How to Invest in Bitcoin

How to invest in Bitcoin

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Cryptocurrency has captured the attention of many would-be investors, but it is a smart strategy to read up on it first and learn more about some of the decisions that need to be made before you go ahead. Fortunately, we've got plenty of great advice on how to invest in Bitcoin, including some of the common terms you need to understand and the basic steps on how to get started.

Bitcoin fever has taken hold of investors again as the price has surged more than 66% since January 2020. We may not be at the insane highs that Bitcoin reached in late 2017 when the price of one Bitcoin flirted with $20,000, but this could be the beginning of the next Bitcoin rally. This article will explain how to invest in Bitcoin and where to buy and sell the famous cryptocurrency.

Steps to Invest in Bitcoin

If you’re thinking of investing in Bitcoin you need to decide whether you want to hold the digital coin directly in a hot or cold wallet, whether you just want to trade it on an exchange in Canadian or U.S. dollars, or whether you’d prefer exposure to Bitcoin through another investment product.

Let’s start with what is by far the easiest way to invest in Bitcoin. Open a Wealthsimple Crypto account, fund it with as little as $1, and start trading within five minutes. Plus, you can take advantage of our exclusive promo offer: open a new Wealthsimple Crypto account and fund it with at least $150, and get a $25 cash bonus. Sign-up today to take advantage of this exclusive offer!

Wealthsimple Crypto is the first crypto trading platform to be regulated in Canada. Clients don’t hold Bitcoin directly in a hot wallet. Instead, the coins are held by Gemini Trust, which is a regulated crypto custodian with $200M in cold storage insurance coverage.

Clients can buy, sell, and hold coins within the Wealthsimple Crypto app, but unlike other exchanges, your deposits and withdrawals can only be made in Canadian dollars.

Invest in Bitcoin on a Crypto Exchange

Most Bitcoin investors would prefer to hold their digital tokens directly in a hot or cold wallet. That means using a crypto exchange to buy and sell Bitcoin. Here are the three steps:

  • First, you’ll want to pick your preferred cryptocurrency exchange platform. Stick to the large, reputable exchanges, such as Binance, Coinbase, and Gemini.
  • Second, decide whether you’ll use a hot or cold wallet. A hot wallet is connected to the Internet through a mobile device or desktop computer. It’s convenient to use, but not very secure. A cold wallet is not connected to the internet but instead stored on a USB stick or an offline computer. Secure, but not convenient to use for transactions.
  • Third, determine how to pay for your Bitcoin. This is typically done by bank or wire transfer, but your account could also be funded via credit card, PayPal, or even by using other cryptocurrencies like Ether or Litecoin.

The biggest decision is which cryptocurrency exchange platform is best suited for you. This is a largely unregulated space, with most major (and minor) exchanges being hacked or exposed to some type of fraud in the past. That’s why it’s best to stick to the largest exchanges.

Your cryptocurrency exchange platform will also provide you with a hot wallet to use for transactions on the exchange, but they’ll also recommend taking your Bitcoin offline (and into a cold wallet) as soon as possible.

Different Ways to Invest in Bitcoin

There currently are no Bitcoin or other cryptocurrency ETFs on the market. But one company, called Grayscale, has developed a number of investment products that are classified as “Trusts” and invest in digital currency, including Bitcoin.

The Grayscale Bitcoin Trust has digital asset holdings of $4.8B. It trades over the counter (OTC) under the symbol GBTC. This Trust has returned an eye-popping 7,228.6% since its inception in 2013. The product does come with a 2% management fee.

The minimum investment for Grayscale products is $25,000 and they are only available to Accredited Investors.

Why You Should Invest In Bitcoin

Bitcoin, like every other cryptocurrency, is an incredibly volatile investment. It turned some investors into millionaires during its highs in 2017, while others lost nearly their entire investment in Bitcoin during its subsequent crash in 2018.

Despite the incredible volatility, Bitcoin has seen tremendous growth as an investment over the past five years. If you simply held on for dear life from October 2015 to October 2020 your investment in Bitcoin would have returned a compound annual growth rate of 113% per year.

There’s reason to think this could be the beginning of another Bitcoin rally – one that drove the price up to nearly $20,000 per coin in late 2017.

Predictions for the price of Bitcoin are all over the map, but one prominent source suggested a price target of $19,044 in 2020, and an unbelievable $341,000 by 2025. Take these predictions with a grain of salt.

What To Consider Before Buying Bitcoin

Bitcoin is a digital currency and a store of value. Investors should think of it more like gold rather than as a revolutionary monetary system that threatens to disrupt the entire centralized money supply.

Investors buy gold as a hedge against inflation and economic recessions. Bitcoin should be treated no differently. It also shouldn’t make up more than 5% or so of your overall investment portfolio.

Further to its volatility as an investment, Bitcoin can also be prone to hacking, fraud, and just plain carelessness. If you decide to hold your Bitcoin in a hot wallet, make sure it is safe and secure (and taken offline as soon as possible). If held in cold storage, make sure you remember your password.

When is the Right Time to Buy Bitcoin Stock?

Investors shouldn’t try to time the market with any investment, let alone Bitcoin. First, decide what is a reasonable amount of Bitcoin to hold in your portfolio. Like walking into a casino, make sure it’s an amount you’re willing to lose.

Bitcoin has broken out and reached as high as $20,000 per coin. It’s possible that it happens again. On the other hand, Bitcoin has already increased by 66% this year alone. It’s entirely possible the price goes down from here and stays down for an extended period. No one can predict the future of an unpredictable investment.

Final Word

Bitcoin is getting a lot of attention from investors today as the price seems poised for another breakout.

A new, safe, and regulated trading platform from Wealthsimple Crypto has fuelled even more interest for would-be crypto investors who might have been too nervous to use a crypto exchange and hold their Bitcoin directly in a digital wallet. Promo: Get a $25 cash bonus when you open and fund a new Wealthsimple Crypto account with at least $150. Sign-up today to take advantage of this exclusive offer!

As with any speculative investment, you should use caution before investing in Bitcoin and only buy what you can afford to lose.

If you’re not down for the risk of investing in cryptocurrency, you may want to consider a safer, less volatile investment like ETF investing or buying GICs. Read more about how to start investing in Canada.

Robb Engen

Robb Engen

Robb Engen is a leading personal finance expert in Canada and the co-founder of Boomer & Echo, an award-winning personal finance blog. He writes a monthly column in the Toronto Star’s Smart Money section and is a fee-only advisor who helps Canadians at different ages and stages get their finances on track and prepare for retirement.

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