By Ned Piggott, Second Year, Ancient History
Following a surge in Bitcoin investors and global popularity, Ned Piggott breaks down cryptocurrency with a student’s guide to Bitcoin.
A lot of students have never heard of Bitcoin, but can it be a quick way to make money without having to leave your bedroom? Sat in bed with a warm tea and a pack of digestives one afternoon as per Boris’s instructions, I went down the Bitcoin rabbit hole. Looking at its increase in price, I almost choked on my tea. If I had invested £100 exactly one year ago, I would have made £391 in profit today.
One student at the University of Bristol revealed that they had made a profit of almost £40,000, having invested £200 in 2015. Scan the dinosaur QR code below with your phone to see how much you could have made by investing in Bitcoin at various times.
So, what is Bitcoin?
Launched in 2009, Bitcoin is the oldest and most popular cryptocurrency, which just means a form of electronic cash. It uses a new kind of technology called the blockchain so that it can be exchanged without the need for intermediaries like banks to verify exchanges.
Bitcoins, essentially computer files, can be stored on digital wallets on a phone or computer, and there will only ever be 21 million bitcoins created. These means that as time goes on, they become more valuable.
Essentially, bitcoin has two potential uses: as a store of value, like a digital gold, or as a currency. Like a cake, bitcoin can be split up into smaller bits, the smallest being a Satoshi, which is one millionth of a single bitcoin. At the time of writing, the market cap (total value of all bitcoins) is over 1 trillion dollars, which exceeds the money supply of Russia’s entire ruble currency.
There will only ever be 21 million bitcoins so as time goes on, they become more valuable
What are the risks?
A common strategy for Bitcoin investors is to buy when the price is low and ‘hodl’ (hold) until it is worth more in the long term after several years, holding on to it even through bad days. It is important to keep in mind that being human, we can never know when the best time to buy or sell is, and Bitcoin is known to be incredibly volatile.
When interviewing a student at the University of Bristol about their preconceptions of cryptocurrency, they noted that: ‘I had heard of Bitcoin in the news, and the media presented it as very scary and unstable, but so are a lot of other investments in the stock market.’
Other possible risks to consider are:
· Security risks such as hacking bitcoin exchanges (bitcoin itself is almost impossible to hack, but not the websites it is bought on.)
· Fraud risks such as email scams.
· Storage risks. This could include forgetting your password or losing the item you store bitcoin on, such as a USB drive.
· The rise and the fall. As with any investment, if it goes shooting up, it can come crashing down.
Separating the bullish from the bearish
To be bullish about a stock means that you expect prices to rise, while being bearish means you expect prices to recede. The battle between the bullish and the bearish is ongoing.
The Winklevoss twins, known for their early involvement in Facebook, are big proponents of Bitcoin. In August 2020, Tyler Winklevoss wrote the article ‘The Case for $500k Bitcoin’, based largely on the logic that Bitcoin had begun to eat away at gold’s dominance as a long-term store of value.
With cash continuing to flow out of the gold market and into Bitcoin, this prediction is currently looking sound.
[Bitcoin] has the potential to rapidly shake up not just the investing world, but the way we pay for things too
On the other hand, Mark Frauenfelder experienced the worst case of ‘I forgot my password’ that I have ever heard of. After having invested $100 in 2016, Frauenfelder forgot his pin and password, which eventually cost him $30,000. Big mistake.
The boss of JP Morgan Financial services, Jamie Dimon, said in 2017 that Bitcoin was a fraud, and would ultimately be only fit for use by repressed North Koreans and drug lords. However, in 2018 he relented and admitted that he’d helped his daughter to buy two bitcoins.
So, should students buy bitcoin?
I am personally not going to buy bitcoin right now because I hope that its price will decrease soon so that I can put a small amount of money in that it wouldn’t hurt to lose. Regardless of what people on Reddit forums might predict about Bitcoin ‘shooting for the moon’, I think it is best not to ‘yeet my student loan onto the stock market because YOLO.’
However, no matter what you choose to do, I highly recommend doing some research into this new technology and keeping it in your peripheral vision. It has the potential to rapidly shake up not just the investing world, but the way we pay for things too.
Featured Image: Epigram / Sarah Dalton
Have you ever considered investing into Bitcoin?