4 Tips on Investing in Bitcoin from a Pro Who Was Mining It in 2011

Investing in Bitcoin was an exotic idea when I wrote my first Money Morning article about the digital currency back in June 2011.

Few had heard of Bitcoin. And most of those who had scoffed at the idea it would ever become more than a novelty, used only by nerds and libertarians.

Bitcoin was trading at about $20 when I discovered it in 2011. Just a few months earlier, in February, one bitcoin had traded at just $1.

Today the Bitcoin price is flirting with the $1,300 mark, an all-time high.

By now, the earliest investors have enjoyed astronomical gains. Those that bought at $5 are up 25,000%. The true early birds that got in at under $1 have gains anywhere from 125,000% to millions of percent.

investing in BitcoinThat first article I wrote for Money Morning got me hooked on Bitcoin. Soon after my first article was published, I bought a high-end graphics card to "mine" Bitcoin on my home computer.

What fascinated me at the time was that Bitcoin was a type of electronic money I could create on my computer - at almost no cost.

Plus, as a skeptic of the U.S. Federal Reserve and central banks in general, Bitcoin's lack of central control and limited supply also appealed to me. Central banks do more harm than good.

My Bitcoin mining operation lasted about six months -- until the card burned out from running 24/7.

Today such small-time Bitcoin mining is impractical to the point of being impossible. But by the time my mining days had ended, I was hooked on the idea of digital currencies. I even did some trading on the ill-fated Mt. Gox exchange (and paid the price in lost Bitcoins).

Since those days, Bitcoin has matured.

Over the past three years, it has drawn the interest of venture capitalists, big banks, Wall Street, and forward-thinking people in virtually every part of the world.

I've watched it all unfold and along the way have had the privilege of interviewing or meeting countless members of the Bitcoin community, from Bitcoin Foundation board member Vinny Lingham, to Chamber of Digital Commerce President Perianne Boring, to BitPremier Founder and CEO Alan Silbert.

And now recent developments, such as the three Bitcoin ETFs pending SEC approval, suggest the cryptocurrency has reached a tipping point.

One thing is clear to me and everyone in the industry whom I frequently compares notes with:  The Bitcoin price is headed much, much higher.

Last year Needham & Co. gave a Bitcoin price prediction of $2,231 by 2020. A Wedbush Securities Bitcoin price prediction put the Bitcoin price at $17,473 in 2025.

In other words, it's not too late to invest in Bitcoin.

Since most of you are likely fairly new to the idea that Bitcoin is here to stay, I want to share some tips with you based on what I've learned, so you, too, can get your share of Bitcoin profits...

Investing in Bitcoin Tip No. 1: Jump on the Winklevoss Bitcoin ETF

Right now the financial media is buzzing about the pending approval of the Winklevoss Bitcoin ETF (BATS: COIN) by the Securities and Exchange Commission. (The deadline is Saturday, March 11.)

Officially known as the Winklevoss Bitcoin Trust, this exchange-traded fund will make investing in Bitcoin as simple as buying a stock. For most retail investors, an ETF will be the preferred way to invest in Bitcoin.

And better still, the launch of one Bitcoin ETF will spawn more Bitcoin ETFs, which will bring more money into the ecosystem. And that, in turn, will keep driving the Bitcoin price higher.

A Winklevoss Bitcoin ETF IPO will be one initial public offering where it will pay to buy early.

The Winklevoss Bitcoin Trust will be backed by Bitcoin that the trust holds. It will be structured very much like the SPDR Gold Trust ETF (NYSE Arca: GLD).

I'm not the only one who sees the benefit of owning this ETF. Money Morning Options Trading Specialist Tom Gentile told readers last week why a Bitcoin ETF could be your best way to take profits.

In addition to the Winklevoss ETF, the SolidX Bitcoin Trust (NYSE Arca: XBTC) and the Bitcoin Investment Trust (OTCMKTS: GBTC) are both seeking SEC approval.

Approval of the Winklevoss Bitcoin ETF will open the door to other Bitcoin ETFs, with SolidX and GBTC at the head of the line. I believe multiple ETFs would be ideal for investors, offering more options and competition.

For answers to all the other questions you might have about the Winklevoss Bitcoin ETF, take a look at this special investor's guide...

Investing in Bitcoin Tip No. 2: Buy Some Bitcoin Directly

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For those willing and able to take the steps required, I think buying some of the cryptocurrency outright really is the best way to invest in Bitcoin.

Buying Bitcoin from an exchange or a Bitcoin ATM is fairly straightforward. The number of Bitcoin ATMs worldwide has grown from less than a dozen at the start of 2014 to more than 1,050 today, with over 600 of those in the United States.

But once you've bought your Bitcoin, you need someplace to store them.

The exchanges will hold Bitcoin for you, but if they get hacked, your investment could be stolen. It's better to have a Bitcoin wallet of some kind with strong encryption. This is what most long-term Bitcoin owners (like me) do.

I know for many the idea of buying and storing Bitcoin seems daunting. Trust me, you can do it. That's why I put together this guide to how and where you can buy Bitcoin - it's free for our readers.

Investing in Bitcoin Tip No. 3: Watch for the First Bitcoin IPO

If you aren't ready or don't feel comfortable buying actual Bitcoin, you can - and will still want - to get in on the profits. Good news is there will be a Bitcoin stock IPO - we just have to wait a little longer. Buying a Bitcoin stock mitigates the risk of owning the digital currency.

But know this - the first Bitcoin IPO will be a Wall Street sensation, as big as or bigger than the wave of social media IPOs we've seen in recent years.

Since 2012, nearly $1.5 billion in venture capital has poured into dozens of Bitcoin startups. Within the next couple of years, it's likely that at least one of these startups will mature enough to have an initial public offering on a major U.S. exchange.

Several of these companies have already advanced to late-stage venture capital financing.

These four Bitcoin startups are prime candidates to become the first Bitcoin IPO...

Investing in Bitcoin Tip No. 4: Open a Bitcoin IRA

Bitcoin also can play a role in your retirement account.

Because of the digital currency's long-term potential for substantial gains, as well as the properties it shares with gold as a safe-haven investment, investors might want to consider opening a Bitcoin IRA.

Bitcoin became eligible for inclusion in an IRA in 2014 when the Internal Revenue Service (IRS) declared it a property for tax purposes.

Although I would not advise people to dump their life savings into Bitcoin, including Bitcoin as a small percentage of a portfolio can serve as a useful hedge against more traditional retirement investments such as stocks and bonds.

Here's how you can take advantage of the benefits of a Bitcoin IRA...

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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