The essentials
- Bitcoin is a digital asset with a supply capped at 21 million coins.
- It runs on a decentralised network with no company or central bank in charge.
- Its price history includes several falls of more than 70% from a peak.
How it works
Bitcoin launched in 2009 as a way to send value online without a bank. Transactions are grouped into blocks and added to a shared public ledger by miners, who are paid in newly created bitcoin. The software halves that reward roughly every four years, so new supply shrinks until the 21 million cap is reached.
Why people buy it
- As a speculative bet that adoption and demand will keep growing.
- As a scarce asset that no government can print, which some compare with gold.
- For payments or transfers across borders.
How it behaves in a portfolio
Bitcoin's price has been far more volatile than shares. It has risen enormously over its lifetime but has also suffered several deep falls, and it has often dropped at the same time as technology shares when investors become cautious. That makes it hard to rely on as a diversifier; see portfolio diversification.
Ways investors get exposure
| Route | What you hold | Main extra risk |
|---|---|---|
| Exchange account | Bitcoin held by the exchange | Platform failure or hack |
| Self-custody wallet | Your own keys | Losing keys or phrase |
| Exchange-traded product | Shares in a product holding bitcoin | Fees; availability varies by country |
Use the crypto profit calculator to see how fees affect a trade.
Reader questions
Does Bitcoin pay anything to holders?
No. Unlike shares or bonds, holding bitcoin produces no income; any return comes from price changes.
What happens when all 21 million are mined?
Miners will rely on transaction fees rather than new coins. This is expected around 2140.
Sources
- Bitcoin: A Peer-to-Peer Electronic Cash System (2008)