5 Questions to Consider Before Buying Bitcoin

The very mention of the word “cryptocurrency” makes people think about Bitcoin, the one for which blockchain technology was invented. The world’s first digital asset was created in 2008, but it didn’t catch public attention until a few years later when it finally reached the price of $1. If you’re investing in BTC for the first time, the amount invested doesn’t matter unless you seek higher returns. Generally, people buy, sell, and store Bitcoin on Binance. After you become comfortable with the best way to buy Bitcoin, you can invest more to put your money to good work and possibly build wealth. Before you start, it’s crucial to ask yourself a few questions.

1. Are You in It for The Long Term?

Short-term and long-term investments are completely unlike and carry different expectations. If you purchase Bitcoin to hold for years, you expect your investment to increase in value. The growth and high market demand make BTC an excellent long-term investment, and not appreciating this enough will only lead you astray. Short-term Bitcoin investing is essentially trading – you speculate on the prices and profit from tiny differences in the asset’s listed price. High-frequency trading can offer a good return on the investment, and you don’t have to wait for the digital asset to mature to get cash.

It’s impossible to guarantee the end results as far as cryptocurrencies are concerned, but if you invest within a ten-year window yields positive results. Thus, if you’re young and don’t expect to make withdrawals, put more money into the cryptocurrency market and sell when the price of Bitcoin appreciates above the price you acquired it at. Above all, believe in the long-term potential of blockchain technology. You can’t anticipate market drops, but you can align your investment to your risk tolerance to overcome periodic volatility when it strikes. If you’re closing in on retirement or need to access cash soon, revisit your asset allocation.

2. Do You Have an Emergency Fund?


Surprising as it may seem, you need an emergency fund when investing in Bitcoin. But why? Well, saving money protects you in the event of an emergency, so you won’t have to pull your money out of the cryptocurrency market. An emergency can happen anytime, and you might not always be capable or willing to borrow money to cope with them. Ensure you put away at least three to six months’ worth of living expenses in a savings account to have a financial cushion against unexpected challenges. If you’re excited about buying BTC, get serious about building an emergency fund.

3. Is Investing Something You Plan?

You can never be free if you keep dodging reality, so be honest with yourself about why you’re buying Bitcoin and what you hope to achieve. Maybe you’re interested in BTC because it’s a good store of value as opposed to Ethereum, which is still a work in progress. In spite of the fact that Bitcoin doesn’t have practical applications like gold, it’s a good store of value owing to its durability and scarcity, and can be converted as needed. Set specific, achievable goals that can help you narrow down your focus, create a plan, and stay motivated along the way.

A plan instills discipline that allows you to be a better and more respectable investor, not to mention that it helps you reach your milestones. It goes without saying that taking the time to put together a plan is tremendously advantageous. Always review your financial position, and don’t forget about the tax implications of cryptocurrency (buying BTC and holding it isn’t a taxable event). Just like with traditional investing, don’t trade money you can’t afford to lose (e.g., the money you need for ongoing living expenses). You can avoid many issues by spending time researching complex financial decisions, even if they’re harder for you to understand, as you’d do with anything else in your life.

4. Will Bitcoin Be Part of a Diversified Portfolio?


Having an undiversified portfolio is fraught with danger because you’re exposed to too much potential risk for too little possibility of reward. The good news is you have several alternatives to diversify your holdings. For example, you can diversify your digital assets across various investment vehicles, such as digital wallets, cryptocurrency IRAs, and DeFi products, to limit exposure to a single asset or risk. Equally, you can diversify your blockchain portfolio by investing in projects that focus on different industries, like healthcare, entertainment, transportation, supply chain, etc. Not only is blockchain becoming more popular, but it’s also challenging practices in business sectors.

5. How Do You Think About Risk as An Investor?


Finally, yet importantly, you must understand the risks. Cryptocurrencies are volatile by design, meaning that Bitcoin experiences significant plummets and spikes in value (and your investments might perform below your expectations). Regardless of what risk means to you, it will play a considerable role in your investment decisions. You need to understand what you’re getting yourself into and better understand your risk tolerance, even if it can be tricky. Many websites offer free questionnaires to help you assess your risk tolerance – some even estimate asset allocations – so they’re a good starting point, but remember that results might be biased.

Building your cryptocurrency portfolio is dependent on your ability and willingness to take on risk, so the more risk you take, the higher your potential returns. After having determined your risk profile to mitigate potential threats, select your investment strategy based on your future needs for capital. It’s one thing to buy Bitcoin and a completely different thing to invest in BTC. The buy and hold strategy is pretty popular and for a good reason, as it allows investors to not give into the short-term fluctuations of the market. Nevertheless, you must have sufficient capital to avoid forced sales.

To sum up, if you’re going to buy Bitcoin, do it because you understand blockchain and its future applications while following the golden rules of investing. It’s impossible to say what will happen to BTC in 2024, so time will decide the future of crypto. The future, much like any complex problem, has way too many variables.

About Luisa Dorsey