1 month ago

    How Much Bitcoin Should I Buy?

    How Much Bitcoin Should I Buy?
    Table of contents

      As an asset that was introduced more than a decade ago, Bitcoin (BTC) continues to influence the digital currency in 2024. Through the years up until now, Bitcoin has held the position of the number one crypto by market capitalization with little to no dispute from other virtual currencies.

      There are about 200 million BTC wallets, with over 1 million wallets holding more than 1 Bitcoin, showcasing the increasing mass adoption of the king coin worldwide. 

      Investing in Bitcoin has its risks and challenges. The unstable values and complexity of the crypto market can be unsettling for new investors. Hence, this article offers a comprehensive guide on how much Bitcoin one should purchase, considering factors like budget and financial goals, market trends and risk factors, and expert opinions.

      Familiarizing With Bitcoin

      It’s important to understand what Bitcoin is and the challenges it poses while investing in it. Bitcoin is a digital currency leveraging blockchain technology that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. 

      It was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. The currency began use in 2009 when its implementation was released as open-source software.

      Bitcoin’s value has experienced immense growth, and at the time of writing, the crypto has surpassed $64,000, getting closer to its all time high values of $69,014, seen in November 2021, per data from Reuters.

      The value of most cryptocurrencies is unstable and varies immensely over a short time. The volatility means that investing in Bitcoin has a high level of risk. Hence, future investors should carry out research and rethink their financial state and risk tolerance before buying Bitcoin.

      Advocating On How Much to Invest in Bitcoin

      bitcoiner room stack sats
      Bitcoiner room – stack sats y’all

      Investment Capital Range: 5% to 30%

      Most financial experts recommend that investors allocate between 5 to 30% of their investment capital when it comes to risky investments. Doing this is considered a conservative approach, while investing up to 30% is considered more risky. Right in the middle of that range, the famous bullish investment firm Ark Investor recommended a 19.4% Bitcoin allocation in your portfolio.

      It is crucial for investors to start small. For example, if you have $1,000 in savings, putting $50 or $300 is a good range of investment depending on risk tolerance and financial goals.

      Professionals advocate that investors should invest in what they can lose, hence having a budget and putting a portion of it in Bitcoin. It is crucial to consider personal financial circumstances, risk tolerance, and market trends when deciding how much Bitcoin to purchase. 

      Factors to Consider When Buying Bitcoin

      Budget and Financial Goals

      Before purchasing Bitcoin, it is essential to consider your financial and budget goals. Professionals advise investing money you can afford to lose since cryptocurrencies are unstable. It is necessary to have precise financial goals in mind before investing. 

      For example, if you set aside money for a down payment for a house or car for the next few years, putting it all in Bitcoin may be unwise. People are advised to set aside an emergency fund before going into cryptocurrency. The extra money helps minimize the expected losses and offers peace of mind while exchanging.

      Bitcoin: A Scarce Asset in Inflation, Saylor’s View

       

      Comprehending market trends and risk factors is essential when purchasing Bitcoin. Bitcoin seems at first glance to be prone to instability; hence, prices vary rapidly. The Bitcoin price depends on factors like market demand, regulations, and adoption rates. But this is just the surface, short term view.

      In his famous intervention in Argentina, Michael Saylor highlighted that in the context of inflation, the majority of assets tend to lose value. However, he pointed out an exception for prime real estate, which consistently appreciates due to its scarcity—such as coveted beachfront properties in Miami where you can’t simply produce more land. Similarly, Bitcoin, with its capped supply, stands out as an exceptional asset, drawing a parallel to the limited availability of prime real estate, making it a valuable hedge in an inflationary economy.

      Bitcoin as a Deflationary Shield

      m1 money supply
      M1 Money Supply

       

      80% of all dollars were created in the last 5 years. The dramatic surge in the M1 money supply, as reported by the Federal Reserve Economic Data (FRED), reaching a total of $17,989.0 billion as of January 2024. This sharp increase, particularly noticeable in the latter part of the graph, suggests that a significant portion of the total U.S. dollars in circulation has been created in a relatively short span of time. If indeed 80% of all dollars were created in the last five years, it indicates an unprecedented level of monetary expansion which can be a precursor to inflationary pressures if such an increase in money supply is not matched by economic growth.

      Contrastingly, Bitcoin, with its hard cap of 21 million coins, presents a deflationary model. This limited supply can lead to an increase in the value of each coin as demand grows or as the overall economy grows, particularly in stark contrast to the inflationary tendencies of fiat currencies like the USD. The mantra “when in doubt, zoom out” encourages investors to take a long-term perspective, considering the larger, more gradual trends in Bitcoin’s value over time, rather than focusing on short-term volatility. This perspective might bring solace to those concerned with the devaluation of traditional currency due to aggressive monetary expansion.

      Expert Opinion on Purchasing Bitcoin

      Professionals advise that individuals begin small in Bitcoin to reduce risk and slowly increase their investment as they familiarize themselves with the market. Moreover, people are advised to educate themselves on blockchain technology basics and the history of Bitcoin before investing. 

      Some of the biggest financial institutions, asset management firms, and banks on Wall Street, like MicroStrategy, BlackRock, and Grayscale, are all pro-Bitcoin. The company heads of such firms believe BTC is the future, with MicroStrategy former CEO Michael Saylor saying, “Bitcoin is the hardest money on earth,” urging people to look for ways to invest in the biggest crypto by market cap.

      Although investing in BTC could provide crucial long-term potential, professionals urge investors to always remember that the market is volatile, and you can make losses just as fast as you can count profits. 

      Investment Strategies for Buying Bitcoin

      Select a Reputable Exchange 

      Among the initial steps in buying Bitcoin is selecting an established cryptocurrency exchange, or even a crypto bank. This is significant since not all exchanges are developed equal and others have security issues and bad customer service. Search for an exchange that is registered and has good reviews from past users. 

      Using a known exchange can offer peace of mind while investing in Bitcoin and ensure the security of funds using their platform.

      A way to minimize the impact of market volatility on your Bitcoin investment is to utilize dollar-cost averaging. It necessitates investing a small fixed amount of money eventually rather than attempting to time the market

      For instance, rather than purchasing one Bitcoin, invest an amount of $50 weekly. This perspective assists in avoiding buying at a hefty price and eventually gives out good outcomes in the long run. 

      https://twitter.com/w_s_bitcoin/status/1762301380683866322?t=86TxwYM1zcxxy5C0TEbN-w&s=19 

      Profitable Timing in Bitcoin Trading Versus the HODL Mentality

      Investors who have timed the market to buy Bitcoin at the bottom of its price cycle and sell at the peak have often seen success. According to a report by CoinDesk, data from the crypto exchange OKEx indicated that during Bitcoin’s rally to a new all-time high, larger holders, often referred to as “whales,” were able to buy the dips and sell when the prices increased, thereby making a profit. This left many retail investors chasing the rallies, highlighting the effectiveness of buying low and selling high​​.

      On the other hand, the Bitcoin community is known for a strong ‘hold’ mentality, often referred to as ‘HODLing.’ The term, which originated from a typo in a 2013 Bitcoin Talk forum post, has come to mean “hold on for dear life.” It signifies a long-term approach to Bitcoin investment, where investors hold onto their assets through various market cycles, regardless of short-term price drops. This strategy is encouraged among investors who believe in the long-term value of Bitcoin, despite the volatility and price fluctuations in the short term​​.

      From @Saylor to @Taylor, they are all advocating for Bitcoin as a multigenerational ‘wealth creation’ and wealth transferring mechanism.

      Securing Bitcoin With a Digital Wallet

      After purchasing Bitcoin, the next step is securing it using a wallet. Bitcoin is similar to a physical wallet since it keeps your money, rather than cash and cards; it keeps your digital currency. 

      There are two kinds of wallets: hot and cold. Most hot wallets like Exodus, MetaMask and Coinomi are secure, although they require you to safeguard a key phrase that you can use to recover funds in case you lose access. If you lose the key phrase, the assets can never be recovered, and if you share it with any foul characters, then you may lose all of your crypto. 

      Examples of recognized hardware or cold wallets include Trezor and Ledger Nano. 

      Staying Up-to-date With Market Trends

      To be an expert in Bitcoin investing, staying informed and updated on the market is significant. Be aware of the current news and trends regarding cryptocurrency investment. Connect with other online communities for traders and investors to discuss current events with other fanatics. 

      Constantly check Bitcoin exchange rates, prices, trading volumes and other market performance trends. This will give a good perspective of how much Bitcoin is worth at a particular time and assist in recognizing profitable investment opportunities.  

      Conclusion

      Investing in Bitcoin can be profitable for investors as long they understand the factors that affect the price. When considering the amount to invest, it’s important to remember your financial goals, risk tolerance, and market trends. 

      Beginning small with a recognized exchange and securing your Bitcoin with a digital wallet can largely help in reducing risks. Do your research to stay informed about the crypto market and be alert to market changes. With these considerations in mind, you will certainly make profitable investments in cryptocurrency.

       

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