How Much Should You Invest in Bitcoin as a Beginner?

• Blockchain Council
• October 04, 2024

Investing in Bitcoin can feel exciting, but it’s important to be careful, especially for those just beginning. Bitcoin is well-known for its high price changes and the potential for big profits as well as big losses.

How Much Should You Invest in Bitcoin as a Beginner?

Before investing, especially in a volatile one like Bitcoin, you need to assess your financial situation:

Understand Your Money Situation

Before deciding on the amount to put into Bitcoin, you need to clearly understand your finances. Calculate your income each month and your expenses to see what spare money you have. This extra money is what’s left after paying all necessary costs like rent, utility bills, food, and savings. It is very important not to invest money that you might need soon for living or emergencies.

For instance, if you have $500 left after expenses each month, it’s wise not to invest all of it in Bitcoin or any other risky investment. Instead, you might allocate a smaller portion, such as 5-10%, to lower the chance of financial stress if the investment doesn’t do well.

The 5% to 30% Rule

For beginners, a basic rule to follow is to invest between 5% and 30% of your total available investment money in Bitcoin. If you don’t like risk, staying closer to 5% might be safer. This lets you gain experience with Bitcoin without a lot of risk. Conversely, if you are more comfortable with risk and have more money available, you might think about investing up to 30%. But anything more than that is considered very risky and is generally not advised for beginners.

Begin Small and Gain Knowledge

One good strategy for new investors is to start with a small amount. Think about putting in a small sum, such as $10 or $50, to learn the process of buying and holding Bitcoin. This helps you understand how the market behaves without risking too much money. As you learn more, you can slowly increase your investment based on your comfort and knowledge.

To build this foundational knowledge, some beginners find value in structured learning paths, like the Certified Bitcoin Expert™ prorgram. It provides a comprehensive overview of Bitcoin’s market dynamics, security, and strategies.

Use Dollar-Cost Averaging (DCA)

An effective way to minimize risk is by using Dollar-Cost Averaging (DCA). DCA means investing a set amount of money at regular times, like weekly or monthly, regardless of the asset’s current value. This can help reduce the effects of price swings and avoid the risk of trying to predict market movements. For Bitcoin, this involves purchasing small amounts consistently rather than putting a large amount in all at once. This strategy helps distribute the cost over time. It lowers the risk tied to sudden shifts in the market.

Be Ready for Big Changes

Bitcoin is known for being highly unpredictable. Its value can change a lot in a short period, sometimes gaining or losing value dramatically within days or even hours. It’s crucial to be mentally prepared for these price swings. Selling out of panic during a market drop is a common error among beginners and can lead to significant losses. Instead, keeping a long-term view and focusing on your overall plan is usually more effective.

Evaluate Your Comfort with Risk

Understanding your own risk comfort level is also crucial. Think about how much you can afford to lose entirely without a major impact on your financial security or emotional peace. If a loss would severely affect you, it’s wise to invest a smaller amount. The main idea is to only invest what you are okay with potentially losing. If the idea of losing money causes stress, consider starting with a smaller amount that better fits your comfort level. For those who want to explore deeper strategies and risk management techniques, pursuing certifications like the Certified Cryptocurrency Trader™ (CCT) could be beneficial. 

Spread Out Your Investments

Diversification is key when investing in any type of asset, particularly something as unpredictable as Bitcoin. Instead of putting all your extra money into Bitcoin, consider spreading your investments across various asset types like stocks, bonds, and other cryptocurrencies. This helps balance the risk and ensures that a downturn in one area doesn’t heavily affect your entire investment mix.

Think About a Long-Term Plan

Many who succeed with Bitcoin focus on its long-term potential rather than trying for quick profits. Bitcoin has seen multiple market phases, including both high peaks and sharp lows. In the past, it has bounced back from most declines, but there is no assurance that it will always do so. If you choose to invest in Bitcoin, think of it as a long-term decision, and be ready to handle periods of major price changes.

Be Prepared for Volatility

Bitcoin is notoriously volatile. It has had periods where it has lost 80% of its value in months. This uncertainty indicates that while there are chances for big profits, there are also risks of major losses. Many experts advise getting ready for emotional shifts and avoiding the temptation to sell in panic during downturns. A good way to manage this is to check the price periodically, not daily, and stick to your long-term investment strategy.

Final Thoughts

Investing in Bitcoin as someone new requires careful thinking about your money situation, comfort with risk, and the way you want to invest. Start small, use techniques like Dollar-Cost Averaging, diversify, and avoid investing what you can’t afford to lose. Keep learning and staying informed about the market to make smart choices. Bitcoin can be a valuable part of your investments, but as with any high-risk asset, it needs to be approached with care and understanding.