You are probably asking yourself: Why are you writing about this now? The reason is the fact that Bitcoin price is about to hit 11000 USD (United States Dollars) surging from 3000 USD last December. That’s a 266 % increase in 6 months… Not bad.
Do your research
As Warren Buffet said: “You should only invest in what you understand“. Therefore, before investing I would recommend looking for as much information as possible. These 3 sources of information helped me a lot so hopefully they are useful for you too:
- Cryptoassets. This book will provide you with the basic knowledge about blockchain and cryptocurrencies you need.
- Crypto Daily. This Youtube channel is not only informative but also fun to watch. Ironically I think his best videos were during the bear market in 2018.
- Reddit. This website gathers loads of comments and knowledge about crypto. It can be a bit overwhelming but there is valuable information between all those memes.
Bonus: Another book I would like to recommend is The Intelligent Investor from Benjamin Graham. Even though this is not a book specific about crypto, it is probably the best book you can read about investing.
Perform your analysis
One of the main arguments in favour of buying bitcoins now is the golden cross. This takes place when a short term moving average crosses a long term moving average staying above after the crossing point. It will be easier to understand graphically:
The green line is the daily price of bitcoin while the red line is the 50-day moving average (price average of the last 50 days) and the blue line is the 200-day moving average (price average of the last 200 days).
Why 50 and 200 days? Well, it is true that you could use different time periods but those are typically used by professional traders. Many people argue that this golden cross is a sign of the start of another bull market as the one which took place in 2017.
Rumours in Wall Street of another crisis similar to 2008 might also be a reason for a transfer of funds into bitcoin.
Ideally you should buy at the dips and sell at the peaks. Easy to say but almost impossible to achieve. As humans, we are very emotional which sometimes can lead to wrong decisions.
For instance, we tend to buy when the price is going up and sell when the price goes down. However, and as long as you are investing long term, you should do the opposite. Remember that many times the longer you hold an investment, the safer it becomes.
If you are interested in knowing more, there are many good websites to perform a proper technical analysis such as Trading View. However, I would recommend to invest thinking in the long term not in short term gains.
If you decide to invest, you should be aware that many countries are regulating this digital asset. For instance, the United Kingdom considers BTC as an asset and not as a currency.
Why should you care about this? Because this means you should pay Capital Gains Tax on the profit.
Imagine this scenario: you buy let’s say 0.1 bitcoins (around 1000 USD). One year later the price skyrockets to 0.1 bitcoins = 3000USD and you decide to sell them. You should pay Capital Gains Tax (around 20%) over the 2000 USD profit which would be 0.2*2000=400 USD. Thus, your actual profit would be 2000-400 = 1600USD.
Make a decision
I’ve recently read some decent books about decision-making but let’s leave this for another post and let’s list some advantages and disadvantages of bitcoin:
Pros:
- Potential for big gains.
- Easy to invest small or big amounts using apps such as Revolut.
- More and more companies allow to pay using bitcoin.
Cons:
- High risk investment.
- Difficult to understand how the market works.
- Your account could be hacked and no guarantee to get your money back.
Remember none of this is financial advice but I hope you’ve found it interesting.
In short: Invest no more than what you can afford to lose.
Please let me know if you liked this content and I will expand on this on future posts.
Stay safe!
ingepuertos 