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How to Properly Invest in Bitcoin

Key Takeaways
  • It is very important to Do your own research, stay away from hype groups, manage investments, and realize that crypto is not easy money.
  • 2 different kinds of wallets:
    Hot wallets:
    wallets that store your cryptocurrencies online. 
    Cold wallets:
    wallets accompanied by a physical device. 
  • Buying bitcoin can be done in 5 easy steps.
  • Be wary of scams, ponzi schemes, and rug pulls.

Now that we've covered Bitcoin from the inside out, we're pretty much all wrapped up here. Great job on getting this far! 

The final thing we need to brush on is how to properly invest in bitcoin and other cryptocurrencies. Here are some general reminders from the Bitskwela team.

General Reminders

DYOR

DYOR stands for “do your own research”. Don't buy any crypto blindly just because you saw someone online endorse it. It is essential to do your own due diligence before investing in any cryptocurrency.

For Bitcoin, it really helps to know the important events and developments with bitcoin, such as the halving events, network upgrades, or regulation updates in different countries.

For cryptocurrencies that are not bitcoin, always stick to trusted sources, read the project's whitepaper, and know about the team behind the project. You may also resort to different types of analysis, such as price and macro analysis, to aid in your investing decisions. The important thing is to always stick with the facts.

Tip: If you see some red flags in a project, it might be better to just avoid it altogether. Remember that there are thousands of cryptocurrencies out there. There will always be another opportunity!

Stay away from hype groups

Stay away from people who invite you to Telegram, Viber, or Facebook groups where they claim to share "secret information" on the next big crypto. Also, avoid those messages you might receive saying you won a lottery or a crypto giveaway. 99.9% of those are scammers looking to take advantage of you.

These are all tempting offers that bait you into either joining their group or giving sensitive information. If something is too good to be true, it probably is. Keep safe and discuss with people who you know and trust.

Crypto can be volatile

With Bitcoin being only a little over a decade old, it’s safe to say that cryptocurrencies are a very young asset class. Near the end of 2018, bitcoin was trading at the $4,000 price range. As of writing, bitcoin is trading at the $60,000 range, but getting there was no bed of roses. Bitcoin suffered two severe corrections of -70% and -50% within this period.

Countless cryptocurrencies have also faced the same type of volatility, most of the time even to a higher degree. Other tokens have increased by 1,000%, only to decline 90% a little after. With this amount of volatility in the space, investors need to understand how to manage and face it head-on.

Crypto is not easy money

Due to its volatility, cryptocurrency investing has given handsome profits to a lot of people online. These people showing off their huge profits has given cryptocurrencies the reputation that it is easy money or a get rich quick scheme.

We repeat, crypto is NOT easy money. While you can earn a lot with cryptocurrencies, you can also lose a lot. Just like any other asset class, research, due diligence, and risk management are essential to be profitable in the market.

Unless you have trading experience, it might be best to not consider entering cryptocurrencies for short-term profits yet. The cryptocurrency space is still in its infancy stage, and there is still room before mass adoption, so staying for the long term pays.

Manage your investments

As the saying goes, "Invest only what you are willing to lose." Do not place your retirement account or life savings in cryptocurrencies and any other asset class. If you risk money you can't afford to lose, your emotions will take over you. And emotions can heavily cloud an investor's decision-making.

Diversification is a great way to manage your investments. Diversification refers to an investor having a wide array of assets in their portfolio. This is an important way to mitigate risk such that, in the event of a big loss in one asset, your whole portfolio stays alive.

One of the most important rules of investing is to keep your capital intact. As long as your portfolio doesn't get wiped out, you can keep on fighting.

Use hot and cold wallets

One of the better ways of storing your cryptocurrencies is with hot and cold wallets. These wallets are what we discussed in our digital signatures chapter found here.

Generally, there are two kinds of crypto wallets:

Hot wallets are basically wallets that store your cryptocurrencies online. They are easy to use but carry a higher risk of being compromised since they are online 24/7.

For bitcoin, Exodus is the most beginner-friendly option, while Electrum is recommended for more advanced users.

For cryptocurrencies other than bitcoin, the most commonly used hot wallets are Metamask and Trust Wallet.

Cold wallets, on the other hand, are wallets accompanied by a physical device. These are safer compared to hot wallets but are less prone to compromises.

Whenever you need to transact with crypto using your cold wallet, you need to give physical confirmation by tapping the screen before starting a transaction. The physical confirmation involved adds a layer of security for your cryptocurrency holdings.

The most commonly used cold wallets in the Philippines are Trezor and Ledger, which support Bitcoin, Ethereum, and several other cryptocurrencies.

Whether you use hot or cold wallets, the most important thing you should always remember is to

NEVER share your seed phrase and private keys with anyone. Giving your seed phrase and private keys would be like giving a stranger your bank card and pin.

Now, let's move on to another crucial question… 

How to buy Bitcoin and/or cryptocurrencies?

Step 1: Choose an exchange

A cryptocurrency exchange is where you can buy, sell, or transfer crypto online. Anyone can create an exchange account. All you need are some valid IDs.

Choosing the right exchange for you may depend on several factors such as security, fee structure, and available cryptocurrencies. The most popular exchanges used in the Philippines are PDAX, coins.ph, Binance, Abra, and Etoro.

To help guide you, check out this table below to see the comparisons between these exchanges.

Scroll left to view full table

Step 2: Create an account

You need to create an account to access and use the exchanges, just like Facebook or Twitter.

These are the usual documents you'll need to apply:

  • Basic personal information
  • 1-2 valid IDs (passport, driver's license, government-issued ID, etc.)
  • Facial recognition check (usually through mobile phone)
  • Proof of address (bank statement, household bill, any official receipt, etc.)

Step 3: Fund your account

Once you've created an account, you'll need to fund your account with money to buy your first cryptocurrency. Just follow the exchange's deposit process, and you should be good to go!

Can I fund it with my bank account?

  • If you created an account with a local exchange, depositing through local bank accounts like Unionbank or BPI should be available
  • If you created an account with a foreign-based exchange, depositing with local bank accounts will probably be not allowed.
Binance is a foreign-based exchange and does not have the option to fund your account through local bank accounts. However, you can cash in using their P2P service, which allows local bank accounts.

How can I withdraw?

  • Before creating an account in any exchange, it is important for you to familiarize yourself with which withdrawal options are available on the platform and if it works for you. Usual methods of withdrawal include bank transfer, peer-to-peer transfer, or wire transfer.
  • Another way to withdraw is to transfer funds from one exchange to another exchange and cash out through your preferred option from there.

Step 4: Place orders

Familiarize yourself with the different types of orders (limit, market, stop limit, etc.) and what exchanges they are available in. Different orders have unique functions and can be helpful in other situations.

Orders may also be tied to the number of fees you need to pay for each trade made in the exchange.

Step 5: Store your Bitcoin and/or cryptocurrencies

When storing your cryptocurrencies, you can always leave them on the exchange you bought them from. However, you should understand that this comes with some risks since centralized exchanges (CEXs) are prone to hacking.

With that, we suggest keeping your cryptocurrencies on an external hot or cold wallet. Review our chapter on wallets here

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Keeping your cryptocurrencies on wallets outside of exchanges puts your crypto in a safer spot. However, note that sending your crypto from an exchange to an external wallet will incur a fee.


Bonus: How to send Bitcoin or crypto to another person

Sending Bitcoin or any other crypto is as easy as A, B, C. Just follow these simple steps!

1. Get the recipient's public address. It is composed of numbers and letters. It should be easily visible in the other person's wallet.

2. Choose the amount you wish to send. Select the amount of bitcoin or any other crypto you want to send.

3. Click send. You're good to go!

If you are sending Bitcoin, you can track your payment by going to a block explorer online. There, you can input the transaction hash written on your wallet to see the status of your payment.

It might take a few seconds or minutes for your crypto to go through. Just be patient and don't panic!

Other reminders

  • Bitcoin and crypto transactions are irreversible. Once sent to a different address, it cannot be taken back. Always double-check the receiving address to make sure you don't send it to the wrong address.
  • There is no limit to the amount of crypto you wish to send. But of course, you can only send what you have in your wallet.
  • Take note of transaction fees. This differs depending on the type of cryptocurrency you're sending.
  • Protect your private key/s; never share them with anyone. Giving your private keys to another person gives them full access to your money.

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How to Properly Invest in Bitcoin

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