How To Start With Bitcoin Investment

Have you decided to invest in bitcoin, the largest and most valuable of the cryptocurrencies? If so, you’re in the same situation as so many others who want to take advantage of the unlimited financial upside of the most capitalized, oldest crypto coin there is.

Bitcoin has almost surpassed gold as the preferred way for ordinary working people to beat inflation, hedge the risk of holding stocks, and protect themselves against a very uncertain economic future. 

In just the past five years, the value of one unit of bitcoin has risen from around $650 to $34,500, with lots of variation in between. The upswing has not been linear by any definition. But, with increasing worldwide acceptance of the alt-coin, large investors, corporations, governments, and institutions are now buying bitcoin for one reason or another. 

What can individual investors do? The first steps of building a worthwhile, commonsense bitcoin investing plan include defining your goals, exploring how bitcoin can fit into an IRA, learning the best ways to acquire the cryptocurrency, understanding how to invest regularly, planning for taxes, and avoiding the most common challenges bitcoin investors face. 

First things first. Before delving into the mechanics of a bitcoin investment plan, think about your own investing goals in detail.

Setting Goals

To have an investment plan means that you have financial goals. Everyone has their idea about how much they want to save and why. Maybe you intend to retire early and travel the world, but your neighbor plans to work until the age of 70 and move to Hawaii. The point is that you can’t begin to make a plan until you know what your own goals are. 

Spend at least an hour sitting down and making a detailed list of your life’s goals and arriving at an approximate figure for how much it will cost to achieve them. When that step is complete, move on to the “how” of the plan. Suppose your calculations tell you that you’ll need to have $750,000 in a retirement account by the time you’re 62 years old.

That’s a specific amount and time frame to work with, so you simply do the math and figure out how much savings every year, between now and age 62, to reach the goal. When setting up an investment account of any kind, it’s hard to assume what the return will be, but use a conservative interest figure in any case. 

With numbers: Assuming a seven percent interest rate, compounded monthly, for 30 years, with monthly contributions of $615, the account would hold $750,282 by the time you reach age 62, assuming your current age is 32. 

It’s a great idea to set a maximum and minimum bitcoin investment so you get a big picture of your thresholds in both directions.

Investing for Retirement

Are you close to retirement or perhaps planning for early retirement from your working career? If so, investing in bitcoin, specifically for purposes of financial security, after leaving work can be a smart way to boost the power of your money. 

1. Why Use an IRA For Retirement?

One of the core advantages of using bitcoin as a retirement wealth vehicle is its unlimited upside. That’s not to say that everyone should opt for cryptocurrency or put all their retirement money into a bitcoin account.

But suppose you understand the risks and rewards associated with cryptocurrency and also know the limitations of traditional kinds of IRAs. In that case, it can make perfect sense to place at least a portion of your funds into a bitcoin IRA.

2. What is an IRA, and Why are They Good for Retirees?

Simply put, it’s a tax-deferred way to save that was set created by U.S. tax law in 1974. The main feature of an individual retirement arrangement (or account) is that you don’t pay tax on the income you allocate to the IRA until you withdraw it after retiring. At that time, chances are excellent that you’ll be in a lower tax bracket. 

Roth IRAs use after-tax money, but when you withdraw the funds after retiring, you pay zero tax on them. This is why IRAs are so great for retirees. Not only does an IRA give you a structured, disciplined way to save, but most investors can significantly reduce the tax bite on their savings.

Annual contribution limits are $6,000 per person unless you’re already over the age of 50, in which case you can contribute $7,000 per year.

3. How To Set Up an IRA

Opening a Roth or traditional IRA is a simple process. You can use a traditional bank, credit union, or broker to complete the short paperwork, sign a few documents, show identification, and that’s all there is to it.

Another kind of account is a self-directed IRA (SDIRA) that can hold physical assets like crypto, precious metals, and many other investment types. 

Setting up a SDIRA is a bit different, and this is where a bitcoin IRA comes in. If you decide you want to keep all or part of your retirement money within the confines of a SDIRA, you need to work with a licensed custodian specializing in helping investors create bitcoin-based IRAs.

In fact, all bitcoin IRAs are of the self-directed type. 

4. All About Rollovers

What if you already have a traditional individual retirement account and want to roll it over (convert it) to a bitcoin IRA? What if you only want to roll over a portion of it?

The good news is that it’s straightforward to convert one type of IRA into another without having to worry about tax consequences or lengthy paperwork. Once you select a custodian who handles bitcoin IRAs, tell the rep you want to roll over the current account you have (or a percentage of it) into a bitcoin IRA.

They’ll walk you through the paperwork, ask you how much money you want to roll over and set the account up for you in a matter of minutes. Self-directed IRAs are true to their names.

As the account owner, you can decide how often and how much to contribute (assuming you stay within the IRS annual limits), whether to add more bitcoin, include investment-grade real estate, or place precious metals like gold into the account. 

And, keep in mind that it’s perfectly legitimate to have one or more IRAs. Many investors keep a traditional or Roth IRA along with a SDIRA for holding assets like bitcoin, rental real estate, gold, silver, and other non-traditional investments.

As long as you abide by the annual contribution limit per person, you can have as many IRAs as you wish. 

5. Choosing a Custodian for a Self-Directed Bitcoin IRA

It’s also very important to note that dozens of different account custodians will handle the setup and maintenance of a bitcoin IRA. However, their quality varies greatly, which is why you need to be careful when choosing one.

It makes sense to stick with larger custodians who have been in business for several years, have lots of five-star online reviews, and are happy to answer your questions over the phone or via email. 

Below are the top 3 companies of the year, out of hundreds of companies.


4.7 of 5 stars

  • Crypto Specialists
  • Great reviews and reputation
  • Free crypto investing kit

4.1 of 5 stars

  • Solid customer reviews
  • Great education
  • Free crypto investment guide

3.6 of 5 stars

  • Not crypto specialists
  • Good education
  • Some free resources

Dollar Cost Averaging

Whether you’re investing in bitcoin for retirement, a traditional savings account, or diversifying a portfolio, there’s an effective technique that can help keep you on target. It’s called by many different names but is most commonly known as DCA (dollar-cost-averaging). Financial planners, consumer counselors, and people from all walks of life use DCA to save and invest with confidence and discipline.

The way it works is this: you designate a fixed dollar amount, or a percentage, of your income as “investing money.” Say you receive two $1,700 paychecks per month and have decided to set aside 10 percent of your income for a bitcoin retirement fund. From each check, you would deposit $170 into the fund. Using DCA eliminates a lot of guesswork and adjusting to the contribution amounts. 

Using the example above, your yearly contributions would be made at two-week intervals, 26 times per year, for a grand total of $4,420. That’s a significant amount of money for a long-term growth account, even though it is less than the $6,000 that most people are allowed to contribute to an IRA. 

The beauty of using DCA to save or invest is that the total amount in the account grows at a steady, predictable rate. Because the contributions are preset, it’s easier to treat the expense as a sort of self-imposed tax for the sake of investing. 

If possible, once you determine how much you’ll be putting into your bitcoin account from each paycheck, set up an automatic payroll deduction at work, so you never see the money in your check. Auto-deduct is an intelligent way to save for any reason because it removes the temptation to spend the money before it lands in the savings account.

How To Avoid Common Pitfalls

People who invest in cryptocurrency face several challenges that traditional investors do not. The foremost among them is that cryptocurrency is relatively new and comes with plenty of in-built volatility and risk.

For those who value the idea of minimizing risk and volatility but who still want to park at least a portion of their available capital in cryptocurrency, bitcoin is the obvious choice. 

What are the most frequent traps that cryptocurrency investors fall into? Here are several, along with techniques for side-stepping them:

1. Letting Emotions Overrule Logic


The mental battle of logic vs. emotion is a familiar one for all investors, but it plays an even more significant role for those who want to purchase bitcoin. That’s because it’s easy to get caught up in the unlimited potential and read too much into recent price charts.

After making a precise investment plan, as noted above, stick to it. If the value of bitcoin drops or rises by a significant amount in a short period, resist the urge to alter your investment plan. 

If, for example, you decide that you’ll place three percent of your income into a bitcoin IRA or savings account, don’t let the ups and downs of the coin’s price affect your behavior. Stick to the plan, or consider putting it on auto-invest if your financial institution or employer allows you to set up system like this.

2. Assuming All Cryptos Are the Same


There are more than 1,000 different kinds of cryptocurrency out there, and they are not all the same. One way to look at the crypto offerings is that the niche is similar to the stock market. 

A blue-chip stock is a much better choice, in most cases than an unknown penny stock issued by a brand-new company. One carries shallow investment risk while the other, the penny share, comes with an incredibly high amount of risk. Stick with bitcoin and avoid the unknown or relatively new altcoins.

3. Not Making a Detailed Plan

If you don’t make a detailed plan, most of the effort is wasted. This point is not unique to bitcoin. No plan is worth much unless you base it on your current available income, your long-term and short-term financial goals, and a realistic understanding of the assets you intend to buy, in this case, bitcoin. Make a plan before investing even one cent of your money.

Investing Sporadically: Too often, working folks decide to begin a savings, retirement, or investment plan and then stop contributing to it after a while. It’s human nature to lose interest in things after a big push to get them up and running. To avoid the urge to start strong and lose interest, later on, use automated investing, as noted above.

4. Not Understanding the Asset

It might seem exciting to learn a few facts about bitcoin, assume it’s going to make you rich, and then start investing. Who knows, you could get lucky. But that’s not an intelligent way to handle money.

You would never buy a car or a house without taking time to examine the assets carefully, learn about them, and compare them to alternatives. Learn about bitcoin and cryptocurrency in general by reading a few blogs and authoritative websites that cover the topic.

5. Ignoring Retirement

It’s pretty common for people to set up savings accounts and completely forget about the need to plan for retirement. This unfortunate phenomenon is a frequent mistake young adults make.

In fact, retirement planning should go hand-in-hand with any other kind of saving you do. There’s only so much money available for you to set aside.

If possible, attempt to donate the maximum to a retirement account annually. For most adults, that’s $6,000 for those under age 50 and $7,000 for those who are 50 or older. Bitcoin can be a part of your retirement accounts if you set up a self-directed IRA.

A SDIRA can hold non-traditional assets like cryptocurrency, precious metals, stocks, and more. When you make an investment plan, be sure to take your retirement needs into account by possibly creating a bitcoin IRA.

6. Ignoring Tax Implications

Everyone dislikes the idea of taxes, but the best way to deal with them is to plan ahead. For instance, the gains you make on bitcoin holdings will be taxed one way or another, even if you use an IRA to minimize the tax burden.

But, everyone’s tax situation is different, so it’s best to speak with your own financial advisor or CPA to see how to anticipate best the inevitable taxes on whatever gains you might make from investing in bitcoin.

7. Investing Sporadically

Too often, working folks decide to begin a savings, retirement, or investment plan and then stop contributing to it after a while. It’s human nature to lose interest in things after a big push to get them up and running. To avoid the urge to start strong and lose interest, later on, use automated investing, as noted above. 

Learn The Basics and Invest Wisely

There are multiple “moving parts” to a bitcoin investment. Still, the two most important rules are to spend time learning the basics of cryptocurrency and then making a careful plan to invest regularly into a bitcoin account.

Here are key points to remember:

  • When you start, decide whether your main goal is to save for retirement or another reason, perhaps simple wealth accumulation. Working adults and retirees have different preferences when it comes to investing, particularly in bitcoin. Some aim to preserve the wealth they already have by using bitcoin to hedge against inflation or economic meltdown.
  • Others, and probably a majority, view cryptocurrency as a way to add significant wealth to their portfolios. Retirees and those getting ready to retire at any age can leverage the potentially unlimited value of bitcoin to boost the bottom line of IRAs and other long-term portfolios. 
  • Finally, remember that if you choose to set up a self-directed IRA for holding bitcoin, you can also keep funds in a traditional IRA or 401k. No law says people can only have one retirement account. You’re limited by how much you can put into your IRAs each year, combined, but legally, you can have as many such accounts as you wish. The top crypto companies can help you. Check them out below.

4.7 of 5 stars

  • Crypto Specialists
  • Great reviews and reputation
  • Free crypto investing kit

4.1 of 5 stars

  • Solid customer reviews
  • Great education
  • Free crypto investment guide

3.6 of 5 stars

  • Not crypto specialists
  • Good education
  • Some free resources