3 Things You Should Know Before Investing in Bitcoin

It has been a great month for bitcoin, with the dollar value of the cryptocurrency up by nearly 46 percent in the one month period until 22:36 GMT on June 29 to reach about $12,000 per bitcoin. As of the same time, bitcoin price has increased by a mouth-watering 214 percent since the beginning of the year and just over 80 percent in the last year.

These gains here mean that the bitcoin market has recovered from the pressures of 2018, including but not limited to regulatory pressures, all of which made bitcoin lose about 69 percent of its dollar value throughout 2018.

With the cryptocurrency market on the rise again, investor interest bound to return. After all, during the 2017 boom, the subject of bitcoin and crypto, in general, was famously featured at Thanksgiving dinners. As such here are a few things for would-be bitcoin investors to know.

Invest in Bitcoin Only If You Believe It Has a Future

While stating the price performance of bitcoin above, you'd notice that the exact time of the day was noted. That's because its price could change — and very often does change —  significantly in a matter of minutes. For instance, the price of the cryptocurrency ped by about 15 percent in the space of 15 hours sometime between June 26 and June 27. It takes long-term conviction or the availability of excess disposable cash to be able to stomach that level of volatility. Also, as with traditional investment vehicles, it's almost never a good idea to time the cryptocurrency market, except you're a trained day trader.

Pick a Strategy

With an increasing number of institutional investors bringing in their money, the crypto market is getting more sophisticated. The kind of technologies used in the more advanced traditional financial markets are making their way into crypto and this will continue to stabilize the bitcoin market. Consequently, as you would in the equities market, you should pick and adhere to an investment strategy. For inexperienced or busy retail investors, the old dollar cost averaging (DCA) strategy may be one to consider. The simple logic behind DCA is to neutralize the effect of short-term market volatility on your portfolio over the long haul.

Take out Some Time to Understand Security

Bitcoin and other cryptocurrencies are delicate once they are missing, it's almost impossible to get them back. As you might have learned, cryptocurrencies are mere computer codes, "that represents ownership of a digital concept — sort of like a virtual IOU." If those codes get missing, your bitcoin is missing forever. In addition, if you are a victim of a hack that leads to your bitcoin being sent to another wallet, the transaction is irreversible. Therefore, as you slowly amass bitcoin, or any other cryptocurrency, ensure you update yourself on best practices for keeping your crypto safe.

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Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.