Bitcoin was designed with the intent of becoming an international currency to replace government-issued (fiat) currencies. Since Bitcoin’s inception in 2009, it has turned into a highly volatile investing asset that can be used for transactions where merchants accept it.
Could you and should you invest in Bitcoin? You can, and it depends on your appetite for risk. Learn the various types of ways you can invest in Bitcoin, strategies you can use, and the dangers involved in this cryptocurrency.
Investment Strategies
Buy and ‘Hodl’ Bitcoin
Hodl (an intentional misspelling of hold) is the term used in the bitcoin investment community for holding bitcoin — it has also turned into a backronym (where an acronym is made from an existing word) — it means “hold on for dear life.” An investor that is holding their Bitcoin is “hodling,” or is a “hodler.”
Many people invest in Bitcoin simply by purchasing and holding the cryptocurrency. You can easily store cryptocurrencies in secure crypto wallets such as Trust Wallet, Coinbase, Ledger, or SnapBots. These are the people who believe in Bitcoin’s long-term prosperity, and they see any volatility in the short term as little more than a blip on a long journey toward high value.
Long Positions
Some investors want a more immediate return by purchasing Bitcoin and selling it at the end of a price rally. There are several ways to do this, including relying on the cryptocurrency’s volatility for a high rate of return, should the market move in your favor. Several bitcoin trading sites also now exist that provide leveraged trading, in which the trading site effectively lends you money to hopefully increase your return.
Short Positions
Some investors might bet on Bitcoin’s value decreasing, especially during a Bitcoin bubble (a rapid rise in prices followed by a rapid decrease in prices). Investors sell their bitcoins at a certain price, then try to buy them back again at a lower price.
For example, if you bought a bitcoin worth $100, you would sell it for $100, and then wait for that bitcoin to decrease in value. Assuming the buyer of that bitcoin wanted to sell, you could buy it back at the lower price. You make a profit on the difference between your selling price and your lower purchase price.