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Any potential investor in bitcoin – especially a newbie – should be aware of a few primary concerns and develop a smart bitcoin investment strategy. Bitcoin is not backed or regulated by a government or other entity, unlike the dollar, yuan, pound, and other forms of currency.  Thus, there are some who think of Bitcoin like it’s Monopoly money, because it is not a fiat currency and it is not based on something of tangible value like gold or silver.  Bitcoin is worth what people perceive its value to be, and this is true of any currency – however, bitcoin’s value is more volatile than other forms of currency due to the unregulated aspect.  Bitcoin can’t be bought or sold through a brokerage firm like other Wall Street traded stocks, bonds, etc.  You have to setup a bitcoin “wallet” – which is basically a “bank account” just for bitcoins – before you can buy and sell using a traditional bank account or credit card to fund your purchases of bitcoin.

That might sound a little complicated – but it is very similar to setting up a PayPal account.  You create an account, complete your profile, add a bank account and/or credit card, and you start PayPal to pay for purchases using funds deposited, or receive income from the sale of goods or services.  I found setting up a bitcoin wallet was just as simple.  Some claim that bitcoin is less liquid than traditional equities – but, while the value of one bitcoin changes often – exchanging bitcoin to U.S. dollars is as easy as sending money from your PayPal account to your bank account.  The difference is: you exchange the bitcoin to dollars, and a fee is charged for that exchange – whereas there is no fee to move dollars from PayPal to your bank.  Personally, I don’t leave a large amount of money in my PayPal account – nor my bitcoin wallet account.  Why? Because in both cases, someone else controls those funds, with the power to prevent my access to funds for a number of reasons, as well as a risk of unauthorized access.  Both accounts are merely a “tool” for using my funds in a variety of ways – that’s all.  Another part of my personal bitcoin investment strategy is to use a Blockchain wallet – just as I might use a safe for other valuables.  I don’t keep all valuables or funds in a safe, no more than I would keep all bitcoins in my Blockchain wallet, because both make using funds cumbersome.

Once your “wallet” is created, and you purchase some bitcoin – then you can think about what you might do to create your own smart bitcoin investment strategy.  The simple fact is: Bitcoin could, in the future, become known as a worthless experiment or the greatest disruptive force the financial industry has ever seen.  Nobody knows which, or if it will fall somewhere in between either extreme.  For this reason, nothing should be invested in bitcoin currency that an investor is not comfortable losing.  But isn’t that the deal with other investments as well?  I know many who have lost money in the stock market; and others who have made quite a bit of money investing in stocks.

If you are intrigued by the concept of bitcoin (and blockchain technology) like me – you might consider investing in a small amount as part of your bitcoin investment strategy if, for no other reason, not to be left out if digital currency is the greatest disruptive force ever seen.  While notoriously volatile, some of the “smartest folks in the room” are investing in bitcoin.  Bitcoin has reached roughly $19 billion in market value and the long-term gains over the past few years have been dramatic with the cryptocurrency soaring from roughly $15 to over $1,100 at present.  So obviously some investors have made good returns.  Outside the U.S., advocates of digital currency in Australia and India are pushing for self-regulation as a first step toward the creation of a shared-set of rules in their marketplaces.  That bodes well for the future of bitcoin as a legitimate alternative asset.  Like other emerging technologies, early adoption by bold investors has proven to be highly lucrative – that will only improve as the market and accepting merchants catch up – a growing movement that is encouraging.  Heck – I can even now pay my DISH Network monthly bill using bitcoin!

Of course, you could take a “wait and see” position – having no bitcoin investment strategy at all until bitcoin has the same characteristics of durability that gold and silver has achieved over centuries…but then, that’s not very innovative or bold, and probably won’t result in “highly lucrative” gains.  For me, Bitcoin’s increasing value and investor performance were indicators that it was time to weigh the opportunities and risks that come with investing in the world’s leading digital currency.  It is obvious the world is moving toward a cashless society – electronic payment services are increasingly prevalent (i.e. debit and credit cards, mobile payments and mobile money).  Bitcoin makes sense to me, given the increasingly cashless society we find ourselves in – more and more people around the world are thinking the same thing.

The other reason for my increased interest in Bitcoin is a desire to “be my own bank” – using part of my capital to make payments for goods and services without the traditional banking middleman involvement in my transactions.  The Bitcoin economy has grown to now include savings accounts, prepaid debit cards, peer-to-peer lending, and many other services.  I don’t see that decreasing – it is increasing.

Bitcoin is – for many reasons already outlined on this site – not for those looking for a stable store of value, or a steady, slow increase over time.  It is more for those willing to take a risk that could potentially double, triple, quadruple an investment – an investment that could just as easily be lost.  I believe other uses will emerge for a decentralized digital cash system.  If so, the price of bitcoins will rise and that makes them a great investment.  If you believe that no further use cases for bitcoin will emerge, or some flaw in the protocol will be discovered, then bitcoins are a bad investment.  Bitcoin core protocol is running well and is now in its ninth year of operation.  Nobody has the faintest idea whether bitcoin is a good investment, the world has never seen something like it before, and innovative new things upset people.  Bitcoin falls into this category in my opinion – which is why you’ll find equally fervent supporters as you will vehement enemies.  Investing a small portion in bitcoins is like buying a few shares of a startup company you think will grow.  Only time will tell if you made a good decision or not – but I don’t think folks would be quite so worked up about cryptocurrency if it didn’t have the potential to change the world.

Having watched online shopping, for example, go from zero to over 51% of Americans preferring to shop online; 96% of Americans having made online purchases – 80% in the last month!; and eCommerce growing 23% year-over-year – I can’t help feeling it might be foolish to stand on the sidelines regarding digital currency.  As a webmaster since the beginning of the Internet, I can see how digital currency fits so naturally into the growing online shopping trend, and many of my clients have recently requested that I code their websites to accept bitcoin as a payment method.  Initial online shopping transactions had considerable safety and security flaws, and many today still don’t understand how to safely and securely shop online – but they still do it.  Bitcoin’s value is determined by supply and demand – and there will never be more than 21 million bitcoins, so the higher the demand, the higher the value. But it also has the capacity to do things that other assets (like stocks, commodities, currencies, real estate) cannot do.  Bitcoin is digital, so it can be used in fractions down to the currently supported 8 decimal digits, or 0.00000001 (a “Satoshi”) – that makes it easy to use even if the value of one coin was great.  Unlike a gold coin, for example – difficult to shave off a flake to pay for something.

Bottom line for my bitcoin investment strategy?  I would never invest everything, but for a small amount of money I’d most likely blow on something useless – I think Bitcoin is an smart investment even if there is a 10% chance of ~1000x return.  I do not think of my modest investment as a “get rich quick” plan – but more of a “let’s get in and see where this goes” plan.

If I buy one Bitcoin at say, $1,000 – the price fluctuates up and down, but eventually goes as high as $10,000 – I’d make a profit of $9,000.  How long might that take?  I don’t know, no one knows.  But I do know that I can spend $1,000 in minutes, so for me – this isn’t a big deal.  It will be a huge deal if I end up making a $9K profit!  I understand Bitcoin could lose 90% overnight, a risk I accept to be part of something that could change the world.  I am also a little paranoid about hyperinflation of fiat currency, so having a little Bitcoin that I trade to generate more bitcoin without investing any additional funds, is the course of action I am taking.

Usual Disclaimer: Nothing in this post is meant as official advice or a recommendation. Investing involves risk of partial or full loss of investments. The risks and responsibilities are fully upon each individual.