It seems like bitcoin is all the rave these days. There’s been a lot of buzz again lately as the value of BTC has shot through the roof over the last six months. “So how do I invest in bitcoin”, many are asking. First, it’s a good idea to understand the risks involved. I’ve laid out some of the basics below as well as an action plan to start investing, should you decide to jump in.
Step#1 – Learn The Basics: Bitcoin 101
Before investing in bitcoin at all, it is important to understand the basics on how it works. Bitcoin is a “digital currency” which means you never actually hold it in your hand. You buy and sell it virtually online (or between smart phones with an app from one of the exchanges) but you never actually hold physical coins in your hand. Think of this sort of like moving money in and out of your Paypal account. The big difference between paypal and bitcoin, though, is that bitcoin is both 1) A WAY to send money, and 2) An actually currency which can fluctuate in value. So when you move money into your paypal account, you don’t worry about it going up or down in value. With Bitcoin, once you buy the coins, they can go up or down in value (similar to trading international currencies, Forex trading, etc). Now this ability for the value to fluctuate makes some people nervous, but for those investors hoping to “ride the wave” upward, the instability of bitcoin is the most exciting aspect. Just be aware that bitcoin’s value can fluctuate which means the value of your coins can go up or down all the time.
Step#2 – Open an Account (on a bitcoin exchange)
The next step to investing in bitcoin is to create a way to buy and sell them. Some users opt to just trade with people they know (or meet) using a bitcoin wallet app. This involves sending bitcoin from one “wallet address” to another wallet address. This type of trading is similar to one-on-one transactions you might expect to see with trading goods on Craigslist, or simply sending bitcoin to friends using an app. While this works, it is not ideal for those looking to invest in bitcoin. Most who want to invest in bitcoin will be best served opening an account on one of the major “bitcoin exchanges” such as Coinbase. Coinbase has been around for years and is widely recognized as the premier bitcoin exchanges since it is fully approved by US regulators and is actually even FDIC insured against losses like your local bank is. To get started, navigate to coinbase.com and open an account. The sign-up process is similar to creating a Paypal account in that you’ll need to link your checking account to your new coinbase account in order to send money there. Once you’ve set up your coinbase account, now you’re ready to invest in bitcoin.
Step#3 – Buy Your First Bitcoin
Now that you’ve got your Coinbase account set up and your checking account is linked, you can now start buying bitcoin on the exchange. It is important to note that you can actually have a USD cash balance in Coinbase, or, you can hold bitcoin in Coinbase, or a combination of both. This is similar to any online trading account like eTrade. You may choose to invest all cash in your Coinbase account into bitcoin, or just some, or buy-sell portions as you see fit. In short, you can move any amount of your USD cash balance in Coinbase in and out of BTC as you see fit (just like you can buy or sell portion of stock in your eTrade account). It is also important to know that unlike trading stocks, you do NOT need to buy an entire bitcoin (currently $2590 each) at a time. You can buy as little as $1.00 worth of bitcoin at a time on Coinbase (other exchanges have their own minimums).
That’s all – Now wasn’t that easy?
Now you’ve purchased your first bitcoin and you can watch to see whether it goes up or down; buy and sell as you see fit. Beware of the small transaction fees that the exchanges charge (similar to trading stocks online). Buying and selling very often may not make financial sense until you’re dealing in larger amounts.
Disclaimer: This article is for informative purposes only and is not intended in any way to urge you to invest in bitcoin. Like any currency trading the value can go up or down at any time, and sometimes wildly fluctuate. If you do choose to invest. Do so with caution. Have fun!