What You Should Know Before Investing in Bitcoin

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gingerbreadfork
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5 min read

Bitcoin is a modern asset taking the world by storm, but if you're considering jumping into a bitcoin investment, there's some things you should know.

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Bitcoin is a genuinely modern asset taking the world by storm. If you're considering jumping into a bitcoin investment of your own, the answers to some common questions can help you better understand what you're in for when getting started.

What is the Best Way to Buy or Invest in Bitcoin?

While there's a range of ways to invest in bitcoin, some have more limitations than others. One of the primary issues you can face when looking to buy bitcoin for the first time is finding an exchange that accepts a payment method you wish to use. While you may be thinking that your bank is the obvious choice, many banks flag transactions to accounts operated by known cryptocurrency exchanges and will sometimes block these transactions and may even threaten to close your account.

Using a P2P marketplace like LocalCoinSwap allows you to use your bank account (or around 300 other payment methods) to invest in bitcoin while still looking no different from a personal or typical business transaction. As you have so many payment methods available to you when trading P2P, you don't have to worry about finding a suitable payment method. This is often an issue with centralized order-book exchanges where one of two methods is typically available at best. Trading P2P allows you to trade with others around the world with the safety of escrow protection; it’s a great way to start building your bitcoin investment when you are first looking to make a purchase.

Do I Need to Buy a Whole Bitcoin?

No, this is a common misconception that puts off many people until they find out this isn't actually the case. You can buy fractions of a bitcoin without issue and transact with it without a problem. It's extremely common to trade $100, $50, or even $20 in bitcoin.

Amounts less than one bitcoin can be measured in a few units, but the most popular for small amounts is satoshis. There are 100 million satoshis in one bitcoin. However, you can just as easily measure bitcoin using decimals such as 0.1 BTC. Bitcoin is divisible down to 8 decimal places, and this makes it quite flexible even if you only want to start with a smaller amount.

How do beginners buy bitcoins?

There is no restriction on how you choose to buy bitcoin, whether you are new to cryptocurrency or have been trading it for years. Bitcoin allows anyone to get involved due to its decentralized nature.

You may face some friction in finding a suitable exchange to convert your chosen payment method into bitcoin; again, a P2P marketplace is excellent for this due to the extreme flexibility and ease of use. There are no confusing charts or order types to throw you off when trading P2P, and this is one reason it's popular even among experienced bitcoin investors.

Can a Bitcoin Crash?

Investing in newer technology like bitcoin is speculative. However, if you believe that bitcoin is here to stay like many others involved in the space, it could pay off for you as well. It's important to remember to manage your risk to suit your circumstances when considering investing in something like bitcoin.

While you could do exceptionally well if bitcoin continues to grow as it has since its inception, the opposite is also a potential you should consider. Suppose the thought of bitcoin crashing makes you extremely nervous. In that case, you may have invested too much or are considering putting in more money than you can afford to lose, something that is never a good idea with any type of investment, not only bitcoin.

Even with the countless exaggerated claims of bitcoins looming demise over the years, it has proven itself resilient. It has continued to grow as a technology and an asset being taken more seriously with time.

How Do you Cash out a Bitcoin?

Cashing out a bitcoin investment can be performed in similar ways to buying. In recent years liquidity has increased significantly, making it relatively easy to cash out even larger bitcoin investments in most cases. If you opt to trade P2P, you could also leverage the advantage of having multiple traders at your disposal to ensure that you have easy access to cash out whatever amount you need.

There is no company operating bitcoin. As it's decentralized, there's no bitcoin bank or company you can use to cash out. If you think about how you might sell gold, there are some similarities, but it's far easier to move and exchange bitcoin than it is something like gold due to the digital nature of bitcoin. However, it is a helpful example to consider when trying to understand how trading bitcoin differs from trading some other types of assets.

Is Bitcoin a Pyramid Scheme?

One of the mistakes made by some people investing in bitcoin for the first time is putting money into platforms offering unrealistic returns. These are called high-yield investment programs or are classic Ponzi schemes and are always complete scams. If you've ever been involved in trading forex or stocks, you've likely already seen similar scams doing the rounds.

If someone you met online or even a friend promotes some questionable platform that they claim can earn you significant amounts of money, avoid it at all costs. A prime example of a scam that took advantage of interest in bitcoin was Bitconnect, which has grown to be extremely well known after thousands of people lost money when it inevitably collapsed.

If you ever hear of anyone claiming to have been "scammed by bitcoin," it was likely where they put their bitcoin that was the problem, as bitcoin itself has no potential to scam you. Bitcoin is decentralized by nature, and the network operating without third-party oversight or any individual controlling it. In short, bitcoin is not a pyramid scheme.

One of the reasons some people are skeptical about bitcoin is unlike traditional money, in a few ways. For example, it is inherently deflationary as it has a maximum known supply that will one day be reached. Deflationary forms of currency are not something that you don't typically see, especially when it comes to fiat currencies, so this can result in a bit of confusion to those looking into bitcoin for the first time.

Is it Legal to Invest in Bitcoin?

The use of bitcoin and other cryptocurrencies has varied restrictions depending on where you live. In most countries, it is entirely legal to trade, use, and hold bitcoin. Most commonly, regulations only focus on the taxation of gains from cryptocurrency investing. It's always good to do a little research before investing to find out what your obligations may be and if there are any restrictions on using bitcoin in your region.

What Gives Bitcoin Value?

The participants of the market decide the value of bitcoin. Everyone buying or selling bitcoin does so at a cost they are willing to accept when trading. Like how most assets’ value is found through natural price discovery in the markets, bitcoin is no different.

While there are things that affect the value of bitcoin, such as it has a fixed supply, inevitably, the market decides what the current value of bitcoin is at any particular moment. If you have trouble understanding this, consider the basics concept of supply and demand. Anything that has demand can have value, including bitcoin.

Suppose you're interested in investing in bitcoin. In that case, one of the best ways to explore the idea is to start small and experiment with sending and receiving it, and this is a great way to get a feel for why so many people see huge potential in blockchain technology and bitcoin in general.

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