An Introduction to Bitcoin and Investing
This document is long, but is built for skipping over things. You'll see almost every section has a Short: section. Read those if you don't have time, come back and read the rest later.
Who is this for?
Short: The average Joe.
Long: This post is for people looking to dip their toe into Bitcoin and investing. It is NOT for maximizing profit, it is NOT for experts, it is NOT for the folks of r/bitcoin. It's for the rest of us, the average folks, the curious folks.
Intro
Short: You can skip this section. It just explains why the post exists.
Long: I've found that as I learn and talk about bitcoin in my daily life people have a lot of the same questions that I could put into an post and share with the world. I hope it helps you all do the same. I plan to make a short link to this post, print it on some cards, and sprinkle them about to spread the good word of Bitcoin/crypto in general.
I came from no money, and while I've managed to find a good career job, it took a long time, and I remember vividly my years of McDonalds minimum wage work. I remember eating eggs for weeks because they are cheap. I remember scraping by to make rent. I never want to be there again, and I want to help anyone who wants to move out of that financial zone. What I've learned since then is, few people have the time or want to share some nutshell information. So I decided after seeing the news about El Salvador declaring bitcoin as it's currency, and projections on Bitcoin, that I'd do my best to get this info condensed and easy to absorb.
Hopefully someone will benefit from this, learn how to deal with their money, and have an easier time.
This post contains some basics, from someone who is NOT AN EXPERT. No degree, or expertise (other than being an app dev) is behind this information, simply a good couple of days of googling. However the information here is also basic, surface level stuff. So it is still fairly sound. Take more than 10 minutes to learn about investing practices, and how bitcoin works (some links provided to get you started), but this will get your foot safely in the door.
Basics of Bitcoin (BTC)
What is it
Short: It's digital gold. In that there is a fixed amount of it.
NOTE, you are NOT buying whole coins. You are buying amounts of 0.00000001 Bitcoin.
Currently $1 = 0.00003000 BTC. So you can buy as much or little as you like.
Long: It's a digital hard currency. There is a hard cap on how many bitcoin there will ever be, unlike paper money. It is a digital version of a gold standard so to speak. There are "miners" who run computers to do a bunch of math to support the currency. Anyone in the world can be a miner if they want, just by dedicating a computer to it. It's secure in that, due to math, transactions cannot be faked. Lastly it's extremely difficult to manipulate the technology due of a long history of programming practices that require any changes to go through an approval process, publicly, by roughly 2 thousand miners chosen randomly (ish).
https://www.reddit.com/r/explainlikeimfive/comments/64f65y/eli5_blockchain/
https://galea.medium.com/bitcoin-development-who-can-change-the-core-protocol-478b8ac5fe43
How do I get it
Short: Cash App. Get it, link up to your debit card or bank account. Click the bitcoin button. Enjoy.
Long: Once you've done that look into Kraken exchange, Coinbase, and physical "crypto wallets" there's a lot you probaly should do more than Cashapp if you're going to go all in ($1k+ total investment this year).
https://en.bitcoin.it/wiki/Storing_bitcoins
Basics of Investing
Trickle in
Short: Just put a little bit in, every paycheck. $20, $10, anything is better than none.
Long:
- Cash app and many other places let you set up automatic purchases of bitcoin. Start with even as little as 10 dollars a paycheck or 5 per week and increase that amount as you can comfortably.
- This is called "Dollar-Cost Averaging". It basically means that because you are spreading out your purchases, you will get an average price.
- This lets you invest with the least amount of effort. It's much easier to keep growing your base if you aren't trying to watch the price for the "best time" and lets you avoid FOMO.
Don't buy what you aren't willing to lose
Short: Putting in a little, makes it easier for you to not get spooked and sell at a loss. It also helps you avoid big problems if you have an emergency and need that money during a dip.
Long: This sounds scary but let me explain:
- First, there's a better chance of you being struck by lightning than you losing all your money in Bitcoin from a crash, or bitcoin going away.
- However, you're going to be up against a lot of new psychological things getting into investing directly in something like this.
- Bitcoin's value fluctuates; it goes up and down a lot in a short span; but over the long run (months to years) it generally goes up.
- If you have too much in there that you have to worry about that number being down, you will be inclined to sell during a price dip, which just loses you money.
- If you have an amount in there you can "not worry about" it's much much easier to just wait out the price dips and keep your investment.
Check in, don't watch
Short: You will waste A LOT of time if you check in more than once a day. It will also make it hard to HODL.
Long:
- This is in support of point 1. Because of the fluctuation of the price, it's easy to watch and get excited about. The price can change 5% over the course of an hour.
- However this also means you're more likely to see the scary drops and get worried. Make it a point to only check the price once a day at the most. I recommend checking it once a week.
HODL
Short: Unless you have valid reason to doubt Bitcoin as a whole, don't sell at a loss ever.
Long:
- You're going to see price drops. Big ones. You just need to wait them out. If you've followed everything up to this point, this should be easy.
- You don't need the money in there right now, you don't need to watch it. If it's down, shrug, and check again next week. If it's down then, check next month.
- This is just how things like this work. Gold works this way, currency exchange works this way. Just Hold (or HODL as the community says)
Set goals
Short: Can't really shorten this one, it's too important.
Long:
This is the big one. You're investing, and it's because you want something (PS5, Retirement, A car, etc.). So at some point you gotta pull out at least some money.
When do you do that? Well the bad news is that's up to you. The good news is that there is some common advice.
There's gonna be some math here, but I'll do my best to make it easy.
- First things first. Selling your bitcoin for profit (bought at $100, sold at $200) is income, so there will be taxes at some point.
- The easy math here is just assume %30 of what you make you'll end up paying at the end of the year. So in our example, you made $100, you will pay $30 to taxes, leaving you %70.
- You can either set that aside when you sell, or hope you can pay it off later. I recommend going to a bank, and just having them help you set up a separate account for that, it's cheap/free, and they know what to do.
- The easy math here is just assume %30 of what you make you'll end up paying at the end of the year. So in our example, you made $100, you will pay $30 to taxes, leaving you %70.
- After that, I recommend if you just want to try this for a little while just put in what you can, wait 3 months, and see how you did.
- At the time of writing bitcoin is worth around $38k per coin, and is projected to be worth $110k by October 2021. So $100 now, will be at least $200 if not $300, by then.
- This is because every 4 years the rate at which bitcoin is "mined" (google it) halves. So there are peaks/spikes every 4 years, and it's coming up soon.
- After October 2021, trickle in over 4 years, then laugh to the bank when you cash out 10x what you put in.
- If you want a more math based goal to just put in and wait. I wouldn't pull out untill you've made %50 and I wouldn't take out more than %50 at that point.
- If you put in $200, don't pull out until it's $300, and no more than $150. This makes you money, keeps you in, and is generally safe.
- Along with setting goals, find a way that works for you to know when you bought, and what the price was. This will help you know when you’re hitting your goals, or if you are making/losing money. Spreadsheets are great for this, but anything is better than nothing.
The Math
I'm using percentages a lot, so here's how to punch this into a calculator. To figure out what %50 more of 200 is (or %150 of 200), just type 200 x 1.50. 1.50 = %150. You'll get 300.
If you want to find what %75 of 400 is, type 400 x .75 and you'll get 300.
If you want 600 dollars, then you'll want to put in roughly 300 now.
- 110k is where we think things will be. 38k is where we're at. (See The Chart below)
- 110/38 = 2.9 this is how much the price will multiply by.
- If we put in 300, and it multiplies by 2.9 that gets us 870.
- We know %30 is taxes. 100-30 is %70 left for you. 870 x .7 is 609.
There's a way to figure out why I pulled 300 out of thin air.
- Figure out how much you want to end up with.
- Figure out when you want it by (I picked 3 months).
- Look at the chart and figure out how much the money looks like it will grow by then.
- Divide your goal by that multiplier (2.9 in this example). Then just tack on %30.
- 600/2.9 = 206, 200 just looks nicer. 200 x 1.3 = 300.
- This math is "close enough" for these examples. Read into this further on your own, but this will get you by.
Read Up
This sheet is a start. It's probably “good enough” probably. But YOU are in charge of your money, you should know how it works. Google “Basic investing tips” and “How to make a budget”. The more you know how to manage your money the better. Just keeping track of it will make you have more of it, because you’ll have to be aware of where you're spending it.
The Chart
This is a "stock-to-flow chart": https://stats.buybitcoinworldwide.com/stock-to-flow/
Basically the rainbow line is bitcoin's actual price, the blue line is a projection of it's worth.
So far it's been just about spot on. So it's a good place to start.