How Much to Invest in Bitcoin: 5 Factors to Consider

Do you know the simple difference between successful cryptocurrency investors and those who aren’t?

The successful ones got started.

When you invest in Bitcoin and cryptocurrencies for the first time, you are overwhelmed with questions: where should I buy Bitcoin? What’s a solid bitcoin investment strategy? How much to invest in Bitcoin?

These questions can get you so confused that they prevent you from getting started.

When I invested in Bitcoin for the first time, I was lucky enough to have a mentor (Benjamin, who co-founded Cryptomaniaks with me). He went through all these questions I had and guided me through the process.

Chances are you don’t have a mentor. This is why I’ll share my experience and give advice on how much you should invest in Bitcoin as well as guide you on how to ease the process of getting started.

Note: In this guide, I’ll consider Bitcoin and other cryptocurrencies as the same type of asset because I believe in cryptocurrencies as a whole - not only Bitcoin.

  • Gentle Reminder: Investment Basics

    Before we start, I need to remind you of basic investing rules and concepts. These rules apply to any individual and any investment vehicle.

    1. Wealthy people invest their money to make passive income. You can work all your life to earn active income, but the only wealth that lasts over time comes from your passive income. Whenever your passive income represents more than your expenses, you can stop working anytime and still make money, even if you get sick or decide to travel around the world. Smart people generally dedicate over 50% of their capital to invest in various assets.
    2. Don’t invest more than you can afford to lose. Don’t borrow money to invest it, unless it’s a real safe investment that will pay for itself from its interest. That is not the case with cryptocurrencies. So don’t borrow money to invest in cryptocurrencies, nor invest more than you can afford to lose.

    Now, let’s dive into my cryptocurrency related recommendations, and specifically 5 factors you should consider when deciding how much to invest in Bitcoin.

  • Factor #1: Risk tolerance

    The crypto market is very volatile. Of course, we at Cryptomaniaks believe in the future of cryptocurrency. But in the end, it’s unpredictable.

    So, when thinking about how much you should invest in Bitcoin, think of an amount that you feel comfortable losing entirely.

    Think of how much you want to invest. Picture this amount, and imagine yourself in the future:

    • Will you feel comfortable losing your full investment - say $12,000?
    • Will you judge yourself severely because you decided to invest? Will you lose sleep or even consider suicide?

    If the answer to any of these questions is even “maybe yes,” you need to lower the amount you had in mind and ask yourself the same questions again. If you’re not sure of your answer, ask your friends and family.

    Investors who invest too much money will also be tempted to ‘panic sell’ at a loss. Selling at a loss can be the right decision sometimes, but only if the decision is rational - not emotional.

    Keep the amount you invest at a level where it doesn’t affect your judgment.

  • Factor #2: Profit tolerance

    Although it can seem like stupid advice at first, think about it: if you invest an amount that can get you highly emotional when you lose it, what will happen if you x20 your money?

    This happened to a lot of investors back in late 2017 when cryptocurrency was booming. They became millionaires because they made the (poor) decision to invest their life savings.

    But if they were too greedy to be reasonable about their investment, do you think they sold their positions and took their profits? No. Most of them went back where they were during the 2018 market crash.

    Only reasonably-minded investors end up making profits with Bitcoin and cryptocurrencies.

    So once again, think about the amount you plan on investing. How will you behave if it’s worth 20x its initial value in one year?

    • Will you rent a bigger apartment? Buy a fancy car?
    • Will you fall in love with your cryptocurrencies and hodl them until you die?

    Once again, investing an amount you’ll feel emotionally detached from is essential, whether your assets go up or down. It will make you a solid investor that will lose less money when the market goes down, and profit more when it goes up.

  • Factor #3: Timing

    I bet you’ve heard much more about cryptocurrencies when Bitcoin’s price was booming, as opposed as to when it’s declined or stabilized. This is because of people and media alike have a natural tendency to follow existing trends.

    But do you know that the cryptocurrency market is made of repeated market cycles? These market cycles often last for 1 to 2 years. Prices surge fast, creating bubbles. BIG bubbles. And then, these bubbles burst badly.

    Source: tradingview.com
     

    This is why timing is crucial in cryptocurrencies. It can completely change your journey and the way you’ll look at it.

    As a result, when deciding how much you should invest in Bitcoin, look at where we’re at now in these market cycles.

    To find out this information, open the global market chart of CoinMarketCap. Look at it closely, zoom in and out, and finally, answer the following questions:

    • Are we close to the market all-time high?
    • How long since we experienced a market bull run?

    The closer we are from the market’s all-time high both in terms of price and time, the least you want to invest. On the other hand, if the current price is $5,000 and the highest price was $20,000 two years ago, then it should be a better time to invest in Bitcoin right now.

    Don’t get me wrong: even though we’re in the middle of price surges, it’s not a bad idea to invest money in cryptocurrency right now, because it gets you started. The timing should only change your entry approach and lower/increase the amount you had in mind initially.

  • Factor #4: Change of mind

    I’ve never seen any cryptocurrency investor say “I’ll invest $X in cryptocurrencies” and stick to his/her words. People change their minds by nature, even more when they are confronted with an ever-evolving market.

    Source: imgflip.com
     

    So, before you make a final decision on how much to invest in Bitcoin, leave room to change your mind in the future. The easiest to go about this is to divide your investment over time. Set the amount you have in mind, and invest it within the next 3, 6 or 12 months.

    Investing progressively will also allow you to know yourself better before you invest important amounts in the crypto game. That will also naturally lead to better decision making.

    You can even consider market cycles (factor #3) when crafting your investing strategy.

    Let’s say you want to invest $12,000 over the next 12 months. But the market is currently close to its all-time high. Instead of investing $1,000 every month, you can adjust the amount to start with $400 per month and invest more to compensate when the prices go down.

  • Factor #5: Diversification

    Cryptocurrencies are uncorrelated with regular markets such as finance, gold, and real estate.

    Do you know what this means? For example, gold is a correlated asset class. When stocks fall, gold rises and vice versa - they are negatively correlated. But Bitcoin and cryptocurrencies are uncorrelated. They move on their own and without connection to stocks, bonds, etc. This is partly why Bitcoin is a good investment.

    On the other hand, they are very volatile, which means you want to include various assets in your portfolio to reduce your risk.

    Diversification is a technique any mature investor uses to reduce the importance of luck. It means you will not only invest in cryptocurrencies but also allocate your capital to different investment vehicles, such as real estate, stocks, gold.

    You can also leave some of your money at your bank to earn a small interest rate. That’s a bad decision in terms of interests, but it will secure your portfolio.

    All in all, don’t put all your eggs in your cryptocurrency basket. It would be like playing roulette martingale. You’ll win, and win, and win, but when you lose, you lose everything.

    Diversification also applies to your cryptocurrency portfolio.
    Find out our top 5 cryptocurrencies to buy!
  • What’s the Minimum Amount of Bitcoin You Need to Buy?

    There’s not a minimum amount you should invest in Bitcoin to get started. The minimum amount is the one set by the platform on which you’ll buy your first piece of Bitcoin. For example, Coinbase allows its users to buy Bitcoin from $2.

    On the other hand, I do not recommend investing such a small amount of money because exchange platforms charge fees for buying, selling and transferring cryptocurrencies. These fees will kill your investment quickly if it is not significant enough.

    All in all, I recommend investing in a minimum of 50$, even if you can invest lower amounts.

  • Still worrying about making the wrong decision?

    There’s no need to be worried if you eliminate the big decision and transform it into smaller ones. If you’re looking to invest in Bitcoin for the first time, follow this advice:

    1. Take action today. Invest even $10 on any recommended cryptocurrency exchange or broker. This way you’ll get started and you’ll have a much better understanding of what it is to be a cryptocurrency investor.
    2. Divide the budget you had in mind and invest it over some time. 1 month, 3 months, 12 months - it’s your call. But doing so will prevent you from making costly mistakes and save you money.
    3. Remember that you can still reevaluate your decision in the future.
  • So, How Much Should You Invest in Bitcoin?

    My opinion is somewhere around 5% to 30% of your investment capital. I consider 5% to be very safe and 30% to be pretty risky.

    Personally, I sit most of the time between 15% and 50%. This is because I have a background in gambling (former professional poker player) and feel particularly comfortable losing money. I would not recommend anyone invest 50% or more.

    Ultimately, the decision is yours. And although it depends on market factors, it also depends on personal factors such as your risk tolerance and the amount of money you can afford to lose.

    Important notice: I’m not a financial advisor, and this is not financial advice.

Posted by Mendel B.

CEO of CryptoManiaks, Entrepreneur, Cryptocurrency HODLer by heart. I founded CryptoManiaks because I believe cryptocurrencies will play an important role. I'm here to share the top expert knowledge with you! 

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