People have been investing in Bitcoin (BTC) ever since its launch, more than 10 years ago, now. However, the concept of investing in BTC in hopes of making huge amounts of money is relatively new, and it started in 2017, after BTC price went from $1,000 to $20,000 in less than a year.
However, the problem lies in the fact that a lot of people don't do it properly. It is all too easy to make a wrong move and lose money instead of gaining it. Because of that, these series of articles will explain the most common mistakes that investors tend to make while trying to make a profit by buying Bitcoin.
What you should not do
The most common mistake referred earlier is that investors get a bit over-enthusiastic, and end to buy huge amounts of BTC in one go.
Let's say that you got a work bonus, and you decide to use it as your Bitcoin investments. The wrong way to go about it would be to use it all for buying as much BTC as you can. Unfortunately, this is what a lot of people tend to do. They just spend all of it at once, store their new coins in their wallet, and don't think about them for a year, in hopes that the price will rise in the meantime.
However, that is not how these things work, and there is actually a pretty good strategy that was proven to work. You can still spend your entire bonus on buying BTC, but you shouldn't invest all of it at once. Instead, you should buy smaller amounts over a set period of time. This is a strategy called DCA (Dollar Cost Average).
How DCA strategy works
You might be wondering how is this better? How is it even supposed to work?
You start by investing a smaller amount of money into BTC, instead of buying as much as you can right away. The best way to go about it is to make a plan how much you want to invest, and distribute that amount into more frequent periodic purchases.
Here at Bitnuk, we think that the best way to go about it is to make a minor purchase every week, in a way that will cover the amount of money you set aside after several weeks.
For example, let's say that you want to invest $400 per month into BTC. Instead of buying $400 worth of BTC right away, you should buy $100 worth of BTC per week, every week. You can do it every Monday.
This strategy works better, and here is why:
Let's say that you decided to invest all of your money into BTC one year ago - September 5th, 2018. If you did that, the value of your portfolio would have increased by 43% in a year. On the other hand, if you bought smaller amounts of BTC once per week, the portfolio value would have actually risen by 55%.
Calculation and graph is courtesy of https://dcabtc.com/
This is better for several reasons:
1) DCA strategy won't play with your emotions, and even if the price drops, you would have only bought a smaller amount of BTC at a higher price.
2) You are not overexposed to the asset. In other words, you can give up on the plan if something happens and you find yourself in financial difficulties. If you invest it all in one go and the price goes down, financial difficulties would have forced you to cash out at a lower price.
3) You would suffer less from volatility. Even a huge drop would not affect the total value of your portfolio that much.
4) Buying BTC weekly allows you to take advantage of sudden price shifts, and buy coins at a lower price, which would ensure that you get more for the same amount of money.
Some exchanges offer conscious investing for long term perspective. One of these examples is Bitnuk, a swiss regulated exchange. Bitnuk allows you to top up your account automatically, and do it quite simply from your credit card. You can set everything up so that your Bitcoin purchases would be completely automatic, and take place on a regular basis, instead of having to worry about it and do it manually all the time. Simply set things into motion, and let Bitnuk do all the work for you.