The following is a guest post. Enjoy!Â
The purchase and storage of Bitcoin has become a major factor for investors who manage their own accounts online. Despite widespread skepticism as to the digital currency’s place in the future, its persistent relevance is beginning to speak for itself. Bitcoin may or may not become the mainstream currency alternative advocates have long predicted it to be, but it is already a significant investable resource poised to gain greater influence in the years ahead.
However, as a relatively new concept traded digitally and operating with an uncertain future, Bitcoin poses unique challenges to investors. So here are four of the best tips I’ve gathered for how to handle investment in the crypto-currency.
Treat Bitcoin As A Long-Term Play
I would argue that this is the most significant tip to keep in mind if you are considering adding a stash of Bitcoin to your portfolio. Said famed billionaire investor Reid Hoffman on the topic, “When I invest, I think, ‘What is the way the world should be and is this investment part of that end?’…. So that’s minimum five years. When it comes to Bitcoin, that’s the framework that I think about it in.” This quote was part an Entrepreneur feature in which Hoffman was interviewed about his interest in Bitcoin. While the advice was meant in a more general sense, it’s a very important concept to keep in mind with regard to Bitcoin. This is one investment in which day-to-day fluctuations should not be a major concern, because you’re in it for the long-term.
Prepare For Volatile Fluctuation
As an add-on to the initial point about looking at Bitcoin as a long-term play, anyone looking to invest in the crypto-currency should be prepared for volatile fluctuations in day-to-day prices. As explained in an article on the history of Bitcoin, “Because Bitcoin is still a relatively small market in comparison with existing models, the market price of Bitcoins may go up or down in response to relatively insignificant amounts of money … This means that fluctuations in the price of Bitcoin can be quite volatile.” Simply put, Bitcoin is still small enough to be significantly affected by major purchases or sales, and investors should understand this and not be alarmed.
Don’t Predict – Analyze
This is actually a tip I’m borrowing from a Financial post featuring their five favorite quotes about investment. Specifically, the tip came from Ben Graham: “The individual investor should act consistently as an investor and not as a speculator.” In other words, act based on facts and real analysis, rather than predictions, hopes, or hunches. This is important advice regarding any sort of investment, but it is particularly significant with regard to something like Bitcoin, which is still in its infancy and attached to a great deal of passion and lofty expectations. There are fewer facts and pieces of genuine data available when dealing with a new or young resource, and investors must take care to heed real information.
Research Platform Potential
Regarding actual data that can be useful in making decisions about Bitcoin investment, consider the potential of the crypto-currency as a foundation for additional platforms. Venturebeat addressed this idea in an article encouraging readers to consider Bitcoin, specifically with regard to the common comparison of the currency to digital payment service PayPal. “Bitcoin can be used for this service,” the article acknowledged, “but it can also implement new and innovative financial services. The protocol allows for a significant degree of programmability…”
In other words, don’t think of Bitcoin solely as a currency or payment service, but as a technology with multiple potential applications that have not yet been realized. As additional platforms are created and new services and companies take advantage of Bitcoin, the currency itself will gain value. So, when investing, look to concrete data about emerging platforms and functionality for indications of performance.
Like any other financial transaction, investing in Bitcoin is a personal decision, and must be approached with regard to each individual’s particular situation. But for those considering a move in this sector, these bits of advice can help to clarify the market.
