Before buying bitcoin it is important to make sure you have a solid understanding of how bitcoin works. This will help you make an informed decision about whether purchasing bitcoin is the right move for you financially. If you are new to bitcoin, check out our guide on bitcoin to start learning the pros and cons of bitcoin as a cryptocurrency and investment.
It is also important that you understand the risks and the corresponding security measures you should be taking in order to protect your investment. For a primer on possible security risks involved in purchasing bitcoin, we suggest reading “How to Spot Crypto Scams”.
Timing the Market
If you are looking to buy bitcoin for the purpose of making money quickly (in the short-term), then you are probably trying to time the market by trading bitcoin – i.e. buying low and selling high. The value of bitcoin is highly volatile, so it is possible to buy bitcoin for a low price one day and sell it for a higher price the next day. However, the likelihood of getting the timing right is low because it is extremely difficult to predict how the value of bitcoin will fluctuate in the short-term.
There are several theories and strategies for timing the market when it comes to bitcoin. For example, even though the cryptocurrency market is open 24/7 (as opposed to traditional stock markets which are only open at certain times), some traders believe that there are certain days of the week, or times of the month, that bitcoin prices tend to be at a low or high. Bitcoin traders look at historical trends in the price of bitcoin to try to predict the future prices. For example, some traders assume that bitcoin prices will increase at times of the month when people are typically paid, because people are more likely to buy bitcoin at those times.
These theories are just that – theories. Trying to time the market is a high risk, high reward game, and it should be noted that taking this approach to buying bitcoin can result in large losses. It is safer, and more highly recommended to buy and hold bitcoin with the intention of having your investment gain value over the long-term.
Most strong believers in bitcoin will tell you that, over the long-term, bitcoin will likely increase in value. Of course, this is not a rule that is written in stone but if you look at the historical trend in bitcoin’s value, you will see it has steadily increased over the years since it was originally formed, with a few downturns along the way.
With the “buy and hold” mindset, it does not matter whether you invest during a “high” or “low” in bitcoin’s value, because over the long-term you believe that your investment is bound to increase in value. Historically, this has been the safest form of bitcoin investing.
Some strategies that align with the belief that bitcoin will continue increasing in value over the long-term include lump sum investing and dollar cost averaging. Take a look at our article “What’s the Best Basic Strategy for Bitcoin Investing?” to learn more about these methods.
There are no guarantees when making any investment, and it is important to remember that the value of bitcoin remains highly volatile. If you are trying to time the market in hopes of getting rich quick, you are increasing the risk of your investment suddenly losing value. For this reason, we recommend that you consider the purpose behind your investment, including how long you are willing to keep your money invested, before you decide on the best time to make your investment.