Bitcoin (Cryptocurrency: BTC) It has the potential to be a very powerful asset-building investment. In fact, as long as you’re willing to play the long game and stick to your investing habits, you can turn a relatively small amount of $1,000 into $10,000.
Are you interested in how to bet on the king of cryptocurrencies? Let’s establish some basic strategies that will make the process much easier.
The most important basic strategy when it comes to investing in Bitcoin is to be consistent with your buying habits.
With dollar-cost averaging (DCA), it is better to buy $1,000 in 10 installments of $100 each and invest them at intervals of several weeks or months than to invest all at once. Good results may be obtained. Most advantageous. Take a look at this chart showing the price of Bitcoin over the past 10 years.
Bitcoin price data by YCharts
As you can see, there were many opportunities to buy at the very peak of the market if you bought in bulk at once. If that happens, you could be stuck with significant losses for months or even years until your investment breaks even.
Not only is it psychologically unpleasant to hold an investment underwater, but leaving the timing of your purchases to your own whims often attracts media attention and buzz about the price of your coin. Sometimes that’s exactly what you’re buying. The price of the coin almost always reaches its all-time high after that. A sharp run-up. Prices usually go down after that.
Eliminate all opportunities for whimsy. Spread out your purchases, make sure each purchase is relatively small, and automate the process as much as possible. Investing in Bitcoin is a marathon. Don’t take up a single step along that route in your headspace.
Now let’s add a little nuance to the long-term strategy above.
As you probably know, creating new Bitcoins requires miners to use powerful computers to solve increasingly difficult mathematical problems. The difficulty of these problems increases over time. To further complicate matters, after a certain amount of coins are mined, the rewards distributed for mining are reduced by 50% in a process called halving.
So far, half-lives occur approximately every four years. Let’s consider the implications of this from a demand and supply economic perspective. What effect would you expect on the price of a good if it suddenly became significantly more difficult to produce it? At least until producers adapt to the new difficulties by expanding capacity to meet demand? , the price will rise.
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There are also many other factors that affect the price of Bitcoin, which is exactly why the price of Bitcoin is highly cyclical. Based on before and after the halving date, you can expect with reasonable confidence that prices will rise within about 9 months. Then, after a year or so (very roughly), it drops significantly again as supply exceeds demand from investors.
Don’t focus too much on the exact number of months here. You also don’t have to worry about the timing of the bottom of a coin’s cycle. Recognize that there are periods when there are additional opportunities in addition to your regular purchases where it makes sense to purchase items a little more aggressively.
Therefore, if the price of Bitcoin drops by half from its recent high, you may want to consider adding to your holdings while the price is low, with the intention of holding on to your coins for at least a few more years.
Finally, years later, when it’s time to take Bitcoin off the table, remember that you’ll get the highest price if you sell during the post-halving period.
If you want to grow your $1,000 investment to $10,000, you can’t sell pieces of your stock over time.
You may want to realize profits when prices are high, but if you’re investing for big returns over the long term, be serious about sticking with your investments through thick and thin. If you interrupt the process of compounding the value of your investments, especially early on, it will be very difficult to reach your target value. Additionally, unless the investment thesis of buying Bitcoin is compromised, selling it doesn’t make much sense unless you need to fund some kind of emergency.
If you look at your Bitcoin investment only from time to time, it will be easier to resist the temptation to sell. Checking the price (and investment value) once a month is enough to understand where the coin is in its 4-year cycle and develop additional objectives. Anything more than that and you run the risk of being drawn into harmful short-term thinking.
Don’t quit the marathon before you cross the finish line you set for yourself at the start.
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Alex Karkidi has a position in Bitcoin. The Motley Fool has a position in and recommends Bitcoin. The Motley Fool has a disclosure policy.
“3 Easy Tricks to Turn $1,000 into $10,000 in Bitcoin” was originally published by The Motley Fool.
