Buying Bitcoin – What You Need To Know

With Bitcoin investing now available on the eToro platform for clients in the Netherlands, we would like to take this opportunity to cover some of the basics of buying Bitcoin for beginners. So, if you don’t know your Bitcoin from your blockchain, this article is here to help.

Is there a Bitcoin barrier to entry? For many curious investors who have yet to dip their toes in the proverbial waters, the biggest thing holding them back may be summed up in one word – knowledge.

The more you try to wrap your brain around the technology behind Bitcoin, the more confused you may be about its actual investment value. How exactly is Bitcoin mined? What is a hard fork? And proof-of-stake versus proof of concept? Head-scratchers abound.

If we haven’t lost you yet – good. While you may never master the concepts of blockchain and how cryptocurrency is created, in reality, you don’t need to when it comes to investing. All you really need to know is why cryptocurrency has value, how that value compares to traditional currencies, and what investing means in the long run.

On platforms like eToro, users can deposit as little as $50 to fund an account where they can buy, sell and hold Bitcoin, along with over a dozen other cryptocurrencies.

So, what makes crypto different from investing in traditional currency, like the Euro or the US dollar? Here are a few key distinctions:

Finite supply

One of the big issues with investing in the US dollar is inflation, which has been made increasingly evident during the Covid-19 pandemic. As the US dollar weakens at a more rapid rate, with trillions printed by the Federal Reserve, it is no surprise that investors will look for unique ways to diversify their money.

How does inflation affect Bitcoin? In the current context, it doesn’t. That is because Bitcoin has a finite amount of 21 million coins, so while the value can increase, the maximum amount in circulation cannot. Currently, there are 18.7 billion Bitcoin in circulation, meaning there are still some left to be mined. As a result, many investors look to Bitcoin as a hedge against the damaging effects of inflation.

Store of value

Bitcoin’s finite supply lends to its store of value over time. While gold was the original intrinsic asset, its cumbersome nature led to it being replaced by fiat (i.e., paper) money. A store of value, meanwhile, is an asset that maintains its worth and can be exchanged in the future with no deteriorating value, which cannot be safely said for current physical currency.

Bitcoin, meanwhile, checks all of the major boxes as a strong store of value over time. It has a steady level of scarcity – thanks to its finite supply, it is easily divisible (up to eight decimal points), it has growing use as a utility (i.e., form of currency) in transactions, it is easily transportable through digital wallets, it is durable as a non-physical currency and lastly it is nearly impossible to counterfeit – thanks to blockchain encryption technology.

Institutional investment

The problem with Bitcoin’s value in the past was that it was mostly driven by retail investment, which ebbed and flowed based on how consumer investors felt about the crypto’s future. In recent months especially, however, major players in tech and financial sectors have either plunked money into Bitcoin or adopted the currency on their platforms.

Companies like MicroStrategy, Square and Tesla have invested huge chunks of capital in Bitcoin, while both traditional (Visa and MasterCard) and modern (PayPal) financial institutions are starting to integrate crypto as a feasible form of currency. The more Bitcoin becomes mainstream, the more legitimate it becomes as a long-term investment.

This post originally appeared on the eToro blog.

Disclaimer

eToro is regulated in Europe by the Cyprus Securities and Exchange Commission, by the Financial Conduct Authority in the UK and by the Australian Securities and Investments Commission in Australia.

eToro USA LLC – investments are subject to market risk, including the possible loss of principal.

eToro AUS Capital Pty Ltd, AFSL 491139. eToro AUS Capital Pty Ltd offers CFDs over cryptoassets. Trading CFDs does not result in ownership of the underlying assets. CFDs are leveraged and risky financial products and may not be suitable for all investors. You may lose substantially more than your initial investment. This information is general advice only.  It has been prepared without taking into account your objectives, financial situations or needs, and you should, before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. You should consider our PDS before making any decision about whether to trade CFDs.

This communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.

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