How Much Should You Invest in Bitcoin?
Bitcoin captured many people’s attention after hitting an all-time high value of over $68,000 per coin. Its market value and capitalization remain the most elevated. The crypto market has grown significantly as more individuals and organizations embrace cryptocurrencies.
Some countries have even made Bitcoin their legal tender. Such developments have drawn people’s attention, and more individuals want to invest in crypto assets. But how much should you invest in Bitcoin? That’s the question many people ask, considering the high volatility of this cryptocurrency and drastic moves by countries like China, which has banned all Bitcoin-related activities.
While some investors rush to platforms like thebitcoincode.io to learn about Bitcoin, others are cautious about how much they invest. The following factors should help you determine the amount to invest in this crypto asset.
How to Determine the amount to invest in crypto
Buckets First
Investing in Bitcoin is a risky undertaking. Therefore, determining the amount to invest in this risky asset requires considering your financial health and ensuring you’ve funded the necessary buckets first. For instance, ensure you’ve bought food and paid rent. Also, establish a consistent excess cash flow before investing in Bitcoin. Remember, due to its volatility, you can lose the entire amount you invest in this cryptocurrency within a day. Therefore, invest what you can lose, and your life progresses after funding the necessary buckets.
Pay Your Debts
Prioritize paying high-interest debts, such as personal loans and credit cards, before investing in Bitcoin. If you skip paying these debts, they will compound, making them overwhelming or challenging. Credit cards have an average interest rate of more than 15%. So, if you have an active account, pay the debt after catering to your necessities to determine the amount to invest in this crypto asset.
Fund Your Retirement Investments
Some people use Bitcoin investments for retirement. However, diversifying your retirement plans is a wise idea. So, contribute to your 401(k) up to the employer match after paying your debts. Please take advantage of your employer match, since most people consider it free money. Also, you can put post-tax money into a Roth IRA and pre-tax money into a 401(k) for diversification purposes.
Set Emergency Funds Aside
Once you’ve tackled your debts and saved for retirement, set aside some money for the emergency fund. Financial experts recommend setting aside an amount that can cover your expenses for up to six months. The specific amount you add to your emergency funds depends on your situation.
The best approach is to add all monthly expenses, including food, rent, loan repayments, insurance, and bills. Multiply the figure by the number of months you want the emergency fund to cover to know what to put aside.
Cover Your Miscellaneous Expenses
After funding the above buckets, check your finances to determine the buckets you wish to cater to before investing in this risky asset. For instance, do you want to cover your children’s education fund, renovate your home, or make a down payment for a new property? Think about the following years to see if miscellaneous expenses will arise.
Once you’ve allocated your income to the above five expenses, you can invest the remainder into Bitcoin. The remaining amount will help determine how much you can invest in this cryptocurrency. If anything seems unclear, talk to your financial advisor to ensure you make a wise investment decision. Remember, Bitcoin’s volatility presents the opportunity to profit by buying low and selling high. Also, it can leave you with significant losses if you miscalculate your purchase and sale, especially if you invest a significantly increased amount during a peak and sell during a fall. Therefore, be cautious when determining the amount to invest in this crypto asset.
