In its decade-long history, a collective insanity has sprouted around this new digital asset, causing an irrational gold rush across the globe. Whether this cryptocurrency will eventually prove to be a great investment or just a passing storm remains a mystery. That thrill — the promise of instant riches or ruin — has a lot of investors gun shy, as others wonder how to reap big off a bitcoin investment.
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Simply Put: Is Investing in Bitcoin Risky?
Similar to any speculative investment, buying bitcoin is risky business. It is still very much a gamble. This cryptocurrency carries some well-known risks: The price could drop precipitously and one online hacking or crashed hard drive incident can wipe out an investor’s stash of bitcoin, leaving you with no recourse.
Bitcoin has seen dramatic run-ups in price followed by some painful crashes but has consistently retained a significant portion of its previous gains every time it plummets. Since its inception, Bitcoin was the first digital asset to beget the current ecosystem of cryptos. For quite a while, it grew an underground following of investors who saw its future as a possible replacement to the physical monetary system.
The decision to invest in bitcoin comes down to your appetite for risk.
Where to Invest in Bitcoin
You can use an online broker to invest in bitcoin. Investing in bitcoin is similar to investing in stocks, except it is far more volatile because of the daily swings in bitcoin. Here are the steps to invest in bitcoin:
- Open a brokerage account with a company that allows crypto investments.
- Deposit funds into your brokerage account.
- Buy BTC.
- Later sell the crypto for a gain or loss.
These steps, however, depend on the exchange or trading platform you’re using.
Here are some top brokerages where you can invest in bitcoin:
TradeStation provides a gateway to the crypto markets. The brokerage boasts innovative pricing, pooled liquidity and intelligent execution algorithm to get you the best price. You won’t deal with the hassles of trading on a crypto exchange. TradeStation has eliminated the volume-tiered commissions system to offer competitive trade commissions that are based on your account balance rather than how much you trade.
The broker aggregates liquidity from various avenues like OTC desks, exchanges and other sources to provide one of the most extensive liquidity pools in the cryptocurrency market. Its consolidated market data feed lets you find the best trading prices. Institutional investors can also benefit from the brokerage’s professional grade support and services. Just register for an account and start investing.
TD Ameritrade is working with ErisX, a CFTC-regulated directives exchange, to let you access cryptocurrency spot contracts and futures contracts on a single platform. Qualified clients can also trade bitcoin futures on the platform. The firm promises up to $600 when you open and fund your trading account. Its thinkorswim platform offers an advanced trading platform where serious futures traders can trade bitcoin futures.
The company’s pricing is straightforward, with no hidden fees or complicated pricing structures. You can benefit from 24/7 live support from traders with years of experience. You’ll need to have an account minimum of $25,000 to get approval for bitcoin futures trading.
E*TRADE will reportedly start offering bitcoin and other cryptos on its platform. But, the brokerage lets you trade bitcoin futures through the brokerage and eligible IRA accounts. Prices per contract go as low as $1.50 and you can enjoy 24/6 access to markets. There are no minimum account values needed to perform trades and short sale restrictions. The platform also lets you trade futures alongside options, ETFs and equities on the same platform without transferring funds between accounts.
Formulate your trading strategies with a full suite of drawing tools and 100+ technical studies. A futures account isn’t automatically approved to sell futures options. Contact customer support to request permission.
The Interactive Brokers trading platform gives you access to a wide range of securities at competitive commissions. Bitcoin options are the latest addition of asset classes that lets you diversify your investment portfolio. You’ll also appreciate the brokerage’s fully-optimized and responsive mobile platform for trade execution.
It also offers a wide range of educational resources and tools. You can access live webinars, short videos and a fully online trading course that can help you learn how to trade bitcoin. Customer support is also available through email, online chat and phone.
Coinbase makes it safe and simple for you to buy, sell and hold bitcoin. You can buy a portion of bitcoin, starting as low as $25. Pay for purchases conveniently using your debit card or by connecting your bank account. Owning bitcoin on this brokerage is as simple as creating an account, verifying your identity and buying your cryptos.
Take control of your bitcoin investment everywhere you go through the Coinbase mobile app. The brokerage allows you to hold onto your bitcoin, convert it into another crypto, spend it on expenses and transfer it to anyone, anywhere in the world.
Advantages of Bitcoin Investments
The overwhelming performance of bitcoin — as a currency and investment — has attracted traditional and institutional investors alike. Bitcoin as an investment tool provides you with the following advantages over traditional investments.
- Liquidity: Bitcoin is arguably one of the most liquid investment assets due to the worldwide establishment of trading platforms, exchanges and online brokerages. You can easily trade bitcoin for cash or assets like gold instantly with incredibly low fees. The high liquidity associated with bitcoin makes it a great investment vessel if you’re looking for short-term profit. Digital currencies may also be a long-term investment due to their high market demand.
- Lower inflation risk: Unlike world currencies — which are regulated by their governments — bitcoin is immune to inflation. The blockchain system is infinite and there’s no need to worry about your cryptos losing their value.
- New opportunities: Bitcoin and cryptocurrency trading is relatively young — new coins are becoming mainstream on a daily basis. This newness brings unpredictable swings in price and volatility, which may create opportunities for massive gains.
- Minimalistic trading: Stock trading requires you to hold a certificate or license. You must also go through a broker to trade a company’s shares. Bitcoin trading, however, is minimalistic: simply buy or sell bitcoin from exchanges and place them in your wallet. Bitcoin transactions are also instant — unlike the settlement of stock trading orders, which could take days or weeks.
Disadvantages of Bitcoin Investments
Bitcoin may be the future of monetary exchange, but it is equally important that you are aware of the concerns surrounding cryptocurrency investing. Here are some serious risks associated with bitcoin investments.
- Volatility: The price of bitcoin is always rippling back and forth. If you happened to buy bitcoin on December 17, 2017, the price was $20,000. Weeks later, you couldn’t sell your investment for more than $7,051. The bitcoin market is constantly changing. With such an unpredictable market, you can hardly get a good return on your investment. To avoid huge loss, keep a close eye on the market.
- Threat of online hacking: Hacking is a big threat facing a bitcoin investor. Bitcoin exchanges let you buy and sell your cryptos using a mobile app or website. This leaves them susceptible to hacking and theft of all your investment. Besides, bitcoin held on exchanges isn’t insured by the FDIC.
- Little or no regulation: The bitcoin market currently operates with no major regulations. It isn’t taxed and governments have no clear stance on it. As a result, you could stand exposed to fraud and malpractice.
- Limited use: Bitcoin is currently only accepted by few online merchants. Many companies don’t also recognize bitcoin as a legitimate exchange, making it an unfeasible investment vessel. Besides, there’s only a fixed supply of bitcoin — 21 million.
- Wallets can be lost: If your hard drive crashes or virus corrupts your wallet file, you lose your bitcoins. You can go from a wealthy to bankrupt investor within seconds, with no way to recover.
Is Bitcoin the Future, Really?
Price volatility isn’t all you need to worry about in this hyped-up market. Since bitcoin largely exists outside government regulation, it poses more risk than dealing with government currency and other asset classes. However, it isn’t hard to sell or buy and you can make a limited amount of purchases.
If you decide to dabble in bitcoin, classify it under your high-risk, high-reward portfolio. You can reap huge profits in the short-term and lose heavily if the value drops. Understand that bitcoin is a relatively new technology, and even futurists aren’t sure about its fate. Use the philosophy “buyer beware” when investing in bitcoin.
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