Bitcoin has been making headlines for years. Values skyrocketed in 2021, reaching about $65,000 in November 2021. However, they’ve since declined — a common occurrence due to the general volatility of cryptocurrency values. When prices are on a downturn, you might consider it the perfect time to invest in Bitcoin. If you’re thinking about making the leap, here’s what you need to know.
What Is Bitcoin?
Bitcoin is the original cryptocurrency. It’s a form of digital currency that’s based on blockchain technology, and it functions without the need for traditional banks or payment processors.
Unlike other investments, Bitcoin isn’t backed by a government or any type of asset, such as a company’s value, a product or a commodity. Instead, its value is primarily based on public perception and investor sentiment, though some other factors do play a role.
How Does Bitcoin Work?
Bitcoin acts as a digital currency, relying on a peer-to-peer network to log transactions and track ownership. Investors do have the option of simply trading it in a process that’s not wholly unlike trading stocks. Essentially, you can sell it for cash on investment platforms that support it or potentially trade it for other cryptocurrencies.
However, you can also spend Bitcoin like traditional currency if a retailer or service provider accepts it as a form of payment. In this regard, it operates like cash.
Is Bitcoin a Stock?
Bitcoin is not a stock. With stocks, there is an underlying asset, namely the company behind the stock. When you purchase a stock, you’re becoming the owner of a small fraction of that business, and that gives you certain rights regarding the company’s operational decisions. Additionally, the value of a stock is partially based on investor sentiment. However, the bulk of its price is determined by business factors, such as the company’s financial health, profit margins and asset ownership.
With Bitcoin, there is no underlying asset. Instead, it’s an asset in and of itself. Further, the value of Bitcoin is based solely on what investors feel Bitcoin is worth — a position that leads to higher volatility than you see with stocks on average.
How Do I Invest in Bitcoin?
Investing in Bitcoin is far simpler today than in years past. First, you need an account on a platform that supports cryptocurrency trading. That can be a crypto trading service or a brokerage that features crypto assets like Bitcoin.
Options like Coinbase, Binance, FTX and Gemini are popular if you’re looking for a crypto-specific platform. Otherwise, brokerages like Robinhood and WeBull can work if you also want access to stocks, ETFs and similar assets. You can also purchase Bitcoin through PayPal if you prefer.
Once you sign up on the platform, you’ll need to fund your account. Usually, sources of this funding can include bank accounts, credit cards or debit cards, though what you have the option to use varies by platform.
After funding your account, you can place an order for Bitcoin. Typically, you’ll navigate to the Bitcoin page to begin a trade. Set the parameters for the purchase, then execute it. If the conditions are met, you’ll be able to purchase the Bitcoin and either keep it on the platform or transfer it to an outside hot or cold wallet if you have one set up.