How Much Bitcoin Should I Buy in 2022?
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Bitcoin remains one of the most attractive asset classes to invest in – considering that the digital currency has generated gains of over 200% in the last five years.
Moreover, Bitcoin is now trading 70% below its former peak of $69,000 – so the digital currency can be purchased on the cheap.
But that begs the question – “How much Bitcoin should I buy?“. Read on to evaluate the most risk-averse way to gain exposure to Bitcoin today.
How Much Bitcoin Should I Buy – Key Factors to Help You Decide
Those asking the question – “how much Bitcoin should I buy?” should first consider the key points discussed below.
- Discretionary Income – It goes without saying that when asking yourself “how much Bitcoin should I buy?” – the amount should never exceed discretionary income. This refers to money available after all core expenses have been covered – such as mortgage payments, food, travel, and debt.
- Dollar-Cost Average – A notable strategy taken by risk-averse investors is to slowly drip-feed money into Bitcoin at the end of each week or month. This strategy is known as dollar-cost averaging and it ensures that investments are made gradually, as opposed to a lump sum. Moreover, dollar-cost averaging allows investors to avoid being over-exposed to a single cost price (e.g. buying at the peak of the bull run).
- Be Prepared for Volatility – Since its inception in 2009, Bitcoin has generated unprecedented returns. However, Bitcoin goes through super-volatile market cycles, with current prices trading 70% below the digital asset’s former all-time high. Therefore, when assessing how much to invest in Bitcoin, investors should consider that the value of the investment can decline considerably in the short term.
- Appetite for Risk – All investments come with an inherent level of risk. However, when compared to the likes of blue-chip and dividend stocks, government bonds, and real estate – Bitcoin is significantly riskier. As such, investors need to consider that there is a chance that the Bitcoin investment can result in some or even all of the money being lost.
- Don’t Put All Eggs in One Basket – One of the best ways to approach Bitcoin is to ensure that investments are spread out across other assets. A common diversification strategy is to also invest in the best altcoins – whether that’s Ethereum, Litecoin, or Cardano. Moreover, for added upside potential, many investors consider crypto presales – which offer access to a new digital asset being its exchange listing. As of writing, the most trending crypto presales include Dash 2 Trade and IMPT.
Ultimately, when assessing “How much should I invest in Bitcoin?” – there are many factors to take into account.
Read on to learn some top strategies that can assist in finding the optimal Bitcoin investment stake.
How to Decide How Much to Invest in Bitcoin
Learning how to make money with cryptocurrency doesn’t have to be a complicated ordeal. Not only in the case of Bitcoin, but all potential investment decisions require an in-depth assessment of how much to allocate.
While it can be tempting to go all-in on Bitcoin due to its unprecedented past performance, this isn’t a wise move to take. Instead, it’s best to approach Bitcoin and other cryptocurrencies in a risk-averse manner.
We will now take a much closer look at what to consider when evaluating how much to invest in Bitcoin to make money.
1. An Evaluation of Discretionary Income
Before making any investments – whether that’s Bitcoin or any other asset class for that matter, it is crucial to take a step back and assess how much discretionary income is available.
In a nutshell, discretionary income refers to the amount of money left over after core expenses. Think along the lines of everyday expenses like food and travel, in addition to mortgage payments, utilities, and a 401 (k) plan.
In theory, anything above this figure is classed as discretionary income and thus – can be utilized for non-essential purchases.
In other words, when assessing “how much Bitcoin should I buy?” – the chosen amount should not exceed the discretionary income that has been identified.
Let’s break down a hypothetical example to help demonstrate this point:
- We’ll that after tax and social security, an investor has $3,000 worth of monthly income
- Of this figure, $2,000 is allocated for core, everyday expenses
- $500 is set aside for savings and a 401 (k) plan
- This leaves $500 in discretionary income
Now, it is important to note that when exploring how much should you invest in Bitcoin, it wouldn’t be wise to allocate 100% of the available discretionary income.
On the contrary, assuming that the investor has $500 at the end of the month, a more risk-averse strategy would be to diversify the funds across multiple assets.
Although we cover diversification in more detail shortly, this might include $100 for Bitcoin, $100 for crypto presales like Dash 2 Trade, and the balance in the S&P 500 index.
Ultimately, the most important thing is knowing exactly how much money will be left at the end of each month, after all expenses are covered. Nothing above this amount should be considered when assessing how much Bitcoin to buy.
2. Deploy a Dollar-Cost Average Strategy
An even more risk-averse way to answer the question – “How much Bitcoin should I buy?” – is to wait until the end of each month, perhaps a few days before the next salary will be deposited.
In other words, just before payday, any disposal income left over can be utilized for Bitcoin and other investments. This represents a smart way to approach Bitcoin, considering that all expenses have already been covered and payday is around the corner.
Now, this strategy actually coincides with dollar-cost averaging. For those unaware, dollar-cost averaging is the process of investing in an asset on a set day each month, rather than going ‘gung ho’ and injecting one lump sum.
This is a tried and tested strategy not only in the case of Bitcoin but broader stock market indexes like the S&P 500 and the Dow Jones. The reason for this is that dollar-cost averaging removes the need to try and time the market. Moreover, it also alleviates the risk of being over-exposed to a single cost price.
- For instance, consider that those that invested a lump sum into Bitcoin in November 2021 at $69,000 are now looking at losses of 70%.
- Of course, the investment will only yield a loss if the investor sells their Bitcoin.
- But nonetheless, the investor will remain at a loss until the price of Bitcoin returns to $69,000.
Now consider a risk-averse investor that conducts a dollar-cost averaging strategy. Sure, at its peak, monthly investments would have been made towards the top of the bull run. However, as Bitcoin continued to decline in the proceeding months, each monthly investment would have resulted in a lower cost price.
Let’s look at an example of dollar-cost averaging in the context of Bitcoin:
- We’ll say that an investor has $600 at the end of each month
- The investor decides to buy $300 worth of each and every month, a few days before payday
- In months 1, 2, and 3 – the investor gets a cost price of $69,000, $40,000, and $30,000
- In months 4, 5, and 6, the investor gets a cost price of $25,000, $20,000, and $20,000
As per the above, the investor has made six monthly investments into Bitcoin at $300 each. Owing to the dollar-cost averaging strategy, the investor has an average cost price of $34,000.
This means that should Bitcoin eventually return to its former all-time high of $69,000 – the investor would generate a profit of 102%. On the other hand, an investor that went all-in when Bitcoin peaked at $69,000 would only break even once this price point is revisited.
3. Understand the Volatility of Bitcoin
Being able to accurately predict the price movements of BTC is virtually impossible, but researching the historical data and current indicators is very important. Although Bitcoin trades in a highly liquid marketplace, it is still a super-volatile asset class. Much more so than the likes of US Treasuries or stocks. While dollar-cost averaging always has the chance to ride out volatile crypto waves in the long run, it is important to have the risks that this invites nonetheless.
- After all, we mentioned above that after peaking at $69,000 in late 2021, Bitcoin has since declined by 70%.
- On the one hand, this isn’t necessarily an issue for an investor that plans to buy and hold Bitcoin over many years, in addition to buying the dip and deploying a dollar-cost averaging strategy.
- However, if an investor has invested more than they can afford and subsequently needs to sell Bitcoin to pay for everyday expenses, this will result in major losses.
This is why making an assessment of discretionary and disposal income should remain a top priority when assessing how much to invest in Bitcoin.
- In addition to this, beginners must be prepared for the emotional side effects of Bitcoin’s volatility.
- Many newbies will see that Bitcoin has declined by 25% in the space of two weeks, and subsequently decide that enough is enough.
- With that said, panic selling should be avoided when investing in Bitcoin, as long-term investors are those that typically generated the best returns.
One of the best ways to deal with volatility is to avoid frequently checking the price of Bitcoin. Beginners are known for this, oftentimes checking the value of their portfolio several times throughout the day. Instead, consider checking the price of Bitcoin on a monthly basis – at the same time that the next dollar-cost averaging investment is being made.
4. Determine How Much Appetite for Risk is Acceptable
Another crucial factor to take into account is how much risk tolerance is acceptable. This is a challenging metric to evaluate, as no two investors are the same.
For example, some investing money into the S&P 500 every month for several decades can be somewhat confident that over the course of time, the value of the portfolio will be healthy at the point of retirement. After all, the S&P 500 has generated average annualized gains of 10% since its inception in 1926.
However, in the case of Bitcoin, we only have 14-ish years of trading history. As a result, it would be unwise to invest in Bitcoin without considering the risk of loss. In fact, many market commentators argue that a suitable amount of Bitcoin to buy should reflect money that the investor is prepared to lose in its entirety.
While this is somewhat extreme, risk mitigation practices should be put in place. Once again, this links back to our previous discussion on dollar-cost averaging and limiting investments to discretionary income.
5. Buy the Dip to Invest in Bitcoin at a Cheap Entry Price
Many seasoned investors will look to increase the size of their stakes…
Read More: How Much Bitcoin Should I Buy in 2022?
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