How to Investing in Bitcoin ?

Investing in Bitcoin

While many users join the Bitcoin movement because they like what it stands for and want to use Bitcoins instead of dollars, a growing number of users see the potential of investing in Bitcoin. Investing in Bitcoin can be a great way to increase the value of your assets. However, before you get started, you need to be aware of some market psychology so that you can stay ahead of it instead of letting it beat you.

The value of Bitcoin fluctuates. A lot. It is generally on an upward trend — and quite a steep upward trend — but it can still change the value by up to 20% or more in just one day. You need to be able to weather these ups and downs without feeling the need to pull out all of your holdings. To do so, you may want to tune out of any Bitcoin news. This may seem counterintuitive because if you are now a part of the Bitcoin community, you probably do want to keep up with what is going on. However, seeing that your investment may be losing value can be very stressful and compel you to sell, even if Bitcoin remains on a generally upward trend. Don't look at graphs and charts about Bitcoin's value every single day. Don't install a widget that alerts you whenever there is a change in your investment's value. Instead, put the money into Bitcoin, try to forget about it, and let it grow. Be like Kristoffer Koch. He invested $27 in Bitcoin in 2009 and completely forgot about them until the spring of 2013. By then, their value had exploded to nearly $900,000.

Buying and Holding: When should you buy Bitcoins, and when should you hold? The easy answer is that now is always a good time to buy Bitcoins. If you have some extra cash that you want to invest, now is a good time to do so. Tomorrow is also a good time to do so. Next week will probably be a good time to do so. There is never a bad time to buy Bitcoins. However, sometimes are better than others. If the price is in a temporary slump, buy then, you will be able to get more Bitcoins per dollar that you spend.

Holding Bitcoins is always a good idea unless you absolutely need to cash out or use them in some other way to meet unexpected expenses. In all likelihood, their value will grow, even if there are periods of slumps in their value. Some people, however, want to go all in and, instead of holding their Bitcoins, want to engage in Bitcoin trading.

Trading in Bitcoins: Bitcoin trading, like any other trading, is the process of buying and selling Bitcoins as the price rises and falls. Long-term traders study trends over extended amounts of time to buy and sell Bitcoin at the most opportune times. They may buy up as many Bitcoins as they can when the price drops and sell off when the price goes up to turn a profit. They tend to hold their Bitcoins for a long amount of time — months or even years — so that they increase in value.

Short-term Bitcoin traders are those that make multiple trades within a day or even an hour. They have to be glued to their computers and be able to make trades within milliseconds, as the value of Bitcoin rises and falls at multiple times throughout the day. When the value rises, they sell and when the value sinks, they buy. While many investors follow this philosophy, the trick to short-term trading is to make those decisions within minutes or even seconds. Experienced short-term traders capitalize on Bitcoin’s volatility and can make thousands of dollars a week.

To get started with Bitcoin trading, you need to find an exchange that will allow you to do so. Decide if you want to do long-term or short-term trading and what your goals are, then find an exchange that will best help you meet those goals.

Investing in Bitcoin Mining: In addition to buying and holding and/or trading the currency, another way to invest in Bitcoin is through mining. You could always build your own mining rig and mine Bitcoins the traditional way, as described in a previous chapter. That does carry some cons and risks, including the fact that you will have to pay for mining equipment in the hopes of reaping a profit. The equipment may overheat, there will be a constant humming noise from all of the machines working, the equipment will only be profitable for a limited amount of time, electricity bills may be quite large, you will constantly have to ventilate the machines, and your home may become quite warm from all of the machines running around the clock.

An alternative to traditional mining is called cloud mining, also known as cloud hashing. In cloud mining, you don't have to have your own hardware and won't run up your electricity bill. Cloud mining is when multiple computers connect to a remote data center and combine their processing power to generate the hashes of data blocks.

There are three types of cloud mining. The first is hosted mining, in which users lease the hardware from a data center and run it in their homes or other private location. There is usually a contract involved, in which you agree to run the hardware for a certain amount of time in exchange for a certain amount of Bitcoins paid per hash generated. The benefit to hosted mining is that you don’t have to buy your own equipment — which can be quite costly — and are not responsible for the depreciation that occurs naturally.

The second type of cloud mining is virtually hosted mining. In a virtual hosted mining, either the user creates, or the hosting company provides a virtual private server. A virtual private server is a type of virtual machine that connects to the internet with a particular operating system. Users then install the mining software (no need to mess with the hardware!) and use the power from the virtual private server to contribute to the mining pool.

The third type of cloud mining and the most popular is leased hashing power. Leased hashing power is almost like buying a temporary share in the cloud mining company. Users can either buy or sell hashing power. To buy hashing power, they pay a certain amount of money (usually in Bitcoins) to the company, usually a mining farm, almost like an investment that will yield returns. To sell hashing power, users generate a contract with the company in which they use their own computing power remotely in order to add to the farm's hashing power.  ​

The biggest downside to cloud mining is that there are a lot of scams. In fact, most cloud mining schemes are scams. Before starting a contract with a cloud mining company, do thorough background research. Find out if the company is reputable by looking for reviews of people who have used that company for cloud mining. Find out where the company’s physical location is. If you suspect that you may be getting into a scam, you probably are.

Mastering Bitcoin for Beginners - Neil Hoffman