Investors use alternatives to play one or more roles in a portfolio, such as diversification and risk reduction, return enhancement, and yield generation. Bitcoin is one of the best-performing assets of the decade. Based on recent data, Bitcoin is beating the stock market, showing signs of resilience even if uncertainty and instability persist in global finance due to disorderly tariff implementation. This has led many crypto enthusiasts to acclaim Bitcoin as digital gold, emphasizing its nature as a store of value.
Bitcoin is one-of-a-kind because it democratizes access. In other words, it doesn’t discriminate based on investor profile or geography. The cryptocurrency is open, public, and accessible to anyone with a computer or cell phone. Guides explaining how to purchase Bitcoin help beginners understand the purchasing process. While no investment is without risk, if you take a chance at Bitcoin, you might be rewarded with higher returns for taking that bigger chance. 
To effectively engage with Bitcoin as an investment, you must embrace an approach that demands ongoing research and a clear strategy. Here are a few key aspects to reflect on:
Adopt A Slow-And-Steady Bitcoin Investment Approach
The value of Bitcoin depends on supply and demand – put simply, by how much people are willing to pay for it. Bitcoin tends to be volatile, and its price often sways due to extremes of fear and greed. During the boom, the crypto market brings high returns to investors, but in the subsequent burst, investors lose money. Slow and steady wins the race. Invest small amounts of money at regular intervals so you don’t have to worry about second-guessing the crypto market.
A popular long-term investment strategy is dollar-cost averaging. It works like this: you allocate the same amount of money repeatedly, irrespective of the ups and downs the crypto market is experiencing. You can invest $100 in Bitcoin every month. At the end of three months, your average buying price is lower than the price in the third month, even though you purchased the least number of coins. If you adopt this relaxed but methodical approach, you’ll enjoy stable returns in the long run.
Make Rational, Responsible Decisions
Bias can cloud your judgment, leading to suboptimal choices and, therefore, increased risk. Maybe one of the most well-known trading biases is confirmation bias, which is the tendency to favor information that confirms your existing beliefs while disregarding contradictory evidence. Emotional bias occurs naturally when an important decision is being made. You let emotions like fear, greed, and the fear of missing out dictate your decisions, often leading to financial losses. Your brain uses mental shortcuts to save time and energy.
Here’s how to prevent irrational decisions when trading:
- Stick to a trading plan: Ease the stress of strong emotions by developing a trading plan and updating it as you learn from the market. The plan defines what’s supposed to be done, why, when, and how. It covers your trading personality, personal expectations, and risk management rules.
- Use stop-loss orders: You can place stop-loss orders with an exchange or trading platform to sell Bitcoin when it reaches a certain price point. You can limit losses without constantly monitoring the crypto market. Better yet, your judgment doesn’t get clouded with emotions.
- Take breaks: Burnout can be triggered by overtrading, extreme market conditions, unrealistic expectations, and loss. Take regular breaks to have time to rest, recharge, and maintain peak mental performance. The more time you spend in the crypto market, the more risk you expose yourself to.
It’s best to avoid making real-time decisions, so think over buys and sells before taking action.
Avoid Leverage
Leverage lets you borrow funds to increase the size of a trading position beyond what your wallet would allow. Platforms offer various ratios, such as 5x leverage, so traders can maximize their available funds, and this flexibility appeals to both short-term speculators and long-term investors. High leverage can indeed lead to greater returns, but it carries risk. It can also magnify your losses. If the crypto market moves against your position, your collateral will be insufficient to cover the losses.
You can be tempted to borrow more just because you can or invest inleveraged exchange-traded trusts (ETFs). Remember that leverage is a double-edged sword due to the cost it bears. You can incur losses that will affect you both financially and psychologically. To be more precise, leverage can destroy your portfolio growth, so maintain a balanced, rational mindset to prevent losses from undermining your confidence. You should never risk more than 10% of your account on a single trade.
Cut Your Bill With Tax-Loss Harvesting
Since Bitcoin is likely to be treated as property by the IRS for the purposes of accounting, many of the restrictive sale rules that apply to stocks don’t apply to cryptocurrency. You can sell Bitcoin at a loss to avoid a taxable event and reduce your overall tax burden. This loss can be used to counterbalance the gains from winning positions. If you have a mix of digital assets in your portfolio, some will appreciate while others depreciate. 
It’s essential to keep detailed records of all transactions and seek the counsel of a tax professional to ensure your strategy adheres to current IRS regulations and maximizes your benefits. Include the date of your transactions, the value of Bitcoin, and the purpose of the transaction. Equally important is to list the exchange account you’ve used, the cold/hot wallet you’ve used, and the ownership percentage of the digital assets contained within the account and wallet(s).
Final Thoughts
Bitcoin is fantastic, but it doesn’t guarantee success, so treat it like any other asset and avoid putting all your eggs in one basket. Diversify your portfolio by holding more than just Bitcoin – have a mix of stocks, bonds, commodities, and more. Within the aforementioned categories, diversify further. For instance, in the category of stocks, you could purchase technology stocks from semiconductor producers or software providers. If Bitcoin eventually reaches $120,000, you don’t need to generate massive returns.