How to Invest in Bitcoin 2022

What Is Bitcoin? How Does It Work?

Bitcoin is a decentralized digital currency, which operates without the oversight of banks and governments. It holds the distinction of being the first-ever cryptocurrency, launched in 2009.

In the words of its creator, Satoshi Nakamoto, Bitcoin was created to allow “online payments to be sent directly from one party to another without going through a financial institution.”

Today the entire cryptocurrency market is roughly worth $1.3 trillion, with Bitcoin representing 45% of the market.

While it began life as a payments network, Bitcoin has evolved into an investment asset. Most holders consider BTC to be a store of value, and it’s often referred to as “digital gold.”

Bitcoin transactions are verified by crypto miners via a proof-of-work consensus mechanism, and usually take up to 10 minutes to clear. That’s much slower than many competing cryptocurrencies, to say nothing of conventional payments networks.

Still, Bitcoin is accepted as a form of payment by some online retailers and merchants, such as Amazon, Mastercard and Walmart, to name a few.

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How to Protect Your Bitcoin Investments

If you’ve incorporated Bitcoin into your investment portfolio, here are some steps you can take to protect it:

1. Watch for Crypto Red Flags

There are some common red flags in crypto — similar to classic money wiring scams and credit card fraud — that you should keep an eye out for. They include:

  • Typographical errors and obvious misspellings in emails, on social media posts, and during any communication
  • Promises to multiply your money
  • Contractual obligations that lock you into holding crypto without being able to sell
  • Fake influencers or claims to be a celebrity
  • Psychological manipulation like blackmail or extortion
  • Large social media crypto schemes
  • Promises of free money
  • Vague details about where your money is going

Another way to protect your Bitcoin is to implement good digital security habits, similar to how you’d handle large sums of cash by putting them in a safe or FDIC-insured savings account. Experts say small-scale investors with a few hundred dollars in Bitcoin are probably OK keeping it on a mainstream exchange like Coinbase. But if you have a significant amount of Bitcoin, you can incorporate a crypto wallet for additional safekeeping. There are two types of crypto wallets: hot wallets and cold wallets.

Hot wallets are used to store crypto online. They are secure, but more susceptible to hacking than cold storage, which is when you store crypto offline on a piece of hardware. Think of cold storage as kind of like a safe in USB-drive format. It’s more secure, but if you forget your password or lose the device, you could lose access to your money forever.

Because crypto held in hot wallets is not FDIC-insured, you’ll want to make sure that whatever platform or wallet you store your crypto in has robust security measures, including:

  • Two-factor authentication
  • Storing a portion of holdings in its own cold storage
  • Private insurance policies in case of theft or hacking (separate from FDIC insurance)

3. Keep Track of Your Wallet Keys

You only get one unique key to access your wallet, which means you need to be extra careful about not losing your key or having it stolen. Don’t share your private key with anyone, just like you wouldn’t share your Social Security number or your debit card PIN. Maintaining strong passwords that you update regularly and not using the same password for multiple accounts will make you less vulnerable to hacks and scams. 

4. Report Fraud

Report fraud and other suspicious activity to whatever crypto exchange you used to complete the crypto transaction and to the following bureaus using these links:

  • The FTC: ReportFraud.ftc.gov
  • The Commodity Futures Trading Commission (CFTC) at
  • The U.S. Securities and Exchange Commission (SEC) at
  • If the fraud involves extortion or blackmail, you can also go to ​​the FBI

Can You Lose Money on Bitcoin?

There are many ways in which you can lose money by trading or investing in Bitcoin. Firstly, you may sell it at an inopportune moment and lose your initial investment. Secondly, your wallet may be stolen, or you might lose access to it. Thirdly, you may run into a scam… And the list goes on.

Spoiler alert: it’s hard to refund crypto and Bitcoin transactions, so make sure all info you enter when making a purchase!

We give a few general tips on how to not lose your money while exchanging crypto in our article on refunds.

Is It Smart to Invest in BTC Right Now?

Bitcoin’s price has been declining for the past few weeks. It lost almost 20% of its value in the past seven days, so it’s safe to say that we’re in the middle of a bear market.

Source: coinmarketcap.com
Source: coinmarketcap.com

Market data shows that Bitcoin’s price will likely continue to fall in the near future. Most experts are predicting that it will find a support level at $30K, but we think it’s possible the cryptocurrency will go even further down. After all, we’re currently in the middle of one of the worst bear markets in recent years.

It is always better to invest in an asset when its value is going down; however, it can be hard to find the best entry point. What if you buy a hundred Bitcoins today at the price of $33K, but tomorrow (or a week later), it drops to $25K? Well, at the end of the day, it’s important to remember that trying to predict and outsmart the market will always be a gamble. 

Technical analysis from TradingView is currently giving Bitcoin a “sell” signal, so its price will likely continue to decline. That said, we recommend you to DYOR before making any Bitcoin transactions.

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1. Sign Up With a Brokerage or Cryptocurrency Exchange

If you want to buy stocks, you might set up an account through Vanguard or Charles Schwab.

If you want to buy cryptocurrency, you can use certain brokerages that allow you to invest in Bitcoin and other cryptocurrencies as well.

Make sure the exchange you choose offers two-factor authentication — that extra step helps protect your accounts from hackers.

Frequently Asked Questions

Is Bitcoin still a good investment in 2022?

Overall, Bitcoin is considered a highly speculative and risky asset compared to conventional investments. While there is no guarantee you will get any of your money back, Bitcoin has become the most valuable and commonly held among the thousands of cryptocurrencies that have since been created. As the first cryptocurrency, Bitcoin has the longest record for investors to consider. The potential reward comes with higher risk, so make sure any investment in Bitcoin is included in your broader portfolio’s riskier, more aggressive allocation.

Will Bitcoin crash again?

Bitcoin’s rise in value and popularity has been steady, if not without its ups and downs. But there are no guarantees when it comes to investing in crypto. As quickly as Bitcoin falls, it can just as rapidly climb again. Volatility is the norm for crypto, mostly due to it being an immature market. There are also new regulations and policies that are constantly reshaping the market and causing drastic swings — and hype on social media.

Do you pay taxes on Bitcoin? Yes, Bitcoin is taxable. The IRS considers cryptocurrency holdings to be “property” for tax purposes, which means your virtual currency is taxed in the same way as any other assets you own, like stocks or gold.

The information contained herein is provided “as is” for educational and informational purposes only and is not intended to serve as investment advice or for trading purposes. Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities or any assets. The information has been authored from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness or completeness. Presenters may own the assets they discuss. You should not treat any opinion expressed by presenters as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their opinions. The information and content are subject to change without notice. We are not under any obligation to update or correct any information provided herein. Past performance is not indicative of future results. We do not provide any individualized investment advice. Accordingly, this material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for any person’s individualized circumstances. You must make an independent decision regarding any investment suggestions covered by the material. Before acting on any investment suggestions from the material, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. You should be aware of the real risk of loss in following any strategy or investment discussed.

Still Worrying About Making The Wrong Decision?

If you’re still afraid of investing in your first pieces of Bitcoin, follow these advice that will help you get started smoothly:

  1. Invest even $10 on any recommended cryptocurrency exchange or broker. This way you’ll get started and you’ll have a much better understanding of what it is to be a cryptocurrency investor.

  2. Divide the budget you had in mind and invest it over some time -. 1 month, 3 months, 12 months – it’s your call. But doing so will prevent you from making costly mistakes and save you money.
  3. Remember that you can still reevaluate your decision in the future.
  4. Choose the best platforms to buy Bitcoin. To make it simple for you, I’ve compiled the list of my favorite exchanges below. 

*eToro Disclaimer: Your capital is at risk

Now, let’s dive into my cryptocurrency-related recommendations, and specifically 5 factors you should consider when deciding how much to invest in Bitcoin and the best way to invest in Bitcoin.

How Much Does Bitcoin Cost?

It may seem surprising that Bitcoin has reached a five-figure value. One bitcoin costs about $40,000 as of Mar. 7, 2022.

However, the value of Bitcoin varies from time to time. This happens due to several factors that affect the rate of Bitcoin.

Ether

INA FASSBENDER | AFP | Getty Images

  • Price on Jan. 1: $730.30
  • Price on Dec. 28: $3,816.67

The value of a single ether, the the Ethereum blockchain's token, is up more than 400% over the past 12 months. A $1,000 ether purchase on Jan. 1 at a price of $730.30 would now be worth about $5,226.16 at Tuesday afternoon's price of $3,816.67.

Supporters of Ethereum say the blockchain will become more scalable, secure and sustainable after its Eth2 upgrade, slated for 2022, during which the network will shift to a proof of stake, or PoS, model. Currently, Ethereum operates on a proof of work model, where miners must compete to solve complex puzzles in order to validate transactions. This model is frequently criticized for its environmental impact since it requires an extreme amount of computer power.

The shift to PoS will allow users to validate transactions according to how many coins they hold, rather than the energy-intensive mining rigs used now.

3. Make Your First Purchase

Now that your exchange or brokerage account is set up, it’s time to make your first purchase.

Select the cryptocurrency you want to invest in — Bitcoin, Ethereum, Litecoin, etc. — as well as how much money you’d like to invest.

If you don’t have enough money to buy an entire coin, don’t worry.

Cryptocurrency coins are sold in fractions.

So you could buy as little as a hundredth of a millionth of a bitcoin (that’s 0.00000001 BTC, otherwise known as a “satoshi”).

How to Invest in Bitcoin in 5 Steps

Are you ready to dive into cryptocurrency? You’re in luck, as buying Bitcoin is simpler than you might think. Here’s how to invest in Bitcoin, in 5 easy steps:

  1. Join a Bitcoin Exchange

  2. Get a Bitcoin Wallet

  3. Connect Your Wallet to a Bank Account

  4. Place Your Bitcoin Order

  5. Manage Your Bitcoin Investments

2. Get a Bitcoin Wallet

When you purchase a coin, it’s stored in a “wallet,” which is where all your cryptocurrency is stored. There are two types of wallets you can get: a “hot wallet” or a “cold wallet.”

A hot wallet is a wallet that’s operated by either your cryptocurrency exchange or by a provider. Some exchanges will automatically provide you with a hot wallet when you open your account. In any case, hot wallets are convenient because you’ll be able to access your coins through the internet or a software program.

Some notable hot wallets are:

However, hot wallets are not the most secure form of coin storage. If the hot wallet provider is hacked, then your coin information may be at risk.

A cold wallet is the safest storage method for your coins. A cold wallet is an actual piece of hardware that stores your coins, usually, a portable device that’s similar to a flash drive. Most cold wallets cost between $60 to $100. Some popular cold wallets are:

  • Trezor

  • Ledger Nano

If you’re only going to purchase small amounts of coin, then you might be fine using a hot wallet with an insured crypto exchange. But if you’re going to be trading large amounts of coin, then a cold wallet would be well worth your investment.

Need help deciding which wallet is right for you? Take a look at our picks of the best bitcoin wallets.

3. Connect Your Wallet to a Bank Account

When you’ve obtained your wallet, you’ll need to link it to your bank account. This enables you to purchase coins and sell coins. Alternatively, your bank account may be linked to your cryptocurrency exchange account.

4. Place Your Bitcoin Order

Now you’re ready to purchase Bitcoin. Your cryptocurrency exchange will have everything you need to buy. The big question is, how much Bitcoin should you purchase?

Some coins cost thousands of dollars, but exchanges often allow you to buy fractions of a single coin—your initial investment could be as low as $25.

Investing in Bitcoin is very risky, and it’s important that you carefully determine your risk tolerance and review your investment strategy before you purchase any Bitcoin. We’ll go over this in the next section.

5. Manage Your Bitcoin Investments

After you’ve purchased bitcoin, you can:

  • Use your coins to make online transactions

  • Hold your coins for a long period in the hopes it’ll appreciate in value

  • Perform day trading with your coins—that is, buying and selling coins with other Bitcoin owners, which can be facilitated on the cryptocurrency exchange

Your cryptocurrency exchange will provide you with everything you need to buy and sell coins.

[ Want to learn how to safely invest in Bitcoin & other crypto assets? Take a 2-hour online training class today! ]

Step 4: Store Your Bitcoin

At Step 4 we reach a hotly contested debate within the crypto community:

Do you store your crypto in a “hot wallet” with the exchange where you bought it? Or extract it to an offline “cold wallet”?

First, let’s discuss what wallets even are.

What Is a Cryptocurrency Wallet?

A crypto wallet isn’t what it sounds like — it’s not where you store your crypto, since crypto lives on the blockchain.

Rather, a crypto wallet is where you store the keys to your crypto.

When you purchase crypto, you’re given two long strings of code: a public key and a private key.

  • Your public key is like your account and routing numbers combined — it’s what lets others send you crypto — but that’s all they can do with it.
  • Your private key is like your account password — anyone who has your private key can decide what to do with the crypto inside your account.

Now, your exchange will always have your public keys ready to copy and paste. The question and ongoing debate within the community is where best to store your private keys: a hot wallet or a cold wallet.

  • A hot wallet, aka virtual wallet, is when you store your private keys in a database online. Most exchanges will automatically generate a hot wallet for you and encourage you to keep your crypto there, citing their rigorous security measures.
  • A cold wallet is when you store your private keys offline on a USB stick, hard drive or even a piece of paper.

Most beginners start with a hot wallet out of convenience — it’s free, it’s automatically generated for you and you don’t have to remember where you put it. Hot wallets also enable instant trades — you don’t have to manually input your private keys or plug in a USB each time you make a trade.

Looking for a crypto wallet? These are our favorites right now >>>

But Be Aware!

Many traders still prefer cold wallets due to safety concerns. To date, several billions of dollars of crypto has been stolen by hackers stealing private keys. And because crypto holdings aren’t FDIC-insured, the victims have been mostly out of luck. The major exchanges have beefed up security and purchased private insurance, but many experienced traders still aren’t convinced.

Should You Use a Hot Wallet or a Cold Wallet?

If you plan to invest only small amounts in bitcoin and continue making regular trades, you’ll likely be happier with a hot wallet — it’s convenient, flexible and free.

But if you plan to purchase large amounts of crypto and hold it for the long haul, you might consider the safety of “hiding it under the mattress” in a cold wallet.

Just don’t lock yourself out of your bitcoin fortune by forgetting where you put it!

And for more on wallets, check out “Hot Wallet vs. Cold Wallet.”

2. Figure Out How To Store Bitcoin

You can store Bitcoin in a hot or cold wallet. Hot wallet transactions are quicker, while those in cold wallets have extra steps to maintain security. The latter takes longer but is more secure.

Hot Wallet

Storing your cryptocurrency in a hot wallet means the assets are stored by a provider or trusted exchange in the cloud. You can access your Bitcoins through a computer browser or an app.

All trading exchanges come with complimentary hot wallets where all your Bitcoins are automatically stored. If you want to store your Bitcoin in a third-party hot wallet, you can download a free app and use it to keep your assets safe.

Some hot wallet providers include Coinbase, Blockchain, Electrum, and Mycelium.

Some pros of a hot wallet include:

  • Quick to access
  • Easy to use
  • Usually free

However, hot wallets are connected to the Internet, making them susceptible to hacking and presenting other, more technical vulnerabilities.

Cold Wallet

A cold wallet is an offline encryptable device where Bitcoins can be downloaded. You can carry the device around. It’s considered safer than a hot wallet and costs around $100.

For example, two cold wallet providers are:

  • Ledger: Their cold wallets cost $60 to $120
  • Trezor: Their cold wallets range from $80 to $170

The 1% Don’t Want You to Know About These 5 Investments Five investing strategies the wealthy use that you should consider right now Learn More

When you’re creating digital wallet accounts, make sure the passwords are strong. Here are some pros of cold wallets:

  • More secure than hot wallets
  • Completely offline

On the flip side, cold wallets are expensive and require you to carry the device with you if you want to make regular transactions.

About the Author

Emma Newbery Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.

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