5 Things You Should Do Before You Buy Bitcoin
July 15th, 2022
It can be tempting to jump into the world of crypto and buy Bitcoin. After all, there are countless stories of people making lots of money days after buying Bitcoin for the first time. However by doing these 5 things before you buy Bitcoin you can save yourself a lot of money and set yourself up for success investing in Bitcoin.
1. Understand what Bitcoin is
Decentralization. Miners. Cold Storage. Addresses. Block Size. If these terms are unfamiliar to you, that is OK. They are fundamental concepts of Bitcoin that you should understand and be familiar with before you invest in Bitcoin. At the end of this post we will provide some resources for you to learn these concepts. Understanding the fundamentals of Bitcoin will help you decide if you believe in the vision of Bitcoin and therefore if it is an appropriate investment for you.
2. Practice investing with a simulator
In 2022 we have seen the price of Bitcoin drop from $48K to $20K. That is a 58% drop. If you had invested $1000 at the beginning of the year, you would now only have $420. By using a trading simulator, you can test out your trading strategies against real market data in real time. You can ensure you make consistently profitable trades before you risk any of your real money. Even experienced traders in traditional markets should first use a simulator. Crypto and Bitcoin markets operate 24/7 and are more volatile than traditional markets like the Stock Market. Using a trading simulator will help you get accustomed to these differences without risking any of your own money.
We cover this topic in depth in this article.
3. Research exchanges
Hopefully after reading about decentralization you understand the importance of limiting your exposure to exchanges. But exchanges are of course necessary for you to buy/sell crypto. If your intention is to simply buy and hold Bitcoin, one of the mainstream exchanges is probably the right place for you. However, if you are going to be trading actively and plan on delving into other cryptocurrencies, you may want to investigate exchanges that have lower trading fees and that offer more cryptocurrencies. Just keep in mind the risk of holding your crypto on the exchange. If the exchange goes bankrupt, your coins will be seized. If the exchange gets hacked, your coins may disappear.
4. Define an investment strategy
Are you going to be buying and HODLING? Are you going to try and time the market every now and then? Are you going to be day trading? Are you going to be algo trading? There are many different strategies you can try out when trading Bitcoin, but carefully plan out and define your strategy BEFORE you begin investing.
5. Consider alternative investments
Bitcoin and cryptocurrency in general is an incredibly risky asset class to invest in. There is a potential for massive returns, but there is also a potential for devastating losses. Make sure that you are not investing more than you can afford to lose in Bitcoin. Consider investing in more traditional asset classes like stocks, bonds, and real estate to ensure you have a diversified portfolio.
Try our trading simulator
The Bitcoin Simulator iOS App makes it easy for new traders to learn how to start trading Bitcoin while also providing advanced features for experienced traders that want to hone their strategies. You can practice short selling and trading with leverage in a safe environment. The app is completely free to download and use, so give it a try!