Certainly, Bitcoin is the most important and famous cryptocurrency in the world. During the last few weeks, it broke all sorts of records. This might sound like investing in it should be incredibly difficult, but the reality is that one does not have to be a millionaire to invest in bitcoin. An important thing to keep in mind is that no matter how high bitcoin prices are, you can buy a fraction of a bitcoin and still reap the benefits that its high interest rates are providing.
A big wave of interest in bitcoin rose at the end of 2017. Back then, its price hiked to nearly $20,000. After a short while, this cryptocurrency experienced a decline. It fully recovered during the recent weeks and months. The most interesting part is that the price of BTC has not only recovered. Also, for the first time in history, it has surpassed the $40,000 mark.
Because of this, you might be wondering how to get into the bitcoin market. For this, there are several things to consider. In the following sections, we will list some key concepts that you will need to familiarize yourself. Keep reading in order to start trading with bitcoin.
Before you buy bitcoin, you need to think about where to store it. Bitcoin wallets are used for this purpose. As its name implies, a Bitcoin wallet is the place where you store your assets. You can also use it to make payments with this currency. It is important to consider that many e-shops already accept payments with cryptocurrencies.
There are three types of Bitcoin wallets
The first one is the online wallet, which is offered by some platforms. This option stores your assets in an online server. It also offers great flexibility by being accessible from any online device. Of course, at the expense of being exposed to attacks from hackers.
The second option, which is slightly safer, is to use a mobile wallet (such as Coinomi). These wallets are applications which you can download to your computer or mobile phone. They store your assets in your device. As long as that device has no access to the internet, it is impossible for hackers to access them.
The third and most secure option is a hardware wallet. This type of wallet resides in a physical device, similar to a USB drive. Its only drawback, compared to the other two, is its expense. You have to buy the device itself.
Just like in the world of regular currencies, exchange offices are businesses that let you trade one cryptocurrency for another or a fiat currency (like the US dollar) for crypto. The main thing to keep in mind is that, just as with regular exchange offices, Bitcoin exchanges also offer different rates. Therefore, before you purchase any cryptocurrencies, it is advisable to compare rates and fees among different exchanges.
Some exchange offices even allow smaller transactions without registration. In addition, they often accept credit cards, so transactions take only a few moments.
The most well-known exchange offices include Coinbase and Coinmate. The first one is mainly popular because of its ease of use and security features. The second one owes its popularity to the fact that it does not charge bank fees to the user.
OTC desks are another tool to exchange crypto assets. The difference between an OTC desk and an exchange is the fact that exchanges own the assets they have for sale or trade. OTC desks don’t own cryptocurrencies. They look for investors willing to make a trade and facilitate the transactions.
The minimum amounts for OTC desk transactions are usually higher than on exchanges. The average should be around $25,000 per trade. Due to the volume of the trades executed via these services, regularly they are able to offer lower fixed rates than exchange offices. One of the most well-known exchanges is the already mentioned Coinmate.
In addition to being an exchange office, also functions as an OTC desk. Another example is Binance, which also provides these services. A third option is Kraken, which is also very popular.
Another option is to buy Bitcoin in one of the special ATMs located throughout most major cities in the world. To use these machines, you will still need a Bitcoin wallet. Once you locate a cryptocurrency ATM, you need to decide the amount of BTC you want to buy considering the limits established for that machine. Once you know the amount you want to purchase, you will need to enter your wallet address in the machine. Most machines let you scan a QR code in order to do this. After making the transaction, you will get a printed receipt as confirmation and your funds should be available immediately.
The main disadvantages of this kind of transactions are that ATM fees are regularly higher than in other methods. Also that most ATM machines have lower limits per-transaction than exchanges and trading desks. The greatest advantage, though, is that the transaction is as anonymous as possible.
If your bitcoin trades are performed with a known party, such as friends or family, you can also make direct transfers avoiding fees and commissions. You can pay or receive cash from someone else and then transfer the equivalent amount in BTC to the other person’s wallet without going through a third party.
You can also make direct transfers to strangers, both in exchange for cash or as a payment for a product or service. In doing so, of course, you should be very careful to secure your assets. Only make direct transfers if you trust the other party. Remember that all BTC transactions are irreversible.
What else should you watch out for?
The main rule in Bitcoin investing is simple. You should only invest as much money as you can afford to lose. Many economists generally consider Bitcoin and cryptocurrencies in general to be a bubble that has no coverage or intrinsic value. The volatility of this investment was seen, for example, in the aforementioned decline in 2017. Then, the return to the $20,000 mark lasted almost three years.
Financial start-ups (FinTechs) which trade in bitcoin can also encounter inconveniences. For example, some banks will not open accounts for these companies. Mainly because they are not able to adequately assess the risks associated with their business.
Beware of the taxes
Last but not least, it is necessary to keep in mind that the profit from the sale of Bitcoin and other cryptocurrencies is generally taxed. Even if the investor holds the assets for a long time.
You will need to check your local tax laws. In general, profit from the sale of Bitcoin is taxed as any other income.
Conclusion on How to use Bitcoin
The Bitcoin market is going through a great moment right now. In order to participate in it and be successful, you need to understand the basic concepts and several common sense rules. There are great opportunities in cryptocurrencies right now, so keep yourself informed in order to invest responsibly.