Check what you know
I know Bitcoin already
I understand what a wallet is
I have heard of buying shares in Bitcoin companies
- 0.1 Your basic tools
- 0.2 Plain investment: buying coins
- 0.3 Invest in Bitcoin mining
- 0.4 Buy Bitcoin company shares
- 0.5 Stay in the Bitcoin Loop
- 1 How to Invest in Bitcoin: One Pager
Your basic tools
This is not a beginner article, but it should make sense to those who sort of know how Bitcoin works.
- Get a wallet
- Verify your identity at a trading platform
- Have proof of residence (max 6 month old)
- Get a copy of a valid ID
- Set aside some money you don’t need
- Install Google Authenticator on your smartphone
Your wallet will hold your coins. For desktop computers I recommend Electrum. It does not download the blockchain, making it faster than the ‘standard’ Bitcoin client. Mycelium is my mobile wallet of choice.
In order to buy Bitcoins at an exchange you need to verify your identity. For US citizens I suggest Coinbase, for EU residents Bitstamp is a good choice. Stay away from MtGox in the coming months, they had a lot of issues and are generally slow and unreliable. If you want to buy coins faster or without verification try localbitcoins, which you can use to buy coins off of people who own them locally in your region.
As in general with investing, never invest money you need in order to live. View investments as money you lost (or at least can’t access). Your daily life should not be influenced by the ups and downs of your escapades. At the same time don’t be afraid to start investing. EVen if you have only 5,- lying around, in Bitcoin investment world that is enough!
Google authenticator is a 2nd step authenciactor. Basically every time you log into a service (like coinbase or bitstamp) you need to inserv a code generated by the app. The importance of this extra security measure can’t be overstated. You wouldn’t protect your life savings with a simple username and password, so you shouldn’t with your Bitcoins and Investment portfolio.
Plain investment: buying coins
- Buy Bitcoins
- Hold them
I advise against short term trading, unless you have some important piece of information the rest of the world doesn’t (e.g. your friend owns Apple and will accept Bitcoin tomorrow. In that case, stock up like a hamster). The key to making long term profit on Bitcoin is to have a strategy beforehand, the rest is a rollercoaster ride. Personally I decided to keep my coins for 2 years and have owned my coins through the values of $300 to $1200. If you invest in Bitcoin, invest because you believe in the technology, not because the graph looks pretty.
Risky MtGox coins
- Buy Bitcoins
- Trade them for coins stuck in MtGox
- Lose all or double/triple your money
The MtGox exchange is not allowing withdrawals because of supposed technical issues. People get paranoid very quickly. This created a group of people who have Bitcoins in MtGox they can’t take out of there, who get so nervous that they will sell their stuck coins for coins that are outside the exchange.
In essence you can but Goxcoins (Bitcoins in MtGox) for 1/2 to 1/3 the price of the normal Bitcoins. It is risky, but if you believe MtGox will solve their issues, you can but Goxcoins. Cautionary note: you need a verified MtGox account to accept Goxcoins (or a reliable friend who has one). If you are willing to risk it, buy Goxcoins at Bitcoinbuilder.
Invest in Bitcoin mining
- Pay for mining power (in Gigahash a second = GH/s)
- Wait for your miner to produce Bitcoins
- Get Bitcoins
- Make a profit before your miner is outperformed by othere
General note: you need specific hardware to do this. And you need it before the competition does. NEVER do pre-orders, by the time you get your gear you have lost your advantage. Curious about mining profitability? Try a calculator. Keep in mind though that the mining network difficulty increases with time.
DIY: Buy your own gear
- Buy gear
- Set it up in a place with cheap power and reliable interner
- Sign up to a mining pool (cooperation between miners)
- Get Bitcoins
Generally, just don’t. Your return on investment calculations will not be accurate unless you receive the hardware that day. Mining producers are notorious for shipping late. If you really feel the need to buy a miner for whatever reason, I’m a fan of Cointerra.
Cloud mining: rent a miner
- Make an account at a mining provider
- Calculate if you will make a protif at current prices
- Buy mining power and wait for your coins
The upside of investing in cloud Bitcoin mining is that you pay for performance, not for a device (usually). Particularly you will pay X amount of $ for Y amount of GH/s.
The safe thing about cloud mining is that you have an assured amount of performance for a set price. You don’t need to wait for the arrival of machines, or deal with the power consumption or noise of a miner in your living room.
One of the biggest cloud mining companies is Cex.io, here you pay in Bitcoin (or Litecoin or Namecoin) for an amount of Giga Hash a second in mining power. Curious? Check the current cost and put it in a mining calculator.
Invest in a mining company
- Research the company you believe in
- Buy shares in their project
- Receive dividends
- Trade away your shares if the price gets very high
This is my favorite, because it is slightly riskier than cloud mining, but more reliable than buying your own miners. Often this in practice means the buying of mining bonds. Here company X will offer Y amount of GH/s per share you buy in their company, plus an increase in performance as the company grows. Personally I am a fan of the Belgian PETA mine company, started by angel investors of cointerra.
To buy shares in Bitcoin companies, have a look at the next section.
- You can’t buy shares in the Bitcoin company, because there is no Bitcoin company. You can however buy shares in a company that deals in or with bitcoin. This happens on exchanges where you can buy shares using Bitcoins, and get paid weekly (usually) dividends, also in Bitcoins.Buy shares with Bitcoin
- Receive dividends in Bitcoin
A popular exchange is Havelock Investments. The feature a number of public Bitcoin companies, and once in a while host the IPO of a Bitcoin related company. Just like in the normal stock and bond trading world, Havelock is used by microtraders and long-term investors.
Stay in the Bitcoin Loop
- Subscribe to the relevant channels
- Read them daily
Bitcoiners have default hangouts over the internet. If you keep an eye on certain channels you will know most news faster than 90% of people. These channels are not obscure or difficult to reach, but should be read daily.
The first is the Bitcoin subreddit. This information board is user currated to contain what has been voted as the ‘best’ Bitcoin news. You can also filter the articles based on how recent or controversial they are.
The second is the Bitcointalk forum. This is a discussion forum on everything Bitcoin related. Specifically you should subscribe to the forum threads related to projects you invested in. In the case of the above PETA mine project, you can see the shareholder discussions on their thread.
Even more than in other fields, information is king in the Bitcoin world.
How to Invest in Bitcoin: One Pager
- All the links you need
- Tips & best practices
- My personal experience
The one pager summarizes this article and some tips to avoid the mistakes I made. Enter your email to receive the PDF straight into your inbox.