How to Determine the Best Time to Invest in Bitcoin

by Jessica Sommerfield · 13 comments

how to invest in bitcoin
We’ve been hearing a lot about Bitcoin in the news lately, and financial advisors say they’re fielding more and more questions about this intriguing digital currency.

(If you need to get caught up on Bitcoin and block chain technology, read this article).

As with any technology, it’s taken a few years for Bitcoin and other cryptocurrencies to become more mainstream — and that time seems to have arrived.

Sure, we aren’t seeing Bitcoin used as a standard currency in many places yet, but people are getting excited about it as a form of investment: the value of a single bitcoin went from $1,000 in January 2017 to close to $20,000 on some exchanges by early December (it’s since dropped back down, but still much higher than the value at the start of 2017).

best time to invest in bitcoinThe Appeal of Bitcoin

The appeal of investing in Bitcoin isn’t just based on the recent upswing in its value. Some believe there are advantages to its versatility for global exchange and lack of third-party regulation (a.k.a. banks and government entities). Those who purchase Bitcoin have sole control over the account “keys” to their digital wallet — a kind of software that stores bitcoins.

Some say Bitcoin and other cryptocurrencies (such as Ethereum or Ripple) are less susceptible to stock market fluctuations since they operate in their own little worlds.

Still, plenty of financial gurus — the most famous being Warren Buffett — are urging people to be cautious. Bitcoin has already shown its potential to be volatile, and without any history to draw from, it’s difficult to predict what will happen next. Besides this, there are other risks.

Risks of Bitcoin

Bitcoin is a different type of investment than a stock or bond. It’s more like investing in gold or oil. To keep it simple, it depends strongly on price appreciation and has to stay one step ahead of inflation.

Another big risk of investing in Bitcoin is its lack of regulation. There’s no oversight from financial institutions, but that means there are none of the accompanying consumer protections: FDIC insurance, physical and digital security systems, and account protections.

The digital world might seem more secure than physical money in a bank, but it has risks of its own — from advanced hackers, to account problems and technology failure. The hard drives storing your bitcoin keys can be damaged, stolen, or wiped, or you could even lock yourself out of your own account (as many of us are all too aware!), with no bank staff to help you retrieve the password.

Finally, it’s good to know that any bitcoins you own will be taxed as property (like a stock), not as cash, so you could end up with a higher tax bill.

Tips for Wise Bitcoin Investing

There are legitimate gains being made from Bitcoin, and legitimate words of caution. So, what does this mean to you? It means you need to decide for yourself, with a little advice. Start with these:

1. If you want to invest in Bitcoin, only invest what you can afford to lose.

Some advisors say to treat it like a lottery ticket. Regardless of the potential, investing in Bitcoin is still more like gambling than putting your money into stable, traditional investments with historically high rates of return.

2. Use a reputable exchange market that offers additional protections and securities.

Bitcoin isn’t regulated, but an increasing number of reputable exchange services can provide some peace of mind. One of the most popular of these is Coinbase, which offers insurance and secure storage.

3. Don’t put all your investment dollars in one basket.

With any kind of investing, it’s always wise to diversify. As an especially new and unpredictable type of investment, this is especially wise with Bitcoin.

Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.

Money Saving Tip: An incredibly effective way to save more is to reduce your monthly Internet and TV costs. Click here for the current Verizon FiOS promotion codes and promos to see if you can save more money every month from now on.

{ read the comments below or add one }

  • CoinsCap says:

    Is it true that Bitcoin is Safe and secure, as far as its a much better option for investment in future.

    • Paul says:

      It is as safe as investing in nothing. Which is really what it is. Nothing. It has no asset backing. Nothing tangible to sell. At least with gold, platinum, diamonds, sheeps wool etc. you have something to invest in. Bitcoin, another pie in the sky scheme which will vanish.

      Interesting that one of the developers of Bitcoin has cashed in ALL of his.

      Says a helluva lot doesn’t it!

      • Sun says:

        Are you confusing Charlie Lee author of Litecoin (LTC)? He’s the only one that recently sold all of his position in Litecoin. This was to remove the perception that he was trying to shill for his coin in terms of price.

        US Dollar has no asset backing. And yet, we are still using it?

        I can’t send a bar of gold to someone in China to buy inventory. With Bitcoin, I can do this easily without needing a bank to take $45 USD and take three days to process. Bitcoin is not to replace gold or out fiat system. It is a way to pay someone digitally. If you want it as a store of value, you can do that too. I bet you a bar of gold, one bitcoin will be worth far more than your bar of gold 10 years from now.

        • Paul says:

          Probably right on confusing “who” sold their holdings. But… selling “all” your holdings shows you have no faith in it, or that it is likely to fall over. Don’t buy the selling because of perceptions of shilling (?)

          US dollar is backed by assets. Called US Government… biggest bunch of asses around. ; )

          Bitcoin will not be worth more than my bar of gold in 10 years time. 2 reasons, I will be dead in 10 years time, and I don’t have a bar of gold either. But then I don’t trade in very speculative items either. Which gold and Bitcoin (and its clones) very much are.

  • Paul says:

    Bitcoin secure? I. Don’t. Think. So…!!!!

    It has already been confirmed that North Korea (and how many other countries?) has started hacking the so called secure wallets. Add to that crime families… you know, Mafia, Cosa Nostra, Triad et al.

    Even my son, an early adopter, recognises that it could very easily go all pear shaped very, very soon.

    Certainly not safe as houses as the saying goes.

    • Sun says:

      You are confusing hacking an exchange with a hot wallet with the immutable security of the block chain. My wallet is still secure even if someone else’s wallet is compromised. If a bank is hacked, all the accounts are potentially compromised.

      FYI, more black market transactions are conducted in US dollars than Bitcoin. Bitcoin is bad for illegal activities because anyone including the FBI can follow the money trail more easily than Fiat cash.

      • Paul says:

        Your wallet is secure only if it hasn’t been compromised. Are you saying that can’t happen? How many times have we heard this, or that, is totally secure? FBI, hacked, American Credit Bureaus, hacked, GCSB, hacked (NZ equivalent of CIA)

        As for black market transactions being conducted in US dollars, well duh, of course… very easily to launder isn’t it? How long though before that happens to crypto currencies? As the old saying goes, never say never.

        • Sun says:

          The stories you read about funds being stolen are due to hackers infiltrating centralized systems. Even if my wallet gets hacked, only my wallet funds are stolen. No other wallets are affected. This is unlike Experian where millions of accounts are stolen. This is what gives blockchain and Bitcoin part of it’s value.

          • Paul says:

            …until the hackers find a way to bypass the security. And don’t say it can’t happen. They’ve said that about so many other digital security measures. What I will give you is that yes, it is inherently more secure, but “could” still be hacked.

            Old saying: Never say Never.

          • Sun says:

            If you understand cryptography and blockchain, you would realize you can attempt more times than there are stars in the universe and still not be successful. I won’t say never, but it is very close to never.

  • J. Boman says:

    I find bitcoins a bit intangible as the value is very much based on expectations where as regular currencies are based on a countries financial performance. However, I think Goldman Sachs’ CEO described the dilemma very well in a tweet: “Still thinking about #Bitcoin. No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.”

    • Sun says:

      I find Fiat intangible because it is not backed by gold anymore and quantitative easing is all too easy to inflate the dollar and dwindle my retirement. The fixed supply of 21 million Bitcoin is more tangible to me than the us dollar.

      It is true bitcoin price is volatile but should mature and grow at a predictable rate with in the next 20 years. The supply by then will be 20.9 million Out of the 21 million.

  • Sun says:

    You can take 1% from your equities allocation and buy Bitcoin with it.Personally I’d diversify with ethereum and litecoim but that’s jist me. I’m hoping for an ETF that will directly buy Bitcoin but I’m not sure SEC are going to allow this. Bitcoin is an alternative asset that behaves differently from stocks and bonds. 2008 financial melt down just showed us how having stocks and bonds was not a hedge against calamity. You need alternative asset classes outside of our current financial system to reduce risk in your portfolio ( and potentially greater gains).

Leave a Comment