In 2023. Bitcoin has bounced from around €15,000 to just over €40,000. Moreover, this situation has taken place against a backdrop of inflation and uncertainty in the markets, which is why many continue to claim that the cryptocurrency functions as a safe-haven asset, describing it as “digital gold”. Although it is still too early to compare it directly with gold, an asset that has been with us for centuries, there is no doubt that Bitcoin is attractive, at least when it comes to following its evolution. In this article, we will explain where and how to invest in Bitcoin.
What is Bitcoin?
Bitcoin is the oldest cryptocurrency in existence. It was created in 2008 by Satoshi Nakamoto, the pseudonym of a person whose true identity is unknown. Its goal was to create an alternative to traditional fiat currency payment system that would be completely decentralized, i.e. independent of any central bank.
This cryptocurrency is characterized by being a finite asset, of which about 91% has already been mined. The fact that it is a finite asset also affects its value
This cryptocurrency is backed byBlockchain, a technology that acts as a digital ledger where all transactions made with Bitcoin are stored. Once a certain number of transactions are reached, they form a block that is linked to the next one.
How to invest in Bitcoins? 5 ways
There is no one way to invest in Bitcoin, but there are many ways to make money from this cryptocurrency. The alternatives are as follows:
- Bitcoin Mining
One of the ways Bitcoin can be profitable is through cryptocurrency mining, i.e., generating new Bitcoins in exchange for profit.
Bitcoin mining requires a computer with a lot of computing power. Miners are responsible for validating Bitcoin transactions by solving complex problems that are sent to them.
The total number of this cryptocurrency is 21 million units, and once it is fully mined, it will mark the end of mining.
The computers used to mine Bitcoin are called “nodes” that support the system and prevent it from crashing, for example, due to a power outage.
- Buy Bitcoin directly
If Bitcoin mining doesn’t appeal to you or you’re just looking for another way to invest in this cryptocurrency, then you can buy it and store it in a wallet. This type of investment involves buying digital currency and storing it in the hopes that it will increase in value over time.
The biggest advantage of buying directly rather than through more complex financial products (such as CFDs) is that there is no need for leverage, so you can simply hold the asset. In case its price drops, you can continue to store it and wait for it to rise again in the future.
- This is a less risky method.
If you are wondering how or where to buy Bitcoin, you need to use an exchange, a currency exchange platform. Some offer a storage service, although we will explain this later. Some of the most popular exchanges for buying Bitcoin are as follows:
- Bitpanda
- Bitstamp
- Coinbase
- GDAX.com (propiedad de Coinbase)
- Kraken
- Binance
Binance is currently the largest exchange in the world with 475,000 bitcoins in reserves. However, if you’re worried about the safety of your money in the event of an Asian stock market bankruptcy, runaway, or scam, the important thing is not where you buy it, but where you store it after purchase.
In any case, it is the most recommended form of bitcoin investment of all if you want to invest in cryptocurrency as if it were a store of value.
Bitcoin CFDs
In addition to buying the asset, it is also possible to invest in Bitcoin without buying it directly, but through CFDs. These contracts allow you to exchange not digital currency, but the difference between the opening and closing price of a position.
When you trade CFDs, you speculate on the price of an asset, so you can go long or short:
- Long position: This involves investing in an asset in the expectation that its price will rise, so you buy it to sell it at a later date at a higher price.
- Go short: In this case, you speculate that the price will fall, so you sell it at a high price and then buy it at a lower price.
The biggest risk with CFDs is that they allow you to use leverage. This means that you don’t have to deposit all the money required for the trade, but only a portion of it as margin.
Finally, in Europe, leverage is regulated at a maximum of 2:1, which means that for every euro you can open a trade of up to x2.
- Bitcoin ETPs and ETFs
- ETPs, ETFs, or even mutual funds allow you to invest in Bitcoin in a more indirect way.
Starting with ETPs (exchange traded product), these are exchange-traded products that replicate the behavior of another product, whether it’s an index, commodity, or currency. Depending on what they replicate, they may be called ETFs, ETCs, or ETNs.
Mutual funds, on the other hand, pool the money of multiple investors, which is then managed by a professional fund manager. There are crypto investment funds that hold several currencies, as well as other technology-themed funds that can be positioned in Bitcoin, for example. If you don’t want to invest directly in an asset, these two tools will allow you to earn a return on Bitcoin in a different way.
- Bitcoin futures
Futures contracts are another type of financial derivatives in which buying and selling are agreed in the future. In other words, if an investor anticipates that the price of the asset they want to invest in will increase in the coming months, they can agree to buy and sell at the current price, but at an agreed date in the future.
Like CFDs, futures are leveraged products because the parties involved do not contribute the full amount of the trade, but only a portion of it as margin.