure-Fire Strategies for Investing in Bitcoin Profitably
Here are various methods by which one can invest and make money with bitcoins.
1. Bitcoin speculation: This involves buying bitcoins with the intention of selling it at a higher price. This however can backfire as the price of the commodity could decrease leading to a loss or making the holder to sell at a loss or hold it longer than he intended.
- The Buy and Hold Strategy
This speculation method involves buying bitcoins at the right time and then holding it till it gets as close as possible to the 21 million bitcoin figure (21 million being the total number of bitcoins that can ever exist). You can decide to sell at the 18, 19 or 20 million mark too.
This is because it is thought that the closer it gets to the 21 million mark, the more scare it will become and consequently the more valuable it will become. In the year 2012, 1 bitcoin was worth 7 dollars, in 2017, 1 bitcoin is valued at about 4,679.9800 dollars. It is widely believed that this upward trajectory will continue.
This investment is best done as a long term investment and it is the most likely to give the best ROI as compared to other strategies. This strategy is best suited for beginners with little or no experience in day trading or swing trading.
To be on the safe side, it is better to be cautious while making the investment. It is advisable to use about 5 percent of your total liquid capital cash that you are willing to let go. Like any other investment, you should have zero emotional attachment to your money or else you should not be investing at all.
- Day Trading
Day trading of bitcoins involves buying and selling of bitcoins on the same day with regards to the volatilities in price. Day trading of bitcoins provides opportunities such as; 24 hours trading from anywhere around the world, lower fees as compared to traditional exchanges and the fact that you can trade on bitcoins without really understanding the technicalities of bitcoin. Also, the stochastic nature of bitcoins provides plenty of tradable actions daily in the market.
To be able to day trade on bitcoin, you will need a bitcoin exchange trader. Make sure you choose an exchange that is designed for traders because they charge lower fees and also boasts of deeps liquidity. Examples of exchanges include Bitfinex, GDAX, BTC-e, Bitstamp etc. Also, as mentioned earlier, when day trading on bitcoin, use only the amount you can afford to lose.
- Swing Trading
This is very similar to day trading but it involves holding your position for more than a day or even up to a month. This strategy is best for when the market is trending. Bitcoin can lose or gain many dollars in a strong trend within the week.
Bitcoin shares some similarities with gold, one of such similarities being that they are both finite. Initially it was easy to mine gold but as the years went by; the remaining gold deposits were found deeper and deeper underground and therefore required a lot of effort in other to get them to the surface. The same can be said for bitcoins.
Initially, mining bitcoins could be done with a home computer, but now, for it to be profitable you will need to use a data centre that is devoted entirely to the sole purpose of mining. Even with a mid range computer solely devoted to decrypt mining blocks with mining software, it could take a year or more to decrypt a block.
Unless you have access to very cheap electricity, you could end up spending more on electricity compared to the profit you make. Custom built mining rigs are available but they cost a lot. This just goes to show that mining bitcoins as an individual is not as profitable as it was years ago.
5. Mining Pool
A mining pool involves mining bitoins as a group of miners, where internet connected computer clusters divide the work of a block into pieces that are then shared among the group. The resulting bitcoin which has been mined as a result of group effort is then shared according to how much work each individual contributed in each rig.
Even though the mining process is extremely difficult and complicated, a mining pool stands a slightly better chance of decrypting a bloc. The only downside is that the profit has to be shared among participants. You will need to create an account with the mining pool website to get started. Bitcoin mining in general is hardly ever profitable as an investment for newbies.
When is the Right Time to Invest in Bitcoins?
An old Chinese proverb says that the best time to plant a tree was ten years ago and the second best time is now. This is very applicable to the case of bitcoins. The perfect time to have bought bitcoins would have been in 2009 when one bitcoin was 6 dollars. But you can always buy bitcoins at any time if you intend to hold it for a long time. However, if you intend to sell it off at short time intervals, you should study the market and try to purchase when there is a drop in price.