How to Invest in Bitcoin

Bitcoin3 Ways to Invest in Bitcoin

I’ve heard Bitcoin is an amazing investment. Didn’t [insert name here] make a fortune off it? Also, do you know how I can buy some? Is there anything I should know first?

I get these questions all the time.In order, the answers are: 1) Yes, Bitcoin has minted a horde of new millionaires in the last five years, not to mention some billionaires. 2) Yes, I know how you can buy some. 3) Yes, there is a lot you should know first (more on that below).

The easiest way to invest in Bitcoin is through a digital exchange like Coinbase. You sign up on its Web site. It is non-technical and is built for casual users. (Source: “BUY AND SELL DIGITAL CURRENCY,” Coinbase, last accessed June 26, 2017.)

Meanwhile, those of you who are afraid to hold your own bitcoins should consider the Bitcoin Investment Trust (OTCMKTS:GBTC). It is accessible through retirement accounts, such as an individual retirement account (IRA), and removes the burden of keeping your bitcoins safe.

The tax savings are nullified by a premium over standard Bitcoin prices, but considering them an insurance fee on your holdings makes them more palatable.

It is also possible that you live near a Bitcoin ATM (a quick “Google” search will reveal the nearest location). You can feed cash into the ATM, at which point it returns a QR code (the large square of black and white pixels) and a cryptographic key that signifies Bitcoin ownership.

There are five-percent charges on Bitcoin ATM transactions, though, so perhaps don’t plan on executing very many trades in this manner.

Also Read: Bitcoin Basics

Although these are the ways you can buy Bitcoin, we haven’t quite settled the matter of whether you should buy Bitcoin.

Why Is Bitcoin so Popular?

Investors are spellbound by the growth of Bitcoin prices, in part because its two-year price chart looks like the standard image for “hockey stick growth.” It tilts upwards, then goes vertical.

bitcoin chart

Chart courtesy of Coindesk.com

Another reason people love Bitcoin is that its origin story is so original. It is the stuff of investment lore.

Bitcoin emerged from the shadows of the Internet, built by a developer named Satoshi Nakamoto. He (or she, for that matter) is an unknown quantity. We don’t know where Nakamoto lives, why he/she stays hidden, or even if he/she exists. He/she could be a pseudonym.

Nevertheless, Bitcoin developed a core following over the years.

It has an inner circle of devotees that proselytize on behalf of the currency, urging others to abandon fiat money. These are typically software developers who understand Bitcoin’s true innovation: the Blockchain.

Many of them built hardware rigs to solve the mathematical puzzles that unlock new bitcoins. It made them extraordinarily rich because BTC prices were in the single- or double-digits then.

This was probably the smartest way to invest in Bitcoin. No one knew what it would become, but those who took a chance became millionaires.

As more “miners” joined the Bitcoin network, its influence grew. One hacker built a black-market Web site for selling drugs, guns, and other illicit material. He called it “the Silk Road” and made Bitcoin its unofficial currency.

(He was later caught by the police and sentenced to life in prison. Oddly enough, he did not spend much of the $80.0 million that he amassed through commissions.)

Bitcoin prices climbed in lockstep with its transaction volume. Rumors of it entered the zeitgeist, leading to further analysis and debate. Everyone and their mother has a Bitcoin price prediction, but there is so much volatility that it’s hard to tell what will happen next.

One thing we know for sure is that Bitcoin is not a passing fancy. It already went through one “boom and bust” cycle.

BTC prices were at $945.00 near the end of 2013; at $214.00 by early 2015; back to $665.00 a year ago; and finally, up to $2,606.26 today.

Even if it does not fulfill its quixotic ambition of destroying central banks, I think Bitcoin will be around for some time to come.