MoneyLife

How Much Should I Invest in Bitcoin?

By Marc Guberti
How much should I Invest in Bitcoin?

Bitcoin’s torrid growth has left more and more people wondering how much they should invest in Bitcoin. Some Bitcoin bulls contemplate whether they should continue investing in general while others are scratching their heads and thinking about how to buy Bitcoin.

Like any asset, Bitcoin comes with its own set of advantages and disadvantages. Keeping these in mind and reviewing your investment goals will help you determine how much you should invest in Bitcoin.

What is Bitcoin? 

Bitcoin is a cryptocurrency that some businesses currently accept as a valid form of payment. The currency was created in 2009 and it has since surpassed a market value of $1 trillion. 

Cryptocurrency exchanges run on blockchain technology, and blockchain offers the benefit of decentralization. Another bonus of blockchain is greater transparency. 

Investors argue about Bitcoin’s intrinsic value and how far it can go, but one thing is for sure: Bitcoin is here to stay.

What is Bitcoin used for?

Although Bitcoin has a speculative nature, people use the popular cryptocurrency to conduct transactions. Some businesses allow customers to buy products in Bitcoin, while some employers pay their employees in Bitcoin. 

The cryptocurrency presents international communities with an affordable way to transfer money. It also leads to more accessibility in terms of wealth for countries and residents without any traditional banking systems. 

What is blockchain technology?

Blockchain technology forms the backbone of the Bitcoin database. This technology provides Bitcoin with its decentralized nature and makes it easy to track transactions. 

A blockchain collects information together in groups, also referred to as blocks. Various data points come together to form a blockchain. 

Bitcoin’s blockchain technology enables users to transact with each other. The blockchain creates a trail of transactions that are incapable of being altered or scrubbed off of the database. 

The blockchain makes all transactions public. In turn, blockchain technology is able to provide greater transparency on the platform.

How much should you invest in Bitcoin? 

People often wonder how much to invest in Bitcoin. There is no straightforward answer to this question because how much you invest in Bitcoin will depend on your needs and mentality surrounding higher-risk assets. 

In general, it’s best to set a budget that you can allocate towards Bitcoin. Consider making several smaller investments into Bitcoin rather than investing a lump sum all at once. 

Putting small amounts of money towards Bitcoin each month will place you in a better position when it comes to capitalizing on dips in the market. You can invest in Bitcoin through a MoneyLion investing account for even more insight into best practices. 

MoneyLion can help you personalize your portfolio based on your investment objectives and risk tolerance. Start investing with MoneyLion today

5 factors to consider before investing in Bitcoin

Investing in Bitcoin is not an easy feat to tackle. Any dollar that you invest in Bitcoin can’t go towards any other investment, meaning it’s locked in to Bitcoin. 

This opportunity cost concept makes some people balk at investing in high risk assets like Bitcoin. If you are on the fence about whether you should invest in Bitcoin, consider the following factors before making the decision to invest in Bitcoin.

Risk tolerance

Not every investment is a winner, and risk tolerance will address this truth. Investors with low-risk tolerances often invest in low-risk assets, like bonds.

Investors with higher risk tolerances are more willing to invest in growth assets, including Bitcoin. You can still invest in Bitcoin with a low risk tolerance, but make sure you revere Bitcoin as being a nominal size of your portfolio.

Only invest as much money into risky growth assets like Bitcoin as you are comfortable losing. In other words, never invest more money than you can afford to lose. 

Profit tolerance

Any asset can become overvalued if enough people pour their money into it. Bitcoin is no exception to that rule. 

While many investors decide which assets to buy, they don’t always consider an exit strategy. Luckily, investors who bought Bitcoin at the start of 2017 did well during the run-up. 

However, many investors who didn’t take out their profits in 2017 saw their gains wiped out the following year. Before you buy Bitcoin, determine your exit strategy so you don’t risk losing your profits like they did. 

Timing

Market cycles play a considerable role in Bitcoin’s price movements. Bitcoin rallies during some cycles and declines during other market cycles. 

Catalysts such as Bitcoin’s widespread adoption fuel the price even higher. The government’s crackdowns and adverse economic developments tend to put downward pressure on the cryptocurrency as well. 

Buying Bitcoin during its dips can allow you to build up a more significant position and see greater appreciation when the market cycle concludes. Some investors believe in a dollar-cost averaging philosophy. 

These investors will keep some of their cash on the sidelines and invest more heavily when prices decrease. Investors lower their average cost basis when they buy Bitcoin at a price below their current average cost basis.

Diversification

Diversifying your portfolio will decrease your risks. Some assets perform better during recessions, while other investments outperform when the economy is strong. 

If you do not currently have any Bitcoins in your portfolio, then diversifying your portfolio by adding the cryptocurrency would make a lot of sense. However, if your portfolio is heavily concentrated with Bitcoin, it makes sense to divert your funds to other assets.

Consider adding various stocks or real estate investments to your portfolio instead. Think about the differences between Bitcoin and stocks when making your investing decisions.

Investors also diversify within the cryptocurrency space rather than fully investing in one crypto, like Bitcoin on its own. Crypto investors hold on to altcoins such as Ethereum, Rippe, and Dogecoin instead of focusing on only one type of crypto. Investing in multiple cryptocurrencies gives you a broader position in the market, which will reduce your risks.

Retirement

Since Bitcoin is a speculative growth asset, each individual should review their retirement plans before they invest in Bitcoin. Some investors make the mistake of heavily investing in one single asset that ultimately positions them poorly for retirement.

Investors who are inching towards retirement usually become more conservative with their investments. They’ll invest more heavily into bonds and blue-chip dividend stocks rather than risky growth assets, like Bitcoin. 

Investors who are younger and don’t anticipate retiring any time soon have more time to spare, which gives Bitcoin and other cryptocurrencies more time to appreciate. Assess your financial goals and how soon you plan to retire before you invest in Bitcoin.

Now is the best time to invest 

The best time to invest was yesterday, but today is a close second. Investing over the long term allows you to reap the benefits of compounded growth. Investing is the most common path to wealth, and MoneyLion is here to help.
Investors can get started with a MoneyLion investing account so that their money will start working for them. You can automate your investments and allocate your funds into various assets as well, including stocks and cryptocurrencies. Get started with a MoneyLion investing account today!The best time to invest was yesterday, but today is a close second. A good investing behavior is starting early and continually making additional deposits over time. Investing over the long term allows you to reap the benefits of compounded growth. Investing is the most common path to wealth, and MoneyLion is here to help.

Investors have different investing options at MoneyLion based on their risk and investing preferences. Investors can get started with a MoneyLion investing account so that their money will start working for them. This allows you to be invested in a diversified portfolio of ETFs that is managed for you based on a professional approach. You can automate your investments on your preferred schedule and allocate your funds into various asset classes through ETF. Another options investors have is to invest in cryptocurrency, like Bitcoin and Ethereum through the Moneylion Crypto account. This is a self directed account meaning investors pick and choose what they buy or sell on their own. Before investing in crypto you should be comfortable with and under the associated risks. Get started building your future funds with a MoneyLion today!

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