How to invest in Bitcoin

• Before investing in cryptocurrencies, it is important to understand how Bitcoin works;
• investing in Bitcoin involves risks and exposure to very high volatility;
• with online trading brokers and cryptocurrency exchanges, investing in Bitcoin is accessible to everyone;
• investing in Bitcoin can be an interesting addition to a diversified and well-balanced investment portfolio, but it is important to be cautious and invest only what you are willing to lose.

Buying Bitcoin is one thing, investing in Bitcoin is another. The first action does not necessarily imply the second. A good investment should be made after careful analysis, with a precise time horizon and an estimated return in advance. Buying Bitcoin blindly because it is at an all-time high or because "everyone is buying it" does not mean investing in Bitcoin in the proper sense.

With that premise, it is still true that investing in Bitcoin can offer several opportunities, although it requires a cautious approach and a deep understanding of the risks.

Understanding how Bitcoin works is not easy, but if you want to learn how to invest in Bitcoin, below is a simple and comprehensive guide on everything you need to know to do it safely and responsibly.

4 things to know before investing in Bitcoin

As mentioned earlier, investing in Bitcoin can be an interesting opportunity, but it is essential to know some key aspects before proceeding, including:

What Bitcoin is, in brief
Bitcoin is the first cryptocurrency ever created and was launched in 2009. It is a form of digital money that uses blockchain technology to make transactions secure and transparent. Unlike traditional currencies issued by governments, Bitcoin is decentralized and not controlled by any central authority such as banks or governments. The value of each Bitcoin varies based on the relationship between supply and demand and market speculation. Here is Bitcoin’s real-time price.

What blockchain is, in brief
The Bitcoin network is based on blockchain technology, which acts as a shared public ledger of all transactions made with Bitcoin. Each transaction is recorded as a "block" of information that is added to the chain of previous blocks, creating a complete history of all transactions that have occurred.

Bitcoin is not a traditional investment
Bitcoin does not generate income streams such as dividends or interest, unlike stocks or bonds. Its value is primarily based on market demand and the trust that investors place in the crypto sector.

The security aspect
Bitcoin is stored in digital wallets that can be physical (hardware wallets) or online (software wallets). It is essential to protect your private keys: if they are lost or stolen through a hacker attack, there is no way to recover them.

How to invest in Bitcoin

So, how do you invest in Bitcoin? In the same way you invest in euros, dollars, or any other traditional currency: Bitcoins are exchanged like any other currency using specific exchanges or through online trading. Their mining, or creation, through a simple PC has become impossible due to the enormous complexity of the required calculations.

Both options for buying Bitcoin offer advantages and disadvantages, and it is important to understand the differences between the two before making a decision.

In summary, to start investing in Bitcoin, you need to:

• choose a platform to buy (exchange or broker): to invest directly in Bitcoin, a secure and reliable cryptocurrency exchange or an online trading broker is required. The latter option does not make you the owner of Bitcoin but allows you to speculate on the cryptocurrency’s market value changes through CFDs, whose operation is illustrated later in this guide;
• choose a cryptocurrency wallet: after purchasing cryptocurrencies through an exchange, you should consider transferring the assets to a personal wallet for greater security;
• know the risks: when investing in Bitcoin, it is critical to be aware of the risks, such as price volatility, still-evolving regulation, the possibility of falling victim to fraud, and cyberattacks.

The limited supply of Bitcoin (there are currently 19,815,809, while the maximum supply is set at 21,000,000) and its independence from monetary policy make it an attractive long-term investment in the eyes of many, even though its high volatility requires caution when investing.

Investing in Bitcoin with a broker

Online trading brokers offer the opportunity to invest in Bitcoin through Contracts for Difference (CFDs). CFDs allow you to speculate on Bitcoin’s price without actually owning the cryptocurrency. With this tool, you can open positions both upwards and downwards and use leverage to amplify your potential profits.

Online trading brokers offer advanced platforms that allow you to analyze price charts, use technical indicators, and set conditional orders. In addition, these brokers often have free demo accounts, which allow you to practice and familiarize yourself with Bitcoin trading without risking real money.

To invest in Bitcoin through a broker, the first step is to choose a reliable and regulated broker that offers CFDs on cryptocurrencies. After selecting it, you need to register by creating an account, providing personal data, and completing the verification process required by anti-money laundering regulations, which usually includes submitting an identity document and proof of residence.

Once the account is verified, you need to make an initial deposit by choosing one of the payment methods accepted by the broker, such as bank transfer, credit card, or digital wallets. At this point, you just need to access the broker’s platform and look for Bitcoin CFDs among the available instruments. After selecting Bitcoin, it is recommended to analyze the chart and use any technical analysis tools provided by the platform to assess the best time to enter the market.

When ready, you can proceed to open a position by choosing the amount to invest and setting any stop-loss and take-profit levels to manage risk. You can choose to go "long" (buy) if you think the Bitcoin price will rise, or "short" (sell) if you believe it will fall.

Finally, you will need to regularly monitor the position and close it when it reaches the desired result or to limit losses.

Investing in Bitcoin through exchanges

Cryptocurrency exchanges are online platforms that allow you to buy and sell Bitcoin directly. With exchanges, you become the actual owner of the Bitcoin you purchase and can store it in your digital wallet.

There is also the advantage of being able to choose from a wide selection of cryptocurrencies, thus further diversifying your portfolio.

But beware: cryptocurrency exchanges usually charge fees for buying and selling Bitcoin and other cryptos, an essential aspect to consider and compare when choosing the exchange to use for investing in Bitcoin.

To invest in Bitcoin through an exchange, you start by choosing a reliable and regulated platform, then register by creating an account, entering personal data, and completing the identity verification process, as with brokers.

Even when choosing an exchange, after verification, you need to deposit funds into the account using the available payment methods. Once the balance is loaded, you just need to access the exchange’s trading section and look for Bitcoin among the available cryptocurrencies.

At this point, you need to enter the amount you want to buy, specifying whether you want to make a direct purchase at the market price or set a limit order to buy Bitcoin only when it reaches a specific price. After making the transaction, it is useful to transfer the purchased Bitcoin to a secure wallet (hardware or software) to protect it from potential risks, such as hacker attacks or problems with the exchange.

Why invest in Bitcoin?

Investing in Bitcoin may seem like a leap into the unknown, and in many ways it is, but its unique characteristics offer a series of advantages that distinguish it from traditional investments.

Bitcoin was the first decentralized cryptocurrency to enable direct peer-to-peer transactions without intermediaries such as banks or governments, relying on a blockchain system that permanently records every transaction. This not only guarantees transparency but also offers a level of security that strongly contrasts with traditional centralized financial systems.

Looking at its exponential growth from 2009 to today, in many ways Bitcoin appears to be an interesting long-term investment, not to mention that it also offers good portfolio diversification thanks to its immunity to trends in stock or bond markets.

Another reason why many have decided to invest in Bitcoin lies in its intrinsic difference from traditional fiat currencies. The latter can be manipulated, devalued, and printed infinitely by governments, whereas Bitcoin’s supply is limited to 21 million units. This means that once 21 million BTC are created, no more will be produced. This limit helps protect investors from inflation and currency devaluation.

Moreover, the introduction of Bitcoin ETFs in the United States has simplified the process of investing in Bitcoin through traditional securities accounts, although they involve fees ranging from 0.2% to 1.5%. This innovation has made the market more liquid, but it is not possible to invest in Bitcoin through ETFs in Europe, and thus in Italy.

ETFs can only be authorized within the European Union if there is a minimum level of diversification. However, ETNs can be purchased.

Advantages and risks of investing in Bitcoin

Investing in Bitcoin brings advantages, but it is important to be aware of the risks associated with this form of investment.

Starting with volatility, which is both an advantage and a risk. On one hand, it has allowed Bitcoin to record significant increases over the years, enabling gains of thousands of dollars or euros in just a few months, but on the other, the fact that its price can fluctuate significantly in a short period can also lead to significant losses.

As we have already seen, BTC can add value to your investment portfolio and its diversification. Since its value is not correlated with that of traditional currencies or financial markets, it can act as an anchor of stability during periods of economic uncertainty.

However, it is impossible to hide behind a finger. Bitcoin is still a relatively new form of investment, and its regulation is still evolving. Just a few weeks ago, the Italian government promised to raise Bitcoin taxation from 26% to 42%. This novelty, however, was not included in the Budget Law, but if it had passed, it would have eroded a significant portion of the capital gain earned by cryptocurrency investors.

Even globally, uncertainty still dominates, although under Donald Trump’s presidency, the market expects strong support for the crypto universe.

Original article published on Money.it Italy 2023-11-27 16:12:52. Original title: Come investire in Bitcoin