The Bitcoin craze is far from over, as the cryptocurrency continues to rise. Bitcoin’s price has risen about 100% since the beginning of the year. Investors are rushing to cash in on the digital currency craze.
Despite its popularity, Bitcoin is an extremely risky investment. While some investors hold the belief that it will be a big game-changing element, others seem not as confident. Its price has also been fluctuating dramatically, plummeting by nearly 20% on three consecutive occasions since January of this year.
Nobody knows what the future holds for Bitcoin. In addition, not everyone is willing to take on the risks of an investment in digital currency. However, if you are sure about investing in Bitcoin, there are steps you can take to reduce your risk and better protect your funds.
1. Make sure your portfolio is well-diversified.
It’s always a good idea to have a diverse portfolio, no matter what your investment is. However, if you’re thinking about investing in Bitcoin, a diverse portfolio is essential for limiting your risk.
Therefore, if Bitcoin takes a turn for the worst, the more diverse your portfolio is, the less impact it will have on your entire investments.
If you choose to invest in individual companies, try to buy at least a dozen different companies from various industries. Alternatively, you can invest in exchange-traded funds or index funds. These offer diversification right away because each fund already has many equities.
Furthermore, it’s best to keep your portfolio as steady as you can. For example, you may put the majority of your money into S&P 500 index funds and then put a smaller amount into Bitcoin. Therefore, if Bitcoin doesn’t perform as well as you would like, you’ll still have the majority of your money.
2. Invest in an exchange-traded fund.
Direct Bitcoin investment is possible. However, it might be time-consuming. Cryptocurrencies trade differently than traditional equities. Therefore, if you want to invest directly in Bitcoin you’ll have to put together a digital wallet. In addition, you must register with a cryptocurrency exchange. This can also be a security issue. If you forget your digital wallet password, you won’t be able to access your savings.
The price of Bitcoin will be the same as a Bitcoin ETF. However, you would not have a direct investment in Bitcoin. In other words, the ETF would allow you to invest in Bitcoin through a regular exchange just like any other asset.
The SEC has yet to approve any Bitcoin ETFs in the United States. Bitcoin ETFs are available in Canada and Europe. In addition, some experts are predicting that the SEC is going to legalize ETFs in the US within the next year or so. If that happens, it will certainly make investing in Bitcoin a safer investment for most Americans.
Keep in mind, though, that to have a diverse portfolio is always an important thing. This is true even if you buy in a Bitcoin ETF. Therefore, make sure the majority of your money is invested in multiple stocks as well as in a Bitcoin ETF. This is the same as if you had an investment directly in Bitcoin.
3. You can invest in Bitcoin through crypto stocks.
The safest method to invest in Bitcoin is to not buy it at all. Instead, it might be better to buy cryptocurrency stocks. A corporation in the cryptocurrency market is a crypto stock. Here are some examples of Crypto stocks:
- Tesla: They just announced a $1.5 billion investment in Bitcoin, and the company now accepts Bitcoin as a form of payment.
- Square: The company allows users to accept cryptocurrencies as payment, including Bitcoin. Since October 2020, it has also purchased more than $200 million in Bitcoin.
- Salesforce: Despite not being in direct connection with Bitcoin, the company develops blockchain solutions, which are the technology that underpins cryptocurrencies. Salesforce could gain if Bitcoin becomes more widespread.
In order to invest wisely in crypto equities, you will want to do so because the companies are solid, not just because cryptocurrency is what they deal in. Regardless of what happens with Bitcoin, strong companies will perform well in the long run. However, if Bitcoin proves to be an important investment, you might end up seeing much bigger gains.
Is now the right time to invest in Bitcoin?
There are various ways that you can invest in Bitcoin. However, some of those ways are more risky than others. Keep in mind, however, that Bitcoin is still a very volatile investment at the end of the day. Even if you do everything you can to reduce your risk, only invest money you’re willing to lose.
Although Bitcoin has the potential to be a profitable investment, it is not for everyone. Therefore, if you decide to invest in Bitcoin, make sure you do your research and invest properly to keep your money safe.
Image Credit: Worldspectrum; Pexels; Thank you!