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Bitcoin (BTC 0. 48%) has the potential to be a very difficult investment to create wealth. In fact, you’re capable of turning a modest $1,000 into $10,000, as long as you’re willing to play the long game and are consistent with your investment habits.
Are you curious to know how to bet on the king of cryptocurrencies? Let’s summarize some fundamentals that will make the procedure much easier.
The most important basic strategy when making an investment in Bitcoin is to be consistent with your purchasing habits.
Dollar-cost averaging (DCA) an investment of $1,000 by breaking it up into 10 separate purchases of $100 each, spaced out over weeks or months is likely to have better results than investing a lump sum made at a time that you calculate to be the most favorable. Look at this chart depicting Bitcoin’s price during the past 10 years:
As you can see, if you made a single lump sum purchase, you had plenty of opportunities to buy at the top of the market. You would then suffer heavy losses for months, even years, before your investment broke even.
Aside from being psychologically uncomfortable to hold an investment that’s underwater, leaving the timing of your purchases to your whims will often result in buying precisely when there’s the most media attention and chatter about the price of the coin, which is nearly always at the highest after a sharp run-up. The price typically goes down after that.
Take advantage of any opportunities for inconsistency outside the loop. Distribute your procurement, make sure each procurement is a small quantity, and automate the procedure as best you can. Investing in Bitcoin is a marathon – no step in the adventure deserves to occupy your free space.
Let’s now add a touch of nuance to the long-term described above.
As you probably know, to create new Bitcoins, miners need to use very powerful computers to solve complicated mathematical problems. The complexity of these disorders increases over time. To further complicate the issue, after a certain number of coins have been mined, rewards are distributed. for mining it is reduced by up to 50% in a procedure called halving.
Until now, the halving occurs approximately every four years. Think about the effect of this in terms of origin and ask for economic aspects. What is the expected effect on the value of a smartphone if it suddenly becomes much higher? More difficult to produce? The price increases, at least until manufacturers adapt to the new challenge by expanding their capacity to meet needs.
And this is precisely why the value of Bitcoin has a high degree of cyclicality, there are many other points that also influence the value of the currency. Based on the date of the halving, we can expect the values to rise within about nine months, and then, after about a year (give or take), fall back particularly, and the source outpaced investor demand.
Don’t worry too much about the exact number of months and don’t worry about the timing of the back end of the currency cycle. Just keep in mind that in addition to your normal purchases, there are other opportunity periods when it might make sense to qualify a little more aggressively.
So, if Bitcoin’s value drops partially from recent highs, it’s probably a smart idea to consider loading something up while it’s cheap, assuming you hold on to your coins for at least a few years yet.
Finally, many years from now, when it comes time to take Bitcoin off the table, don’t forget that you will get the highest costs if you sell in the post-halving era.
If you want your investment of $1,000 to grow to become $10,000, you simply can’t sell off bits and pieces of your holdings over time.
As tempting as it is to make a profit when costs are high, if you’re making an investment for a big long-term profit, be very careful to hold on to your investment through thick and thin. Disrupting the process of pricing your investment, especially in the beginning, will make it much more difficult to reach your target price. Moreover, as long as your investment thesis to buy Bitcoin remains intact, the promotion does not make much sense unless it is mandatory to provide a budget in case of emergency.
It’s easier to resist the temptation to sell when you’re only investing in Bitcoin occasionally. To see where the currency is in its four-year cycle and have other goals, just take a look at the value (and the cost of your investment) once a month. Beyond that, the threat of getting stuck in a negative short-term mindset increases.
Don’t give up on the marathon before you cross the line you set out to do at the beginning.
Alex Carchidi has positions in Bitcoin. The Motley Fool publishes and recommends Bitcoin. The Motley Fool has a disclosure policy.
Market insight driven through Xignite and Polygon. io.