Investing in Bitcoins for dummies! It’s finally here; the ultimate guide for beginners who want to invest in Bitcoin or trade it short term. Yes, you can still make money with Bitcoin and no Bitcoin is not dead.
So grab a cup of coffee (or a beer) and follow me into the weird and wonderful world of Bitcoin.
2 ways to invest in Bitcoins
First of all, it is important to determine for yourself whether you want to invest in Bitcoins or want to trade actively. These are really two different approaches.
- Investing = medium to long term (months to years)
- Traden = short term (seconds to days)
Personally, I think that the entire crypto market and therefore Bitcoin is still in its infancy. And because of that I think we have no idea what it is worth and which coins will still be around in a few years.
That is also the exact reason that I am not (yet) focused on long term investing in Bitcoins or alt coins.
Maybe I’ll regret this decision soon when Bitcoin hits a million next year, but for now I’ll play it safe! 🙂
So for now I only trade Bitcoins short term, where I play both sides. So I can profit from pumps as well as dumps. I will come back to this extensively, but first I will show you how you can invest in Bitcoins for the long term.
If you do not want to invest in Bitcoin for the long term, you can skip to the part about Bitcoin trading for the short term.
Here’s a short video explanation about Bitcoin for those of you who have been living under a rock for the past few years:
Best way to invest in Bitcoins (long term)
If I were to invest in Bitcoins for the long term, I would do so by investing a fixed part of my income every month. Just as you would with saving. For example $100 every month.
Dollar Cost Averaging
This way of investing is referred to as Dollar Cost Averaging or DCA for short. This is an investment method with which you limit the risk by systematically buying the same amount at the same time over a longer period.
Long term investment strategy for Bitcoin
If you believe in a value increase of Bitcoin long term and you plan to invest in Bitcoin long term, you don’t want to time the market, Dollar Cost Averaging is the best method for you.
It eliminates emotions for the most part. You invest on autopilot. Always with a fixed amount at a fixed time. So you buy when price is high and when price is low, but assume that the price continues to rise on average over a longer period of time.
Bitcoin as an example with Dollar Cost Averaging
For example, suppose you entered with a one-off large investment in December 2017, because you thought Bitcoin would go to $50,000. Then you would have lost half of your investment a month later. Pretty painful right?
If you had bought for $100 in December 2017 and again in January 2018, then your loss would have been limited and you be back in profit much quicker because you’re averaging in.
It is certainly possible to time the market and make a profit in the short term, but for that you need a trading strategy and I will come back to that in detail later.
Suppose you want to invest in Bitcoin for the long term, where ‘s the best place to buy Bitcoins? There are several websites that sell Bitcoins, but my favorite is Coinbase.
Coinbase is the market leader and I think that this company is well organized and trustworthy.
After signing up you have to provide some personal information and link your bank account or credit card. After you’re setup you can easily buy Bitcoins.
And the great thing about Coinbase is that you can initiate a periodic transaction. For example, buy $100 worth of Bitcoin every month on the 30th. How convenient!
There may be cheaper options to buy Bitcoins, but I prefer to play it safe when it comes to money. I ‘m fine with paying a little extra for the best service and security.
Keeping Bitcoins safe
And that brings me to the next point: how do you store your Bitcoins in a safe way? Your Bitcoins are only yours if you have private keys.
So as long as your Bitcoins are in your Coinbase account (or with another provider), those coins are not officially in your possession. Just like the money in your savings account.
If you do not like this, it is possible to store your Bitcoins in a wallet. This can be a software wallet on your phone or laptop or a hardware wallet in the form of a USB device.
Best hardware wallet for Bitcoin
I would say buy a hardware wallet if you are still working and the most commonly used hardware wallet is the Ledger.
Summary of long term investing in Bitcoins
As I said, I don’t invest in Bitcoins for the long term yet. I am a trader, so only short term. But if I did, I would do it like this:
- Buy a fixed amount every month (DCA)
- Use the most reliable company to buy Bitcoins (Coinbase)
- Possibly save on a hardware wallet
- If you are satisfied with the increase in value, take profits out (partly)
If you prefer to actively trade Bitcoins for the short term, instead of investing in Bitcoins for the long term, read on…
Bitcoin trading: Profit from short term moves
Investing in Bitcoins is one option if you’re in it for the long run, but I find it much more fun to profit from short term price movements. It’s called trading. If this sounds good to you, you have two options for trading Bitcoins:
- Via an exchange (you actually trade in Bitcoins)
- Via a CFD or Futures broker (trade in contracts based on Bitcoins)
In both cases you can trade Bitcoins, but with a crypto exchange (such as Binance) you actually trade Bitcoins, which you will actually have to buy. And with a CFD broker (such as BDSwiss) you can just bet on the rise or fall in the price, without having to buy Bitcoins.
Advantages of trading Bitcoin through CFDs
The biggest advantage of trading Bitcoins with CFDs is that you can do it through a regulated broker. The crypto market is unregulated and exchanges do not have to follow any rules to protect you as a customer.
CFD brokers that are active in Europe for example, must register with financial regulators and enforce very strict rules to protect their customers (that’s you). It is therefore much safer to trade Bitcoins in this way.
Another big advantage of a CFD broker is that, in addition to Bitcoin, you have direct access to many more instruments, such as stocks and commodities.
So if the price of Bitcoin isn’t moving and you think that Netflix or Apple stocks will go up, you can just trade on it from the same account.
The best CFD broker to trade in Bitcoins
Just as with Coinbase for long-term investing in Bitcoins, I also opt for the short-term market leader in this area for Bitcoin trading.
BDSwiss is a top CFD provider with millions of customers and a long history. They are strictly regulated and must therefore comply with all rules to protect their customers.
Take a minute to open a free demo account at BDSwiss before you continue reading, so you can watch and practice later.
78,3% of retail CFD accounts lose money
Profit when the price of Bitcoin falls
Another big advantage of trading Bitcoins via CFD is that you can also make money when the price of Bitcoin dumps. This is called shorting. By going short you’re betting on a decrease in value.
Bitcoin trading strategy
Unlike the long-term strategy to invest in Bitcoins, you’re actively trading and trying to time the market.
That means you want to buy and sell at the right time. So buy if price is low and expected to up and vice versa. But how do you know when that is? There are two options for this:
- Fundamental analysis based on news
- Technical analysis based on charts
You can also combine both, but I trade primarily based on technical analysis.
Reversals based on price action and support and resistance
What’s that? Yes, I understand that this may sound like abracadabra, but this is the official name of my trading strategy. I use this method not only to trade Bitcoins, but also stocks, commodities and Forex (currency trading).
I have packed my complete trading strategy in a free trading course .
What it comes down to is that on the chart of Bitcoin you start looking for levels where the price of Bitcoin has bounced off in the past. These levels are called support and resistance.
Chances are that recent history repeats itself and that price will bounce off these level again in the future and possibly change direction (reversal). The confirmation that this is likely to happen, is found in price action and how the candlesticks behave.
If that happens you open a trade in the new direction of price. This can be either up (buy) or down (sell).
Note: A trading strategy is never 100% accurate, but as long as you make more profit on your winners than you lose on your losers, you should be fine. Find out how you do this in my free trading course.
How does Bitcoin trading work?
How you ultimately place your trades and orders depends entirely on the platform you use, but with BDSwiss you only have to enter the amount and click on buy or sell.
You can also immediately enter the amount at which you want to close the trade. This applies to both your profit target and your stop loss. The stop loss is a type of insurance that you can set up if the trade fails. This way you limit the risk.
Short term Bitcoin trading
If you do not want to invest in Bitcoins long term, you should trade. You can do this through an exchange or a CFD broker. My preference is obviousy for the latter.
Take the following steps:
- Open account with a CFD broker
- Learn and practice trading strategy including risk management on a demo account
- Actually opening trades with real money
How much money can you make from investing in Bitcoins?
I understand that this is an interesting question, but the answer is less sexy. Of course the sky is the limit and yes, there are plenty of people who have become a millionaire by investing in Bitcoin, but please don’t look at that.
First try to survive. That means making a consistent profit on your demo account before you even start thinking about how much money you can make. This is also highly dependent on your starting capital and risk management.
Risks of investing in Bitcoin
That is a nice bridge to the risks of investing in Bitcoin, because there are indeed dangers. As mentioned, the crypto market is still very young and unregulated, so anything can happen. That is why I only trade short term.
Here some risks of investing in Bitcoins:
- Exchanges can be hacked or go bankrupt
- Markets can collapse or crash
- Trading without plan and risk management
Watch out for Bitcoin scams
I would like to emphasize that last point. I see so many scams that have to do with crypto and Bitcoin. I personally think the worst is the fake software that makes a profit on autopilot.
Let me tell you one thing: Don’t fall for this! This kind of software does exist in the form of algorithmic trading, but that is absolutely not what you find in your spam box or in those annoying popups.
Trading and investing in Bitcoin is fun and exciting, but there are also risks involved. Investing in Bitcoin for the longer term is relatively safe, if you apply the first method I described in this manual.
However, if you are going for the short term and want to trade Bitcoins actively, you will have to put in a bit more work. A trading strategy is crucial and it can take a while before you get the hang of it.
Emotions and discipline also play a major role. But you will find out for yourself once you start trading.
Whatever you do, please choose reliable parties. Companies that are established and preferably regulated, so that they can’t just take your money and run.
I am very curious about your experiences with investing in Bitcoin and trading. Drop a comment below and don’t forget to share!