If you’ve never bought Bitcoin before, the whole idea can sound more complicated than it really is.
There are exchanges, wallets, private keys, networks, fees, price charts and a lot of terminology that you probably won’t understand on your first day. And then there is the investment side of things. How much should you buy? When should you buy it? What happens if the price falls?
You don’t need to know everything before getting started. But it is worth understanding the basics first.
What Are You Actually Buying?
When you buy Bitcoin, you are buying an amount of a digital asset.
You might buy $100 worth, for example. You don’t need to own one whole Bitcoin. In fact, most people who invest in Bitcoin own only a fraction of one.
The value of that amount changes as the Bitcoin market changes.
Suppose you bought $500 worth and the price later went up by 20%. Your holding would be worth roughly $600, before taking fees and taxes into account.
Of course, the opposite can happen too.
If Bitcoin falls by 20%, your $500 becomes roughly $400.
There is no interest payment arriving every month simply because you own Bitcoin. Your potential gain comes from the change in its market price.
Why Do People Buy Bitcoin?
People have different reasons for buying it.
Some believe Bitcoin could become more widely used in the future. Others like the fact that its supply is limited and that it operates without a central bank controlling the network.
For some investors, Bitcoin is simply another asset to hold alongside stocks, cash or other investments.
And there are people who buy it mainly because they expect the price to rise.
That last reason is probably the easiest one to understand, but it also comes with a problem. If your entire decision is based on the belief that the price will keep going up, you need to be prepared for the possibility that it won’t.
You Don’t Have to Guess the Perfect Price
A common question from beginners is whether they should wait for Bitcoin to fall before buying.
It sounds sensible. Buy low, sell high.
The problem is that you only know the perfect buying price after the fact.
A price that looks expensive today might look cheap six months from now. The same is true in reverse. Bitcoin has had plenty of periods when people thought a falling price was a bargain, only to see it fall further.
Some investors deal with this by making smaller purchases over time instead of trying to get the timing exactly right.
For instance, someone with $1,000 to invest might decide to buy $100 worth each month for ten months.
This approach is commonly known as dollar-cost averaging. It isn’t a magic formula, and it can perform worse than investing everything at once if the market rises quickly. But it removes some of the pressure of having to pick one particular day.
The Price Can Change Quickly
This is probably the part that deserves the most attention from a new investor.
Bitcoin can move much more sharply than many traditional investments.
Seeing a 15% or 20% change on a chart is not unusual in the crypto world. For somebody who has only ever kept money in a savings account, that can be uncomfortable.
Imagine putting $2,000 into Bitcoin and then seeing the value fall to $1,600.
Nothing has necessarily gone wrong with your wallet or your account. The market price has simply fallen.
But if you needed that $2,000 for something important next month, the situation would suddenly become a problem.
That’s why the amount you invest matters just as much as your opinion about Bitcoin.
Where Does Your Bitcoin Go?
After buying Bitcoin, you need somewhere to keep it.
For many people, the easiest option is leaving it on the exchange where they purchased it. This is convenient, particularly when the amount is relatively small.
Another option is a personal wallet.
With a personal wallet, you have more direct control over your Bitcoin. The trade-off is that you also have more responsibility. Your recovery phrase and other security details need to be protected.
This is one area where crypto can be quite different from using a normal bank account.
If you forget your banking password, there is usually a process for proving who you are and getting access again. Losing the information needed to access a self-custody wallet can be much harder to resolve.
So learning a little about security before moving large amounts of money is a good idea.
Buying Bitcoin Is Not the Same as Using a Bitcoin Investment Platform
This distinction is easy to miss.
If you buy Bitcoin through a crypto exchange, your return generally depends on what happens to the Bitcoin price.
An investment website may offer something completely different.
For example, a site might say that it will use your Bitcoin for trading or lending and pay you a fixed return every week or month.
At that point, you are no longer simply buying and holding Bitcoin. You are trusting another business with your money.
That means you need to look at the business itself.
Who runs it? How does it supposedly make money? What are the withdrawal conditions? Is there a real explanation for the return being offered?
A website accepting Bitcoin doesn’t answer any of those questions.
Be Skeptical of Easy Profit Promises
Crypto has produced some impressive returns over the years. That part is true.
It has also produced plenty of losses.
This makes it particularly easy for someone to create an attractive story around an investment opportunity.
A website promising a fixed 10% every month might look much more appealing than simply buying Bitcoin and waiting. But before getting excited about the number, ask yourself how the company plans to produce that return consistently.
If the explanation is difficult to follow, or there really isn’t one, I’d be cautious.
The same applies to claims about guaranteed profits.
Real markets don’t normally work that neatly.
How Much Bitcoin Should a Beginner Buy?
There isn’t a standard amount.
One person might be comfortable investing $50. Another might consider $5,000 reasonable. Their financial situations could be completely different.
A useful starting point is to think about what would happen if the investment lost half its value.
If losing half would create a serious financial problem, the amount may simply be too large.
That isn’t a prediction that Bitcoin will fall by 50%. It’s just a practical way of thinking about risk.
You should be able to sleep normally after making an investment.
If you’re checking the price every ten minutes because you’ve put money into Bitcoin that you really need, something has probably gone wrong with the size of the investment.
Don’t Confuse a Good Year With a Guaranteed Future
Bitcoin has had some remarkable periods.
That history is one reason people are interested in it today. But looking at the best years and assuming they will repeat is a mistake.
Markets don’t owe investors the same return twice.
Someone who bought Bitcoin at a favourable point in the past may have made an excellent return. That doesn’t tell us where the price will be next year.
This is also why screenshots of other people’s profits aren’t particularly useful when deciding whether to invest.
You don’t know when they bought, how much they invested or whether they are still holding the asset.
Learn the Basics Before Putting in More Money
If you’re new to Bitcoin, there is no need to rush.
Learn how the network works. Understand the difference between an exchange and a wallet. Find out what a recovery phrase is. Check the fees involved in buying and moving crypto.
For a straightforward introduction, Coinbase has a beginner-friendly explanation of what Bitcoin is and how it works.
After that, you can start looking at the investment side with a better understanding of what you’re actually buying.
One More Thing: Think About Why You’re Investing
This sounds obvious, but it is surprisingly easy to skip.
Are you buying Bitcoin because you believe in the technology? Because you want to hold it for several years? Because you want to diversify? Or because the price has been rising and you don’t want to miss out?
Those are very different reasons.
If your only motivation is fear of missing the next big price increase, it may be worth waiting until that feeling passes before making a decision.
There will always be another market opportunity.
You don’t have to catch every one.
Final Thoughts
Bitcoin isn’t particularly difficult to understand at the most basic level.
You buy an amount of Bitcoin, its market value changes, and you make or lose money depending on what happens to the price and when you decide to sell.
The complicated part is everything around that simple idea.
Bitcoin can be volatile. Wallet security matters. Investment platforms need to be checked carefully. And there is no reliable way to know exactly where the price will be next month or next year.
If you decide to invest, start with an amount that makes sense for your own finances rather than someone else’s expectations.
And if you are considering an online investment platform that promises a specific return, take a step back and look at the numbers before sending any money. Our recent guide, What Is a Realistic Return on Investment? A Beginner’s Guide, covers some of the questions worth asking when a return looks unusually attractive.
Bitcoin can be worth learning about without treating it as a guaranteed opportunity.
That’s probably the most useful place for a beginner to start.