- Investing in Bitcoin is easy and fun!
- Get £10 free Bitcoin as you begin!
- Lock in your gains by selling when Bitcoin goes up.
- Maximise your long-term returns by buying when Bitcoin goes down.
- Cash out your deposit when your initial investment doubles, and you will never lose any money!
Are you ready to dip your toe into the world of Crypto? If so, you’re not alone! Google searches for “Bitcoin” are on the rise, as is the Cryptocurrency itself. $100 invested at the start of the year would now be worth over $250!
So, how to get started? The good news is, there’s a wealth of great articles online that’ll teach you all the theory. But nothing replaces first-hand experience. This Beginner’s Guide cuts through all the jargon and complex trading techniques, to get you making your first confident Crypto trades as soon as possible. Along the way, you’ll have fun, hopefully make a small profit (including $10 free Bitcoin as you get started), and lay the foundation, should you wish, to become a serious cryptocurrency investor!
STEP 1: Decide how much to invest.
The first mistake too many beginners make is investing too much. Yes, we’d all like to be the next Bitcoin millionaire, but unless you’re incredibly lucky, you’ll need to build up some real-life trading experience first. You’ll also need a solid investment strategy, but it’s hard to remain strategic when your entire life savings – or, worse, your mortgage – are riding on it! So, keep it fun, and, as the saying goes, only invest what you can afford to lose.
Still not sure how much to invest? Well, think of this as an investment course. What would you happily pay to enrol on a professional investment course? That’s your figure.
Still can’t decide? Then, as long as you can afford to lose it, we suggest $200. That’s the amount we’ll use in our examples as we continue through this Beginner’s Guide.
STEP 2: Choose the right place to buy Bitcoin.
There are so many places to buy Bitcoin, each with their own advantages and disadvantages, that the new investor can easily feel overwhelmed! However, for the newcomer, we recommend Coinbase. Not only is Coinbase’s user-friendly interface ideal for the first-time investor, but they’re also offering $10 of free Bitcoin when you invest your first $100.
STEP 3: Watch out for the fees!
Congratulations, you are now the proud owner of a fraction of a Bitcoin! You’ll notice that Coinbase charged a fee for this transaction, which is a pain. Fortunately, if you’ve invested $100+ using the referral link, your $10 free Bitcoin still puts you ahead. However, this is an important early lesson in cryptocurrency trading: watch out for the fees! Fees will eat into your profits, so avoid or minimise them whenever possible! Which brings us to step 4…
STEP 4: Convert half of your Bitcoin investment into “USD Coin”.
Bitcoin isn’t the only cryptocurrency available on Coinbase. Click on “view all assets” and you’ll see a whole list of them!
Since this is a Beginner’s Guide, we won’t worry about coins with exotic names like “Ethereum”, “Litecoin”, or “Bitcoin Cash”. The only other cryptocurrency we’ll be using is “USD Coin”. That’s because “USD Coin” is special: it’s the one cryptocurrency on the list that keeps a fixed value. All the other cryptocurrencies yo-yo in value, but “USD Coin” is a so-called “stable coin”: one “USD Coin” is always worth $1.
You might be wondering: “Why bother investing in something that’s value won’t go up?” The answer is: to avoid fees! That’s because of a key feature of Coinbase: there are no fees for trades within the system!
To convert half of your Bitcoin holdings to “USD Coin”, click “Accounts”, “BTC Wallet”, “Trade”, “Convert” and then scroll down to “USD Coin”. If you initially invested $200 in Bitcoin, then input $100. Click “Preview Convert” and “Convert Now”. You should now have about $100 worth of each.
STEP 5: Sell Bitcoin when the price goes up.
When the price goes up, what do most novice traders do? They buy. They see the value rising, get excited, and the “fear of missing out” compels them to buy as quickly as they can. But this is exactly the wrong thing to do. You’ll never beat the market by following the herd instinct! When the price goes up, you should sell.
The basic rule of all investing is: “buy low, and sell high”. It’s no different with Bitcoin. As long as you get more for it than you spent, you’re on track. To make a profit, simply wait for the value to rise, and then sell. But exactly when, and how much, should you sell?
Professional traders devote their lives to researching the market and studying price charts so that, assisted by complex computer models, they can predict the perfect time to sell their entire investment, right before its value starts to drop. Beginners, however, don’t have the skills, tools or experience to make these calls, so in this Beginner’s Guide, we recommend the “5% rise sell rule”.
Whenever your Bitcoin investment rises 5%, trade that extra 5% for “USD Coin”. For example, if you’re holding $100 of Bitcoin and $100 of “USD Coin”, and your Bitcoin rises to $105, trade that extra $5 of Bitcoin for “USD Coin”. You’ll now have $100 worth of Bitcoin (the same value you started with) and $105 worth of “USD Coin”. Remember, one “USD Coin” is always worth $1, so if Bitcoin then drops in value, the $5 you’ve just stored as “USD Coin” stays safe. On the other hand, if Bitcoin continues to rise in value, then keep on following the “5% rise sell rule”. Each time your Bitcoin holdings go up to $105, lock in those gains by trading your extra $5 of Bitcoin for $5 of “USD Coin”.
STEP 6: Buy Bitcoin when the price goes down.
It’s easy to make a profit when the price of Bitcoin is rising. What fewer people realise is that investors can also make a profit when the price of Bitcoin is falling! They do this by buying Bitcoin when it’s cheap, so they’ll have more of it ready to sell when its value goes back up.
Again, this strategy sets you apart from the novice. When novice traders see their investment dropping, what do they do? They rush to sell, fearing it will fall even lower. However, every time they sell their Bitcoin for less than they bought it for, they make a loss. Don’t let fear and adrenaline torpedo your investment strategy. Logic shows that when the price goes down, you should buy. But exactly when, and how much, should you buy?
Professional traders maximise their profits by “buying the dip”, right before Bitcoin’s price starts climbing again. For the beginner, however, it’s impossible to have real confidence that Bitcoin has indeed reached rock-bottom. If you wait too long, and the price goes up again, you’ll miss the opportunity altogether. So, to keep things simple, we recommend beginners follow the “10% drop buy rule”: when your Bitcoin stock drops in value by 10%, buy more Bitcoin (using “USD Coin” to avoid fees) to replenish your Bitcoin holdings back up to their original value.
For example, if you started with $100 of Bitcoin and $100 of “USD Coin”, and your Bitcoin holdings drop to $90, buy back $10 of Bitcoin with your “USD Coin”. You’re now up to $100 of Bitcoin again (the same value you started with). Keep repeating this each time the value of your Bitcoin holdings drop by 10%.
At first, this strategy might look a little strange. On the surface, you’re swapping $10 of stable “USD Coin” for $10 of falling Bitcoin. Where’s the profit in that? The answer, however, is in mathematics and patience.
Imagine your $100 of Bitcoin repeatedly drops to $90, and each time you buy $10 of Bitcoin back. This happens five times before Bitcoin starts rising again. Overall, you have now reinvested a total of $50 in Bitcoin using the “10% drop buy rule”. However, when that $50 of Bitcoin rises back to its original value, it won’t just be worth $50, it’ll be worth $69.35! That’s because, mathematically:
$10/0.9 + $10/(0.9×0.9) + $10/(0.9×0.9×0.9) + $10/(0.9×0.9×0.9×0.9) + $10/(0.9×0.9×0.9×0.9×0.9) = $69.35
So in this example, the “10% drop buy rule” will make nearly $20, simply by buying low and waiting for the value to rise!
To benefit from these bargain Bitcoin purchases, don’t sell again too soon! It’s good practice to readjust your baseline by the amount you reinvested before next applying the “5% rise sell rule”. In this example, the $50 reinvested in Bitcoin increases the baseline from $100 to $150. The “5% rise sell rule” means now, rather than converting $5 to “USD Coin” when your Bitcoin holdings reach $105, you’ll be converting $7.50 to “USD Coin” when your Bitcoin holdings reach $157.50.
STEP 7: Double and ‘cash-out’ your original investment!
To graduate from this Beginner’s Course, your task is to double and recoup your original investment. If, for example, back in step 2, you invested $200, then keep on following the “5% rise sell rule” and the “10% drop buy rule” until the combined value of your Bitcoin and “USD Coin” has risen to $400. At this point, it’s time to “cash out” your $200 original investment.
Congratulations! Aside from the fee you’ll pay Coinbase for the privilege, you now have your original investment safely back in the bank. You’ve not lost any money in the cryptocurrency market, and whatever happens to your remaining investment is a bonus! What’s more, you’ve hopefully had some fun along the way, and built up the basic skills, experience and cryptocurrency balance you’ll need to go to the next level as a serious cryptocurrency trader!
How long did it take you to graduate from the Beginner’s Course? What did you learn in the process? What other tips did you pick up along the way? Let us know in the comments below!