After understanding what Bitcoin is, , what it is used for and why it has value, the really interesting question comes up: does it make sense for me to buy it?
And that “for me” means there is no single answer that works for everyone.
Bitcoin can make sense as a standalone investment or as a small part of a portfolio, and be a bad decision for someone who may need that money in the short term.
The difference is not only in the asset itself, but in your situation, your time horizon and your ability to withstand losses.
Who buying Bitcoin makes sense for
There are several types of profiles.
The first is the person who truly understands what the Bitcoin revolution means and wants to be part of it, not just profit from it.
This is someone who understands the problems of fiat money and probably does not like how the current system works. They know the advantages and disadvantages of the crypto world, or at least of Bitcoin, and are betting on long-term change.
They self-custody their bitcoins and will not sell easily, whether prices rise or fall.
The second profile is that of the investor with a portfolio of assets, who wants to diversify further with Bitcoin. They may know the system well or they may not, but they understand that what it offers them -diversification and long-term returns- is enough reason to allocate capital to it.
They may or may not self-custody their bitcoin, or may hold bitcoin directly or through derivatives such as ETFs in their portfolio.
The third profile is the speculator. These are people who, without being traders, know that its value is highly volatile and want to buy low and sell high. Normally they will keep things simple and buy ETFs through any broker.
Closely related to this profile are traders, who work professionally in investing and do the same thing, but with deep market knowledge.
The fourth profile is someone thinking about structuring their wealth with inheritance in mind for their heirs.
Here, without question, the person needs to understand at least a little about how everything works and buy bitcoins or other cryptocurrencies that let them distribute their assets as they prefer, without necessarily going through a notary and without paying the corresponding taxes.
Of course, self-custody is not optional.
In any of these cases, except perhaps for traders, the money invested here only needs to meet one requirement: the investor must not need it in the short term. If that requirement is met, returns are guaranteed.
Who it is probably not suitable for
Bitcoin is not a good option if you do not have an emergency fund or you are going to need the money soon.
Investing in any asset involves risk, especially when the asset is volatile and your time horizon is short. That is why, before taking on high risk, it is more sensible to cover your basic needs.
It is also a poor fit if a 30 % or 50 % drop would make you sell out of fear. Bitcoin has experienced moves of that size and may do so again. Risk tolerance is not proven when everything is rising, but when your investment loses value for months.
That is why the previous point matters here: having an emergency fund so you do not have to sell at a loss.
Finally, if you do not understand what you are buying, where you are buying it or how you are doing it, you probably should not invest in it either. As Buffett used to say: “never invest in a business you cannot understand””.
The same applies to an asset.
Next steps
Below are the next articles in the series. They are designed so that, if you do not know much about Bitcoin, you can read them in order, but each one stands on its own, so you can jump to whichever interests you most:
- What Bitcoin is
- What Bitcoin is used for
- Why Bitcoin is important
- How Bitcoin works
- Why Bitcoin has value
- Advantages of Bitcoin
- Disadvantages of Bitcoin
- Does it make sense to buy Bitcoin?
- How to buy Bitcoin
- Where to buy Bitcoin
- How to store or self-custody Bitcoin
- What a Bitcoin wallet is: cold and hot wallets
- What the risks of buying Bitcoin are
- How to sell Bitcoin and withdraw the money
- How Bitcoin is taxed in Spain
Frequently asked questions
Is buying Bitcoin worth it?
It depends on your situation, your time horizon, your risk tolerance and how well you understand what you are buying. Bitcoin may make sense for some people, but it is not a suitable investment for everyone.
Who does buying Bitcoin make sense for?
It may suit someone who trusts Bitcoin over the long term, an investor looking to diversify a portfolio, someone who wants to speculate on price movements, or professionals who regularly trade in the markets.
Does it make sense to buy Bitcoin if I will need that money soon?
Probably not. Bitcoin is a highly volatile asset and can experience sharp price swings, so investing money you will need in the short term increases the risk that you will be forced to sell at a bad time.
Is it advisable to have an emergency fund before buying Bitcoin?
Yes. Having unexpected expenses covered reduces the chance that you will have to sell your investment simply because you need liquidity.
Can Bitcoin be used to diversify a portfolio?
It can be used as one position within a portfolio, while taking into account its high volatility and the risk you are willing to assume. Allocating a small part of your wealth to it is not the same as concentrating a large share of it in Bitcoin.
Does it make sense to buy Bitcoin for speculation?
It can be done, but it means taking on high risk. Trying to buy low and sell high requires accepting that the price can also move sharply in the opposite direction.
Should I understand Bitcoin before investing?
Yes. At a minimum, you should understand what you are buying, what risks it involves, how you are going to acquire it and who will control your bitcoins. The less you know about the asset, the harder it is to assess its risks properly.
What happens if Bitcoin falls by 30 % or 50 %?
If a major drop would make you sell out of fear, you have probably taken on more risk than you can handle. Bitcoin is far more volatile than many traditional financial assets.
Is self-custodying bitcoins mandatory?
No. You can maintain exposure to Bitcoin through different solutions, from self-custody to third-party services or certain financial products. Self-custody offers more control, but it also means taking direct responsibility for the keys.
Are Bitcoin's long-term returns guaranteed?
No. The fact that Bitcoin rose during certain historical periods does not guarantee that it will do so in the future. Financial regulators continue to warn that cryptoassets are volatile and high-risk.
Can Bitcoin be part of inheritance planning?
Yes, it can form part of assets you want to pass on to your heirs, and self-custody lets you plan how they will access those funds. But using Bitcoin does not in itself remove any applicable legal or tax obligations.
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