Bitcoin and cryptocurrency talk is everywhere. We see it on mainstream news, Crypto Twitter, and even some of our “analogous” friends are looking at ways to invest in Bitcoin. One of the most common questions we hear is: How much money should I start with to invest in Bitcoin?
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What are good ways to determine how much you want to spend to get into the cryptosphere?
In truth, there is no correct answer to this question because there are a lot of contributing factors to keep in mind before you leap into trading, so let’s break those down into bite-sized pieces.
Ask yourself:
- Do I want to day trade or do I want to HODL?
- How much money can I set aside for trading after all my bills are paid?
- If I lose the money, will it devastate me or my family?
These are common sense questions that should be taken into careful consideration.
First of all, the market is a different beast depending on how aggressive you are and how much risk you are willing to take, especially if you are day trading. Long-term HODLers usually have a different mindset. They’re looking to buy low, accumulate and have an abundant nest egg later down the road.
Then there’s being responsible with the money you want to play with versus the money you need to cover the cost of living. The former should never infringe on the latter because it directly correlates to the third question you need to answer. If I lose it all, will it devastate me and my family?
Certainly for some people, investing in Bitcoin is exciting and new. And there’s often a sense of FOMO once they realize that Bitcoin has been around since 2008. We’ve shared plenty of articles about the pitfalls of trading with emotion, so with Bitcoin, it may be wise for a new trader to take gradual investment steps before taking aggressive action. Again, this is entirely up to the individual and their circumstances!
How much money do you need to invest?
That’s entirely up to your budget and dependent on how long you can do without your initial investment.
For example: Mary has a goal to accumulate one Bitcoin in her wallet with no exact time frame in mind. She can budget $100 a month to start and she’s already bought the maximum satoshi with her budget.
Joe has the same goal of accumulating one Bitcoin but he’s got a more aggressive approach and a shorter time frame. He has $1000 he can play with and he’s actively participating in the day trading crypto market, taking advantage of the hips and valleys of the trade opportunities to build a more diverse crypto portfolio.
As a beginner, this is an intelligent question to ask if you are serious about succeeding in bitcoin trading because it will minimize your risks while helping you come up with a strategy to make the most of your investments. Because you have $1,000 to spare doesn’t mean you should invest all of it into bitcoin trading likewise you may have $100 but that may not be enough to invest if you properly analyse your goal and your willingness to take and manage risks.
So, let’s talk about goals
We touched on basic goals earlier, but what about investment goals? What do you want to achieve with Bitcoin trading?
Let’s give another example. Marcus has $300 and he’s not afraid to lose. Marcus might set an investment goal of capital gains on his investment of over 500% within the next three years. That is his investment goal.
But is there any guarantee this can be achieved?
What if he loses most, or all, of his investment?
Now we are talking about risk factor. To prevent the risk of losing all investments, Marcus might decide to invest a maximum of 20% of his total $300 at $60 per trade. His trading strategy will be stake 20% per trade, buy bitcoins at low prices then sell when it’s high and hopefully with a 50 to 100% profit per trade.
If he sticks to this, he might grow his portfolio to over $1,800 in those three years.
If Marcus sticks to his strategy and averages 40% profit on 80% of his trades, concurrently averaging a 20% loss on the remaining 20% of trades, that means his net profit from all his trades will be 16%.
If he does 60 trades a month that means he should make $564 per month as profit. He could technically be achieving his investment goal within three months.
But there’s a catch to Marcus’s strategy because the markets are volatile. Where there is uncertainty there will also be risk. Okay. So, what if he loses all his money with the buy low sell high strategy? When can he decide it is safe to buy and prudent to exit the market?
These and many more issues tied to your investment goal, strategy and risk management can determine the amount of outlay you will need to start trading Bitcoin.
Do you see yourself like Mary, Joe or Marcus when it comes to building your crypto trading portfolio? That will determine how much start-up money you can afford to enter into the Bitcoin market.
Disclaimer
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