How much bitcoin should I buy? How much Bitcoin can you invest to make money?
How much bitcoin should I buy? How much Bitcoin can you invest to make money? It is the first time to consider investing in Bitcoin, but I am not sure how much to risk? Next, we will discuss some key factors that novices need to consider when asking this question. How much bitcoin should they buy? We discuss diversification, risk tolerance, market time, disposable income and other important factors.
How much Bitcoin can you invest to make money?
Novice should consider the following key points when evaluating problems:
1. Budget and disposable income. When exploring how much Bitcoin to invest, the most important assessment is how much disposable income there is. To make this assessment, investors should develop a budget that emphasizes non-negotiable expenditures - such as groceries, utilities, and mortgages. Anything left after the cost is determined can be considered to invest in Bitcoin and other assets.
2. Tolerance For the sake of risk, there is no doubt that the risk of investing in Bitcoin in the market is high. Although Bitcoin is still the best performing asset since its launch in 2009, there is no guarantee that this situation will continue. In fact, any Bitcoin investment should be prepared to lose money on behalf of investors.
3. Time in the market, like many assets - especially the stock market, Bitcoin usually goes through a long cycle. Since the end of 2021, Bitcoin has been in a bear market cycle, leading to a 70% drop in the price of cryptocurrency from its previous high of $69,000. Although many commentators believe that the next bull market will come at some time in the future, if it happens, it may be several years later. Therefore, investing in Bitcoin should be considered as a long-term investment.
4. The dollar cost averaging method, assuming that the long-term prospects are appropriate, is worth considering the dollar cost averaging strategy for each investment when evaluating how many bitcoins to buy. For example, let's assume that investors have $5000 in savings that they want to allocate to Bitcoin. Instead of investing the entire amount at one time, it may be more meaningful to choose to invest 10 times a month, 500 dollars each time. This will average the basic cost price of each investment.
5. Diversification. Bitcoin is just one of thousands of cryptocurrencies traded in this field. Therefore, investors should consider exploring other cryptocurrency projects to ensure portfolio diversification. This is somewhat similar to investing in the Dow Jones Index, which covers 30 stocks in multiple industries. One of the hottest diversification trends at present is the encryption pre-sale - to obtain the newly launched tokens in advance at the best possible price. Some of the most popular presales currently underway include Dash 2 Trade IMPT and Skull Place.
The key points highlighted above provide insights into the thought process you should take when evaluating how much Bitcoin you should invest. We will explain each point in detail in the following chapters.
How to determine the amount of Bitcoin investment
Is it too late to buy Bitcoin now? As mentioned above, the evaluation of investment in Bitcoin includes diversification, average cost, and creating a comprehensive budget. In addition, it is necessary to assess the risk tolerance and the length of time in the market.
Step 1: Budget and disposable income
It goes without saying that novices' investment in Bitcoin should never exceed the losses they can actually bear. Regardless of the asset class, the same concept should be followed. But this sentiment is more important in the case of Bitcoin - considering that this asset is still in its infancy.
Yes, Bitcoin was first introduced in 2009, but it still represents an unproven macro model. With this in mind, the first step in evaluating the amount of investment in Bitcoin is to create a budget and evaluate how much disposable income is comfortably left.
This means assessing this month's total household income and non negotiable expenditures. As we briefly emphasized above, this should include factors such as groceries, utilities and mortgages. There should also be a savings allocation in case an emergency requires immediate allocation.
After all, if quick liquidation is required, selling Bitcoin to fund payment is not a risk averse strategy. On the contrary, Bitcoin investment may have fallen sharply at this time, which means that investors will cash in at a loss.
Once the budget evaluation is completed, anything remaining should be considered disposable income. This is the income after deducting all expenses and savings, which can be used for discretionary projects. This includes entertainment, dining out, holidays and, of course, investment.
As we will discuss in more detail later, the amount allocated for investment should not be used exclusively for Bitcoin. On the contrary, it is wise to spread investment capital to other asset classes to reduce long-term risk.
Step 2: Risk tolerance
When asking this question - how much Bitcoin should I invest It is important to understand the risks. The most important is the volatility of Bitcoin and Cryptocurrency. Since its inception in 2009, Bitcoin has experienced many bull and bear markets - all of which can be considered extreme - at least compared with traditional stock markets.
For example, in the previous bull market, Bitcoin peaked from $5000 (April 2020) to $69000 (November 2021). This means that in just 19 months of trading, the price of Bitcoin has risen by more than 1200%.
In contrast, based on an average annualized rate of return of 10%, it will take about 120 years for the S&P 500 to achieve a similar level of growth.
However, when Bitcoin enters a bear market, its value - and other parts of the cryptocurrency sector - tends to fall sharply and rapidly.
For example, after reaching $69000 (November 2021), Bitcoin fell to a low point below $20000 (June 2022). This means that in just seven months, the value of Bitcoin has lost more than 70%.
Experienced cryptocurrency traders have seen such extreme volatility many times before. However, dealing with fluctuations of this nature can be challenging for complete beginners. After all, based on a 70% decline, this means that for every $100 invested, the Bitcoin portfolio is worth only $30.
With all this in mind, it is important to be prepared for potential risks when evaluating how much bitcoin to invest. Essentially, as we discuss in the next section, investing in Bitcoin is best done as a long-term investment.
Step 3: Market entry time
There is no foolproof way to know whether or when Bitcoin will enter the bull market again. Although Bitcoin always bounced back and then created new heights, there is no guarantee that this will happen again. However, if history is an indicator of future results (which is not the case), Bitcoin is more suitable for long-term investment.
This means being prepared to stay in the market for several years at a time. The good news for first-time investors is that Bitcoin remains at a low of $20000. This means that the current pricing level is 70% lower than the historical high before Bitcoin.
However, there must be a firm belief that Bitcoin will exist. If so, long-term stay in the market will eventually pay off. As an example, Bitcoin fell from a high of $20000 (December 2017) to less than $4000 (December 2018). It was during this period that many commentators believed that Bitcoin was dead.
However, in hindsight, the value of Bitcoin has risen by more than 1600% from the low point in December 2021. The key question for novices to consider is whether they need to obtain funds to invest in Bitcoin. As mentioned earlier, selling Bitcoin at a loss to pay for short-term expenses will never yield good results. On the contrary, I would like to reiterate that any investment in Bitcoin should be forgotten - especially in the short term.
Step 4: Average cost
The dollar cost averaging is a long-term strategy that will enable investors to limit the number of bitcoins they can buy at any given time. As we explained very briefly earlier, this strategy aims to invest in Bitcoin in slow and steady increments - rather than paying large sums at once.
The reason why average cost is considered to avoid risk is that investors will not be excessively exposed to a cost price. On the contrary, investors will pay different prices for Bitcoin on a weekly or monthly basis. Therefore, the benefit is that the cost price will reflect the long-term trend of Bitcoin.
This means that when the price of Bitcoin falls, investors will buy this cryptocurrency cheaply. When the price of Bitcoin rises, the value of the portfolio will also increase.
Step 5: Diversification
The last thing to consider when asking this question is - how much bitcoin should I buy Ensure diversification of the overall portfolio. This means two core things.
First, the portfolio should hold not only Bitcoin, but also a series of other cryptocurrencies. Second, the portfolio should also have assets outside the cryptocurrency area. Examples here may include index funds, commodities, individual stocks, real estate, and even US Treasuries.
In terms of diversifying investment in other cryptocurrencies, investors can consider the meta universe password and those focusing on DeFi (decentralized finance). It is also worth investing in crypto ETFs and index funds. This option enables investors to obtain a wide range of cryptocurrencies through a single investment.
Having said that, perhaps the fastest growing cryptocurrency market is the pre-sale market. In short, when a new blockchain project enters the market, it needs funds. This is very similar to traditional startups that raise cash from angel investors. But in the case of pre-sale, investors get encrypted tokens, not equity.
The encryption token is unique to the project, so it provides early investors with the opportunity to obtain investment at a preferential price. Once again, it is like angel investors get much lower entry prices than the final IPO.
The above details how much bitcoin I should buy and how much bitcoin I should invest to make money. I believe you will understand after reading it. In a word, we have discussed important indicators around disposable income, budget, average cost, diversification and risk tolerance. One of the most commonly used strategies for investors is to buy Bitcoin, as well as the newly launched cryptocurrency offering pre-sale activities.