For many people, investing in Bitcoins is the end of the road. People buy some Bitcoins (or other cryptocurrencies like Litecoins) and then just store them in a secure wallet, hoping they would get value over time. But that’s a dangerous move. In fact, at the date this article was written, the price of Bitcoin compared to USD has been falling down over the past few months. On the other hand, you also have people that mine Bitcoins with huge computing power, only to sell them immediately for cash after that.
In this article, I want to show you that there is much more you can do with your Bitcoins, by investing them in different ways. We’ll see the main reasons why you should invest your Bitcoins, and how to avoid the risks that come with Bitcoin investing. Let’s dive in!
1. Great Returns
The first thing that I really like about investing your Bitcoins is that there is a great return on your investment, especially compared to more classical financial investments. For example, if you just leave your money (for example your dollars) sitting on a bank account, you will be lucky if you get a 1% return annually. In France for example, where I have some of my money, the annual interest rate on your saving is 1.25%.
If you take more risks and invest your money for example in bonds, you’ll be around 5% of annual return, before taxes. And even with some riskier investment like index funds, you’ll be lucky to have a 10% return on average.
By investing your Bitcoins, you can get much more. For example, my favorite way of investing Bitcoins is lending. The principle is simple: you give Bitcoins to borrowers, to finance some of their projects (for example buying websites as an investment) and they give you your money back over a given period of time, with interests.
My favorite website for this kind of investment is BTCJam, that I use regularly. This website, similar to odther peer-to-peer lending websites like LendingClub or Prosper, advertise annual returns around 20%, but from my own experience it is not unusual to get returns of 40% or more. Try getting that at your local bank!
One other way to invest your Bitcoins is cloud mining. This basically means you invest into computing power of a company, which then gives you back the Bitcoins mined by this computing power. The returns on this kind of investment are complicated to estimate as the difficulty of mining is constantly changing, but some websites advertise annual returns of more than 100%!
2. It’s Safe … If You Diversify
Of course, such gains with your Bitcoins are not ‘safe’ as putting your money in a bank is safe. On lending websites for example, it can happen that somebody doesn’t pay back, or that the company itself goes bankrupt. Same goes with cloud mining: a mismanaged company can go bankrupt and make your investment disappear over a single day.
However, there are some ways you can protect yourself against that, and make your overall investment relatively safe. And this is done by diversifying your Bitcoin investment, just as you would diversify a more classical investment portfolio. Diversification will be the topic of an article on its own, but we will see the basics here.
First, you need to diversify in the type of investments you are making. For example, diversify by investing some Bitcoins in peer-to-peer lending, and the rest of your Bitcoins in cloud mining. Also, I like to always keep some of my coins in cash on a secure wallet, just in case a new investment opportunity shows up.
Also, you need to diversify in each category. For example, don’t invest all your Bitcoins on a given website. This will ensure that if the website closes, you won’t loose it all in this category. Also, on given website, for example on a lending website, make sure to lend money to several people that all have verified accounts and references. This will also ensure that in case one of them doesn’t pay you back, you will only have a limited loss.
3. You Get Actual Cash
What I also like with Bitcoin investing is that you usually get actual cash (in Bitcoins, of course) from your investments. Let me explain. When you invest in the stock market for example, your money is blocked on an account. You can sell your shares of course, but there are fees to do so and it is not immediate. As the price of your investment grows, you can’t take the profits immediately and use these profits as you wish if you need them.
With Bitcoin investing, you invest Bitcoins, and you get Bitcoins back, that you can use as you wish. You can reinvest them immediately (creating a compounding effect on your investment), or take them out and use them immediately. You can use convert the result from your investments to fiat currencies (like dollars) to buy things, or use them directly as more and more shops are accepting Bitcoins, especially eCommerce stores.
4. Bitcoin is The Future of Payments
Finally, I believe that Bitcoin is the future of payments, especially on the web, and this makes another reason why you should invest your existing Bitcoins and make even more of them. Already more and more stores on the web are accepting Bitcoins. You can even buy plane tickets now directly in Bitcoins. And some industry giants like Microsoft announced that they will accept Bitcoins for their online services.
Bitcoins are also more and more accepted in physical stores. You can find a list of this stores on some websites like Coinmap. Which means that using the results of your investments, you will soon be able to just go to your local store and buy things directly with Bitcoins!
With all these reasons, I hope I convinced you that there is much more you can do with your Bitcoins that just keeping them in a wallet. Are you already investing your Bitcoins? Do you see other reasons to do so?