Are you thinking of buying Bitcoin for the first time? You’re not alone. In fact, it may sound like the obvious thing to do given its wild price swings and the growing number of people who use Bitcoin and other digital currencies for everyday purchases.
But you cannot just dip your feet into the growing industry without doing a complete homework, especially on the pitfalls you may face on your journey ahead.
That said, we’ve put together a list of seven things you should know before buying Bitcoin. While this article focuses mainly on Bitcoin, most of the following issues are also valid for a wide range of cryptocurrencies available on the market.
Everything You Need To Know Before Buying Bitcoin
1. Bitcoin is volatile
Okay. That one you probably already knew. Bitcoin, since its inception, has proven day after day that it is a very volatile asset. The price of Bitcoin can change rapidly and unpredictably, sometimes, in a very short space of time.
The price of Bitcoin can jump high and within a few hours, or days, fall dramatically. A perfect example is what happened in December 2017. The leading digital currency reached a high of more than $19,000 but within a week, the price had retreated to less than $12,000.
The price of Bitcoin is affected by supply and demand. When more people are buying the asset, the price goes up and when more people are selling, the price goes down.
Bitcoin also responds to market news. Positive news on cryptocurrency adoption, for example, tend to drive Bitcoin’s price higher while events concerning cryptocurrency regulation or bans have an opposite effect on Bitcoin’s valuation.
Bitcoin’s volatility is one of the major talking points for critics who argue that Bitcoin is not a store of value. Yet, an increasing number of people in Asia have been turning to Bitcoin to protect their investments in light of the recent US-China trade war.
2. Bitcoin is transparent
Bitcoin is perhaps the most transparent payment option in the world, mainly due to its underlying distributed ledger technology, blockchain.
All transactions on the network are public, traceable, immutable, and publicly stored on the Bitcoin blockchain. Every time you buy and sell Bitcoins, the information is updated and broadcast for everyone to see.
However, you don’t need to give away your personal information such as name and address. You only need a Bitcoin wallet address to send and receive BTC.
One of the biggest advantages of Bitcoin is its capacity to move peer to peer around the world instantly and for a very reduced cost. Unlike traditional fiat currencies, Bitcoin doesn’t rely on third parties to settle transactions. Instead, you only have to pay for the blockchain fee — a small fee that covers the energy cost of settling your transaction on the blockchain.
3. Bitcoin can be a bubble
By definition, a bubble is defined as a rapid increase and abrupt crash in price. If you’ve been looking at Bitcoin charts, then you’ll know that’s exactly what happened back in 2017, or 2011, or plenty of other times really. So… Is Bitcoin a bubble? Sometimes.
The price of Bitcoin reached an all-time high of nearly $20,000 in December 2017, largely due to speculation and FOMO (Fear of Missing Out). A tweet by cryptocurrency enthusiast John McAfee serves as a clear reflection of market sentiment at the time:
Of course, the bubble popped and on its way down many predicted that Bitcoin would collapse for good. That never happened. In 2019, Bitcoin has nearly tripled in value.
If you’re planning on buying Bitcoin, it’s important you understand that timing does matter. As oil tycoon Paul Getty once said:
“Buy when everyone else is selling and hold until everyone else is buying.”
4. Bitcoin is for everyone
The beauty of Bitcoin is that it is for everyone. If you think of Bitcoin as an investment, you don’t need to be an accredited investor to get it. Unlike the traditional markets reserved for the rich, its decentralized nature makes it easily accessible to literally anyone.
Not only you can purchase Bitcoin, but also participate in its creation through a process called mining. While mining has turned into a game for those backed by large capital reserves, individuals can also join Bitcoin mining pools and get modest returns.
5. Bitcoin is not anonymous
Contrary to popular belief, Bitcoin is not anonymous and an effort from your side is required to ensure your privacy. Bitcoin transactions are permanently stored on a public ledger, meaning that anyone can see your transaction history and balance.
While your address cannot be used to identify who you are on the ledger, government agencies have the tools to link addresses to your identity. Those who really care about their privacy tend to operate with so-called privacy coins, such as Monero and Zcash.
6. Bitcoin is taxable
Okay. We’re not going to get specific because each jurisdiction has a different set of rules on the matter. Yet, it’s most likely that Bitcoin is somehow taxable on your country.
If you’re in the United States, you’ll have to pay for eventual Bitcoin profits. Alternatively, you could make a cryptocurrency donation. You need to be careful about how your country or jurisdiction treats Bitcoin when it comes to taxation.
Some countries consider the profits you make from buying and selling Bitcoin as capital gains, and require you to declare your gains for tax purposes. The same happens when you make a loss and you may pay less taxes.
Make sure to check with your accountant before buying Bitcoin because in some countries, dodging taxes is a serious crime that may land you in hot legal water.
7. Bitcoin is widely accepted as a form of payment
Many people keep thinking of Bitcoin as an investment. But this digital currencies could also work as a payment method. That’s right… just like the dollar. It could be used to buy goods and services in the same way that you use your fiat currencies.
Nowadays, mobile cryptocurrency wallets allow you to easily pay with Bitcoin or any other cryptocurrency using QR codes or send via phone features.
Moreover, the existence of cryptocurrency debit cards has made it possible for thousands of holders to spend digital assets on the go, even on physical store that don’t accept bitcoin.
8. Buying Bitcoin is easier than you think
To buy or not to buy… Well, that’s totally up to you. But before clicking on the “buy” button, just be sure you’re actually doing it on a reliable, trusted site. Yes, the cryptocurrency world is filled with scammers and you should be cautious when it comes to introducing your credit or debit card or bank account number.
For that reason, mobile apps like Crypterium have enabled in-app purchases to help users avoid those costly mistakes. And since this service is integrated with the top 10 exchanges, you get to access the best rates on the market.