So you want to get into Bitcoin, but you’re not sure what your initial investment should be. Here’s a simple rule of thumb to help you decide how much you should start with.
A beginner should start safe and invest about 5% of their investment capital. Even as little as $10 is enough to get started and gain some understanding of the process of investing in cryptocurrency. Beginners should start small, then build up to their budget as they gain confidence in trading.
Bitcoin trading can be risky and intimidating, so here’s your guide to deciding how much Bitcoin to buy as a beginner with cryptocurrency.
What is your Risk & Profit Tolerance?
The most important thing to consider when deciding how much to invest is your risk tolerance, and your profit tolerance comes shortly after that. You need to know how much you’re willing to lose when you invest, and you need to know how you will handle success. Here’s how you can figure out your risk and profit tolerances.
Risk Tolerance
Let’s cover risk tolerance first. Investing in any market is risky, and Bitcoin has a lot more risk to invest in than other investments. That means that there’s a lot more potential for reward, but it also means that you need to be careful when you handle Bitcoin investments.
When you invest, you could potentially make a profit, but you might also lose everything that you put into the investment. You’re going to want to keep that in mind when you decide how much money to put into Bitcoin. This means that you need to consider this question: how much money would you feel comfortable losing?
Now look at that amount, and ask yourself these questions: if you did lose that much money, would you lose sleep over it or feel bad enough about it that the loss would make you distracted or dysfunctional?
If there is any possibility that the answer might be ‘yes’ to any of those questions, then you need to pick a lower amount to start with.
Profit Tolerance
Now, in case you make your investment and end up with an even better return than you thought you would, then you’re going to need a strategy to keep hold of that increase, because if you don’t handle it right, you could still end up losing your whole investment.
The loss could come from either a dip in the Bitcoin market or a bad budgeting strategy. To avoid both of those cases, you’re going to need to decide ahead of time what you’re going to do if and when your investment multiplies. That way, you can avoid letting emotional decisions ruin your investment.
Stay Emotionally Detached from your Investments
The key to both risk and profit tolerance is keeping your investment at a level where you can manage it rationally instead of letting it control you and make emotional decisions about your money.
For example, if you invest too much and take a loss, you might be tempted to sell and cut your losses. That’s an emotional decision caused by the panic of losing more than you were comfortable with losing.
If you invest little enough that you aren’t emotionally attached to what happens with the investment, you can make better decisions and make more money from it.
On the profit end of things, you also want to keep the amounts low enough that your emotions don’t get the better of you.
When you’ve made a big profit, you might be tempted to hold onto the Bitcoin for longer to see if you can get more, which might lead to losing out on selling at the peak and taking a loss instead. On the other hand, if you sell at a huge profit, and then use that win as an excuse to splurge, then your savings will disappear just as if you’d lost money on the bitcoin market.
So, keep your investments at a level where you know you can be comfortable making rational decisions instead of getting emotionally attached to the invested funds.
What Bitcoin Exchange are you Using?
Another thing to consider when deciding how much Bitcoin to buy is the exchange platform you buy it on. There are lots of exchanges out there, but some of them are easier to use than others, some of them can teach you about investing in crypto better than others do, and some of them have better security than others.
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So, before you buy any Bitcoin, you’re going to want to browse the exchanges that are available to you to find the best one for your needs. You may not need educational material from your exchange, and you may be able to learn a more complex interface quickly. If that’s the case, those factors won’t matter to you, but you should still look for good security.
Different exchanges also charge different fees for using them. When you’re looking for a crypto exchange where you can buy Bitcoin, the fees they charge should be one of the first things you look at. The most competitive fees are around 0.1%-0.2%. Some exchanges charge a lot more than that, and many platforms charge differently for maker and taker fees.
That means that you should be on the lookout for an exchange with the lowest fees you can find while still meeting your needs.
One more thing to think about is the minimum investment that some exchanges require. Most exchanges don’t have too high of a minimum for a Bitcoin purchase, but minimums are there, so just don’t let them surprise you.
Examples
As an example of how you should weigh different exchanges against each other, let’s compare Kraken, Gemini, and Crypto.com.
When you start off with Kraken, you’ll be using their Instant Buy program. It’s easy to use and includes good educational material, but it charges enormous fees for your Bitcoin transactions. However, if you’re willing to patiently wait to be registered for Kraken Pro, the fees drop dramatically.
Gemini is highly rated for its ease of use and educational material, making it a great place to learn how to trade crypto strategically. Gemini’s fees are a little less competitive than you might like, but not by a lot.
If you can use cash from your bank account to buy your Bitcoin, then Crypto.com is a good exchange to use. Crypto.com charges no fees at all when you fund your account with cash. That’s an important distinction to make because they charge a steep fee of 4% when you use a debit or credit card instead.
I should also note that Crypto.com’s mobile app works better than its desktop site.
Any of these could be a good place to make your first Bitcoin purchase, depending on your needs and circumstances. If you can wait for Kraken Pro, then Kraken could be a good choice. If you want to learn the ropes of crypto, then Gemini can help you with that. And if you can fund your Bitcoin purchase with cash in your bank account, then Crypto.com works great.
How are you Timing your Bitcoin Purchase?
When you’re thinking about getting into Bitcoin, you’re going to want to consider the market history. Like stocks, Bitcoin goes through bear and bull markets, and anyone who knows anything about investing can tell you that you don’t want to jump into a stock that’s at the peak of a bull run. Instead, you want to try to buy Bitcoin near the end of a bear run.
What that essentially means is to buy when the market is at a low price so that you can sell at a high price. If you go the other way around, then you’ll take potentially huge losses.
So, in order to understand how the bulls and bears of Bitcoin might work in the future and determine whether the present is a good time to buy Bitcoin, you’re going to need to look at the past. Look for charts of the Bitcoin market. See how it’s risen and fallen in the past, and use that to estimate what the near future might bring.
From there, you should be able to determine whether the present price gives you a good opportunity to buy Bitcoin.
If the market has recently started to rise, then it might be a good time, but if it’s been rising for a while, then it might be reaching a peak and you should wait.
If, on the other hand, it’s been falling for a while, you should keep your eye on the market to see whether it will start to rise again soon. Then again, buying during a bear market like that could be a good move if you expect the market to turn up again at any point in the future. Odds are that if the market goes back up, it’ll reach higher than the last peak.
How are you Diversifying your Portfolio?
Diversity is essential for building a strong investment portfolio. That is to say that you don’t want to put all of your investment funds into Bitcoin. Spread them out among other investments, whether that’s buying stocks, bonds, gold, real estate, or other cryptocurrencies. This is called diversification.
When you diversify your portfolio, you decrease how volatile your earnings are over time. Investments are volatile by nature, rising and falling by the day. That can make new investors nervous or flaky with their investments, panic selling when they take a loss, or fretting about whether or not they should stick with it.
A diverse portfolio is easier to handle on that front, for a couple of reasons. On one hand, your invested funds aren’t all going to rise and fall at the same time or at the same rate. That makes your portfolio as a whole much less volatile because you can look at your average gains and losses across the board rather than worrying about how a single investment fares.
Diversification is especially important when you want to deal with Bitcoin since cryptocurrency is about the most volatile and risky thing you can invest in. You don’t want to rely 100% on the rise and fall of Bitcoin’s value, since that would put all of your investment funds at the mercy of the Bitcoin market. You could gain a lot, but you could also lose everything.
It’s considered safe to put as much as 15% of your investment funds into cryptocurrency, with 30% being risky. That could all be Bitcoin, but as with stocks, it’s better if you spread it over several different coins. Diversification works within the crypto market as well as it does with investments as a whole. You should put the rest into other types of investment.
What Investment Strategy are you Using?
Finally, you’re going to need a strategy. The simplest strategy is the one we discussed earlier, where you try to time your purchase based on the past of the market and how that points to the future. However, that can be a really tricky method for a beginner to try to use. Many try, but many fail.
That’s why a better strategy for beginners is the dollar-cost average strategy. In this method of investing, you choose a set day of the month when you make a purchase of the same cost each month.
The date is usually towards the end of the month or a few days before payday. That way, you can make your investment after all of your other expenses have been taken care of, and you only have excess funds to work with. This eliminates the risk of losing money that you need for other things, but that’s not even the best part of this strategy.
When you use the dollar-cost average strategy, you make your investments at the same time each month. That means you’re putting more into your investment each month.
The price of the investment will change each time, which means that you won’t get the same value each month, but you won’t be subject to just one price. Instead, you’ll spread your investments over multiple prices. That will average out your cost and is a lot less risky than just making one big purchase.
