TEN years ago the price of a Bitcoin was around £180 – now it would be worth over £88,000.
It’s an incredible rise when you compare it to a savings account – but it’s not all been smooth sailing.
Bitcoin has endured periods of extreme volatility, for example in 2022 when it lost 61% of its value against the pound.
So, how does Bitcoin and other crypto assets work? We explain the basics, and how you can learn more with eToro’s Academy.
The eToro Academy: Crypto
(A beginner’s guide)
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
What is Crypto assets and how does it work?
The UK has the Pound, the US has the Dollar, and much of Europe has the Euro.
These are all examples of currencies, and crypto assets fall into this category too.
But unlike traditional currencies, there are a few key differences.
Firstly, crypto assets aren’t controlled by a central bank – like the Bank of England in the UK and the Federal Reserve in the US. This means there isn’t a governing body that can influence its supply and value.
It’s why you may hear crypto assets defined as “decentralised”.
Instead, transactions are recorded on a “blockchain” – a public ledger which ensures that the same asset can’t be spent twice.
Secondly, crypto assets are digital. You may be able to go to the bank and withdraw £100 in notes from your bank account, but crypto assets exist purely as digital code kept in an online wallet.
What is Bitcoin?
Bitcoin is a type of crypto asset – like Ethereum or Solana.
Unlike a £10 note, which can be printed by the Bank of England, there are only a limited number of Bitcoins. More Bitcoins can’t be made, which is why when demand for it increases it rises in value.
Likewise, when this cools, so does its price.
You can, however, own part of a Bitcoin. It’s made up of 100,000,000 Satoshis – named after its founder Satoshi Nakamoto, who might have invented it under an alias.
This means you can buy a few Satoshis to own a fraction of a Bitcoin.
While it might be known as an investment, Bitcoin can also be a medium of exchange like other assets.
In 2021, El Salvador became the first country to accept Bitcoin as legal tender. However, many critics argued that its volatility made it difficult to transact.
To see why, imagine buying a car worth £15,000. It’s been put to market at a sixth of a Bitcoin, if it was valued at £90,000. You’ve signed the paperwork and agree to pay the dealer the next day.
However, if the price of Bitcoin increases to £95,000 overnight. This means when you walk in to pay for your car it’d now cost £15,833.33.
Are crypto assets popular?
Alongside its rise in value since its launch, crypto assets have also garnered attention.
Proshares launched the first Bitcoin linked ETF four years ago, providing a conventional way for investors to gain exposure to the asset.
Others have followed suit, launching ETFs of their own.
Meanwhile, President Donald Trump has been a vocal supporter of crypto, and his campaign included a pledge to make the US “Crypto capital of the world”.
Some have argued that his support is a major reason behind its rise this year.
Is crypto dangerous?
Investing in crypto can be part of your portfolio – but it’s important to understand the nature of your investment to find what’s comfortable for you.
Unlike a savings account and more akin to investing in shares, crypto assets don’t offer a guaranteed return.
You can lose all your money, but you can also beat the returns of the best savings accounts on the market.
You should also make sure you have enough savings in cash that you can access before you start investing.
The rule is usually at least three months’ worth of salary.
So, understanding what crypto assets you’re investing in, and how it works is important.
Using the eToro Academy
While many investment platforms offer a way to start investing, eToro offers more.
The eToro Academy is an online hub designed to help investors with varying levels of knowledge hone their craft. Within the eToro Academy, you’ll find resources in many formats like articles, videos, courses, podcasts and webinars.
Part of the eToro Academy includes educational content on crypto – to help its investors further their knowledge.
The hub includes guides on converting crypto assets to fiat currency, a beginner course on crypto, and a host of other content.
Explore the eToro Academy
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more