Chasing the lowest buy price is risky
Let’s say you have a certain amount of fiat you are ready to invest in crypto. Naturally, you will want to catch the lowest price in order to buy as much as possible.
However, this is a risky approach. If you follow the “I’ll buy when it dips a little bit more” tactic, you will miss out. The price will grow, and you will end up buying at an even higher price.
There are, however, times when it is actually worth waiting for the price to lower. One of such times is when the RSI indicator value is really high – this could indicate that the Bitcoin is overbought and might drop in price very soon.
But let’s say the RSI is at normal levels, but the price still seems a little too high to you. What should you do then?
Implement a dollar cost averaging strategy.
How dollar cost averaging works
Let’s say you want to buy Bitcoin as cheap as possible during the next year. You have a certain budget, let’s say, 1200 USD. What you do is split this sum into 12 equal parts (100 USD in this case) and purchase 100 USD worth of Bitcoin every month on the same day (let’s say, on the 10th of each month).
Sometimes, Bitcoin will be more expensive than preferred during the purchase; sometimes, it will be reasonably cheap. But in the end, the average cost of all the BTC bought should be reasonable.
For example, if you implemented this strategy from November 10, 2018 to October 10, 2019, you would have bought 0.208 bitcoins at an average price of under 5800 USD. This is a great price, considering that the maximum Bitcoin price in 2019 was over 13 000 USD!
Try to sell at the very top – and you will lose
When the price of Bitcoin grows at an astronomical pace every day, the temptation to hold it a little longer is great. Why should it be sold if its price grows? Why lose potential extra profit?
If you catch yourself thinking this, you are experiencing FOMO and will fail to make a rational sell decision. In the end, this will lead to selling at the wrong moment, and you will end up on potential profit for real.
Never let emotions control your decision on selling (I’ll hold it just 1 more day!) and instead plan your exit strategy ahead.
Just like with buying strategies (dollar cost averaging included), there are a lot of great selling strategies.
For example, some strategies involve selling a certain percentage of your holdings once the certain price is reached and repeating the process at certain new price points. Or, for instance, you could start selling a certain part of your bitcoins every day after a certain price has been crossed.
There are many strategies, and it’s up to you to decide which one works best for your preferred crypto. However, remember that selling all at once and hunting higher prices might not be good decisions.
There is no need to check the price daily
There is one thing you should understand clearly when investing in Bitcoin: it is a long-term game.
Unless you plan to daytrade (here are the reasons why you should not), checking the price of Bitcoin every two hours is counterproductive. What’s more, watching constant Bitcoin price spikes and dips can affect your mental health, making it impossible for you to make rational decisions.
But let’s say you don’t want to miss a big price movement. What should you do then?
Set an alert.
I would advise to use a simple tool like Coinwink or CryptoCurrencyAlerting. Both let you set the exact price both below and above the current price and will notify you by email or SMS (or both). When the actual BTC price reaches your value, you get a notification. Just as simple.
By using such tools, you won’t have to watch the price of Bitcoin constantly and will still catch a big dip or a beginning of a rally.
Investing in BTC is worth it, investing in mining equipment is not
On first glance, it might seem that mining equipment is as good an investment as Bitcoin is. After all, you just have to buy a miner and get bitcoins without doing anything, right?
Yes, but these “free” bitcoins come at a price. Your hardware (likely worth several hundred or thousand USD) will take months or even years to pay for itself and bring in profit. You can easily estimate your potential profits (or losses) using mining calculators, like this one.
The invested money gets frozen for months or years in form of mining equipment.
But what happens if the price of Bitcoin increases? Mining would get much more profitable, right?
Yes, it would, however the growth is likely to be much less spectacular than an investor might expect. When the price of Bitcoin grows, more miners get interested and the competition stiffens. As a result, you will be able to mine less bitcoins than previously, but the process will still be a touch more profitable due to the bigger price of a single BTC.
On the other hand, if you buy bitcoins, there are no side effects that will slow down the growth of the value of your portfolio.
Even good exchanges are awful wallets
If you want to buy any cryptocurrency, Bitcoin included, you will likely use a cryptocurrency exchange (check out our list of 10+ most reliable ones). And there is nothing wrong with it. Large exchanges offer a great selection of altcoins, advanced trading tools and plenty of liquid markets.
However, using exchanges for anything other than trading is a bad idea.
The thing is, you do not actually control the coins on your exchange balance. They are stored in a wallet of the exchange – along with the coins of other users. As you might imagine, this wallet becomes a big target for hackers.
Unfortunately, no system is 100% secure – large exchange hacks have happened previously.
Perhaps the most known is the hack of Japan-based Mt. Gox that happened back in 2014. The exchange, which handled 70% of all Bitcoin trades in the world at some point, lost at least 750 000 bitcoins. Assuming 1 bitcoin costs 10 000 USD, the hack cost exchange 7.5 billion dollars.
Another successful attack worth mentioning is the 2019 Binance hack. The exchange, which is one of the best-known nowadays, lost 7 000 bitcoins worth more than 40 million USD at the time of attack.
If you have money to invest in BTC, you have money to secure your coins
If exchanges are not secure enough for storing, then what is?
Dedicated cryptocurrency wallets are.
Most of them are software-based, meaning that they are programs you have to install either on your phone or PC. Such wallets are convenient, but not highly secure.
Hardware wallets, on the other hand, is what you should be looking at if you plan to invest in Bitcoin or any other cryptocurrency. They are dedicated devices designed solely for storing coins. Yes, they are significantly more expensive than the software wallets (although can still be bought under 100 USD), but offer an unparalleled level of security. To find out which wallet is the best for you, check out our guide to hardware wallets.
Buying a hardware wallet makes sense, especially if you are buying larger amounts of crypto. By spending a touch over 50 USD, you can buy yourself peace of mind, knowing that no hacker will be able to steal your private keys.
Bitcoin doesn’t forgive mistakes
Bitcoin is designed to be secure – not beginner-friendly. It is not fool-proof at all.
For starters, the Bitcoin addresses are very hard to remember and can only be written in both reliably and fast by copy-pasting or scanning the QR code. While some systems, like bank accounts, have similar problems, networks like PayPal are much better in this regard.
But what happens if you send coins to the wrong address?
If you send money to the wrong PayPal address or bank account, you can contact support. Most possibly, the transaction will be reversed and you will forget about the whole situation the following day.
If you send money to the wrong BTC address, you will have no-one to contact. Bitcoin is decentralized; it is an algorithm that runs without human intervention. If the coins are already sent, you have lost them.
And no, the transaction cannot be reversed – transaction irreversibility is one of the key Bitcoin selling points.
Tip: always re-check the first three and the last three symbols of an address you are sending coins to. It takes just a few seconds, but significantly reduces the risk of sending your precious bitcoins into nowhere.
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