There’s an old aviation joke that asks, “How do you make a million dollars in the airline industry”? The punch line (“Start with two million dollars”) is a bit of an exaggeration, but there is some truth in it. Much of the same can be said for investments in Bitcoin and other forms of cryptocurrency.
Unless you hit the ground running in early 2010 or were incredibly lucky, it’s unlikely you’ll make life-changing amounts in cryptocurrency.
In this article we will look at Bitcoin, what it means to invest in cryptocurrency and some alternatives that have a better track record of historical success.
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What is Bitcoin?
Since Bitcoin is the oldest and most popular form of cryptocurrency (introduced in 2009), many people use the two terms interchangeably. But Bitcoin is only one form of cryptocurrency – some other forms are Ethereum, Litecoin or Dogecoin. Cryptocurrency is a form of digital currency that is backed by a form of cryptography often referred to as the blockchain. Due to the way cryptocurrencies are set up, they are nearly impossible to counterfeit.
There are a few ways you can invest in Bitcoin and cryptocurrency. The easiest way to invest in Bitcoin is to simply get a Bitcoin wallet and buy Bitcoins. We recommend Coinbase for US investors – it’s the easiest, links to your bank account and allows you to buy and sell Bitcoins. And if you open a new account, Coinbase will give you a $5 Bitcoin bonus!
Another way is if you want to invest in an ETF through your broker, look at the GBTC. This ETF tracks Bitcoin and you can invest in fractional stocks.
Another option is mining Bitcoins, because as long as the markets remain active, you can basically earn money for nothing. But the problem is, mining is such a chore now that it’s barely worth it. Turning your computer into a miner will likely make it noisy and hot. It would probably take a lot of time to mine even a single Bitcoin, by which time you would probably have spent more on electricity.
Keep in mind that investing in Bitcoin is incredibly volatile. For almost all people, it is not a good idea to invest the majority of your portfolio in any form of cryptocurrency. If you really want to dabble in crypto investing, put aside a small portion of your investments – only enough to lose completely.
When Should You Have Invested in Bitcoin to Be a Millionaire?
The history of Bitcoin is volatile and turbulent. Long gone are the days when you could make a token investment in Bitcoin and become a Bitcoin millionaire seemingly overnight.
To give you some context:
If you invested $10 in Bitcoin in January 2011, it would have turned into $1.2 million by March 2022. You should have invested $160 in Bitcoin in January 2012, $440 in January 2013, or $24,000 in January 2014 to have the same amount.
By January 2018, you should have invested nearly $450,000 in Bitcoin to have $1.2 million today.
In recent years we have seen an ever smaller increase in the price of Bitcoin. This does not mean that there is no money to be made, but the chances are that you can turn $10 into $1,000,000.
The “Risks” of Becoming a Bitcoin Millionaire
Even if you had already invested in Bitcoin back then, it would have taken nerves of steel to hold onto it all year round. Looking at the historical BTC chart, you should have survived and sustained several periods where your investment lost nearly 50% of its value within a few weeks.
In hindsight, it’s easy to say “it’s only $10” if that’s all you originally invested. But would you be willing not to panic when your Bitcoin wallet had risen close to $1 million and dropped hundreds of thousands of dollars overnight?
Another risk of having all your money in Bitcoin is finding places that accept it as payment for goods and services. While it is increasingly common to find a company that accepts cryptocurrency as payment, it is still relatively rare. It is unlikely that you will be able to get bread and milk from the corner store by paying with crypto. Instead, you’ll need to change your currency, which will likely incur additional fees and taxes.
Related: How Taxes on Cryptocurrencies Like Bitcoin Work
Alternatives to win big in crypto
If you are a person with a “normal” risk tolerance, Bitcoins probably won’t get you too excited. The risk/reward profile of the Bitcoin market will not be very appealing to the savvy investor. This is just a chance to make some quick money or lose it all.
That’s one of the reasons most savvy investors will keep most of their money in reliable investments like index funds.
In addition, depending on when you started investing, index funds can outperform Bitcoin anyway.
For example, from March 2021 to March 2022, you’ll see the following results:
Bitcoin: -21.28%S&P 500: +14.49%
You would have invested remarkably better in simple index funds than Bitcoin in the past year.
It comes down to
Every time people see investments with lightning-fast returns, it’s common to try to duplicate what happened in search of the next “home run”. This includes investing in Bitcoin, other forms of cryptocurrency or “meme stocks” such as Gamestop or AMC.
It’s a much better financial strategy to try for “singles” or “doubles” with the bulk of your portfolio with things like index funds that have delivered reliably solid returns.
Having the bulk of your portfolio in index funds or other similar investments can give you peace of mind to know that most of your money is enough for your retirement. You can then invest a small portion of your portfolio in riskier investments such as cryptocurrency, meme stocks, risky real estate companies, or other risky/reward games. Just don’t risk more than you want to lose completely.
This post So you want to become a Bitcoin millionaire?
was original published at “https://thecollegeinvestor.com/10659/so-you-want-to-become-a-bitcoin-millionaire/”