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Hi y’all —
It’s an understatement to say there’s a lot happening right now, what with the decision of /r/WallStreetBets to boost GameStop stock largely for the lulz, the kneejerk reaction of and subsequent lawsuit against Robinhood, the involvement of lawmakers like Elizabeth Warren, the undercurrent of class warfare, the memes and more.
But I’m not going to dive into all of that. This newsletter is not about GameStop. Instead, I want to talk about another modern investing phenomenon: Bitcoin.
There’s a TikTok I reference so often I have it saved to my phone in which a guy, speaking directly to the camera, confesses he doesn’t know how boats float. “Please, don’t explain,” he says, in a calm-but-resigned voice like he’s at peace with his ignorance. “I’ve read about it. Still don’t understand.”
That’s how I feel about Bitcoin. I cannot tell you how many explainers I’ve read about it and how many people I’ve asked about it over the years. I’ve tried to learn! I just can’t seem to wrap my head around the concept, which is a problem whenever it comes up in the news.
So let’s fix this once and for all. What is Bitcoin, and why are people so into it? Do I need to invest?
I Zoomed with Dan Held, head of growth at the digital asset exchange Kraken, to get the lowdown. He told me to think of Bitcoin as a new form of currency. Our ancestors used shells and beads, then gold, then fiat money. Cryptocurrency is the latest evolution, despite not actually being a physical item I can hold.
Created in 2009, Bitcoin is attractive largely because it’s decentralized. It isn’t easily seizable. In fact, its developer described it as a “peer-to-peer version of electronic cash that allows payments to be sent directly from one party to another without going through a financial institution.”
I can buy bitcoins on an exchange (aka marketplace), collect them in a virtual wallet and use them to pay for things. Retailers like AT&T, Whole Foods and Shopify accept Bitcoin as payment. It was also used at the Silk Road, an infamous online black market that got shut down in 2013.
But Held said often, Bitcoin fans view it the same way they do gold. It feels like a safe asset they can keep custody of and squirrel away for the future.
“Bitcoin offers a way for people to store value in a completely digital format that isn't centrally controlled. There’s no government that controls it; there’s no group that controls it,” he adds. “It’s all built into Bitcoin’s code.” |
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The tech side of Bitcoin is way too complicated to dive into here, but just know that another big factor is that there’s a finite amount of coins. Specifically, there are 21 million, which contributes to the belief that the currency is a hedge against inflation.
“It’s not like you can print more of it,” says Daniel Polotsky, CEO of Bitcoin ATM network CoinFlip.
One Bitcoin currently costs about $35,000. But it is possible for me to buy a part of a Bitcoin. The smallest unit is called a satoshi, and it’s equal to 1/100 millionth of a Bitcoin. One satoshi is currently worth about $0.00035.
Bitcoin isn’t all great. It’s notoriously volatile, meaning its price changes a lot. A year ago, for example, one Bitcoin was worth just over $9,300. It dropped below $5,000 in March and spent the rest of 2020 rebounding, breaking records when it crossed the $20,000 mark in December. The climb continued in January, with the price at one point surpassing $41,000.
Another example of its volatility was on Friday, when — amid all the GameStop drama — Tesla CEO and market manipulator Elon Musk changed his Twitter bio to “#Bitcoin.” The price climbed by more than $5,000 in just a few hours.
Polotsky said that, in general, volatility is normal because Bitcoin is still a relatively new currency. But it won’t be like this forever.
“As time goes on, the volatility does decrease,” he says. “It’s becoming more stable because the space is more stable. More people are holding it for the long term, so there’s less supply to be trading back and forth. The space is maturing. There’s more products, more confidence involving Bitcoin than there has ever been in the past.”
He’s not wrong about its growing popularity. An estimated 100 million people have some sort of crypto asset. Even Federal Reserve Chairman Jerome Powell has picked up on the gold comparison, saying in 2019 that Bitcoin is a “speculative store of value."
Still, I need to be smart if I choose to invest in it.
Polotsky told me to avoid trying to time the market and instead hold it for long-term growth. He said to do some research, then develop a plan for myself where I invest a certain small-dollar amount every month until I feel comfortable. I may want to abide by the old adage that I should only invest what I’m willing to lose. |
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(but please don't tell me you scrolled past all of my hard work)
Bitcoin is a cryptocurrency people love because it’s not controlled by a third party. Because it’s so young, the price fluctuates like crazy, which makes headlines.
Held recommended I adopt what’s called the “HODL” strategy if I want to get involved in Bitcoin. It’s a cryptocurrency slang term that means to hold onto my assets. As an amateur, I need to play the long game.
“Whenever you approach investment, you should develop an investment thesis,” Held says. “You’re buying Bitcoin because you believe it will become gold 2.0: a store of value that's hard to seize and immutable.”
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Most of writer Joan Didion’s recent interview with Time was tight-lipped, but she produced a gem when asked about which pre-pandemic traditions she’s nostalgic for. “I miss having my friends to dinner,” she said. “On the other hand, my wine bills have gone down.” Amazing quote, but now I’ve got a lot of questions. Primarily, how big were her wine bills? Also, does she have a water/ibuprofen/drunken pizza budget? Because otherwise she’s going to be slouching toward a hangover. |
five things I'm loving online right now |
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Help! I can’t stop looking at frog cakes on social media. Some are realistic; some are cutesy; some are brown. Others are flat, or thicc, or lumpy. This one seems inspired by Cookie Monster; this one is terrifying. And I have no comment on what’s going on here or here. |
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Tony Hawk, that guy who never gets recognized, just pulled off a 720: a super-rare skateboarding trick that involves two full mid-air rotations. He first landed the 720 in 1985, but in his old age it’s become a lot more difficult. That’s what makes his celebration (after so many painful failures) so fun to watch. |
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Before there were animal influencers on Instagram, there were Edwardian-era photographs of owners and their dogs.
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I loved this deep dive into TikTok creators who buying the cheapest items possible from Chanel, Hermes and Dior so they can unbox them on camera. The cool packaging doesn’t hurt, but it’s really more about the ~ feeling ~ of using fancy products. “What’s the allure of getting 100 Chanel cotton pads for $20 over drugstore cotton pads that cost as little as $6.99 for 400?” the story reads. “‘They’re not just regular cotton pads, they’re Chanel cotton pads, and they’re extra.’”
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Ever want to take a walk down memory lane and listen to a bunch of old ringtones? Well, you’re in luck.
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send me cute pictures of your pets, please |
This is Loki, a miniature American shepherd puppy. Loki, who is about 6 months old, recently learned how to use dog doors to go outside. He does not own any Bitecoin. |
I need to figure out how I can invest in the Jonas Brothers.
See you next week.
Julia
P.S. I got 20 replies to the last issue of Dollar Scholar, which might be a new record! I learned that I'm not alone in checking my bank app all the time. Scholars Michelle and Debe confessed to viewing their accounts three times a day. Scholar Marion said she knows her balance down to the penny! Scholar Tricia recommended Mvelopes for keeping track of my money, while Scholar Connie suggested I set up transaction alerts for my accounts. And Scholar Rachel told me she thinks the habit is more linked to personality than my upbringing. Hmmm.
P.P.S. Do you own Bitcoin? What’s your ringtone? Have you ever baked a frog cake? Send feedback and recipes to julia.glum@money.com or @SuperJulia on Twitter. |
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