The Rich And Bitcoin: A Lucrative Investment Strategy?

Bitcoin has seen a stratospheric rise since its launch in 2009, creating a diverse set of millionaires and billionaires. But who are these people, and how did they make their money? Bitcoin's volatility might be attractive to investors seeking fortune, but the wealthy tend to avoid the rough and tumble of the cryptocurrency market. So, do the rich invest in Bitcoin?

Bitcoin's price volatility

Bitcoin's volatility can be measured by calculating the standard deviation of its daily returns over a specific period, such as 30 or 60 days. The more volatile an asset, the riskier it is to hold, as its value can substantially increase or decrease in a short period. For example, Bitcoin's price has ranged from about $25,000 to $70,000 within a year, and from under $10 in 2010 to a high of $77,000 in June 2024.

Volatility also impacts the cost of hedging, a major contributor to the price of merchant services. If Bitcoin's volatility decreases, the cost of converting into and out of Bitcoin will also decrease, making it more attractive to investors. However, Bitcoin's volatility has led to concerns about its reliability as a store of value and a hedge against inflation or global instability. For instance, during the 2020 pandemic, when investors sought safe assets, gold soared while Bitcoin remained flat.

Bitcoin millionaires

Some notable Bitcoin millionaires include:

• Changpeng Zhao: Founder of Binance, the world's biggest cryptocurrency exchange by trading volume. In June 2024, his net worth was estimated at $33 billion.
• Brian Armstrong: Founder of Coinbase, North America's largest cryptocurrency exchange. As of June 2024, his net worth was estimated to be $11.4 billion.
• Michael Saylor: CEO of MicroStrategy, a company that has invested heavily in Bitcoin. Forbes estimates Saylor's net worth to be $4.4 billion.
• Sandra Ro: An early investor in Bitcoin who is now the CEO of the Global Blockchain Business Council. While Ro is reluctant to disclose her exact wealth, she has stated that she has "done very well" financially.

The stories of these Bitcoin millionaires highlight the potential for significant financial gains through investing in Bitcoin. However, it is important to remember that investing in cryptocurrencies is highly risky and speculative, and not everyone who invests in Bitcoin will become a millionaire.

Bitcoin ETFs

Bitcoin exchange-traded funds (ETFs) are financial products that allow investors to gain exposure to the price movements of Bitcoin without actually owning the cryptocurrency. Bitcoin ETFs are traded on traditional stock exchanges, making it easier for investors to participate in the cryptocurrency market.

There are two main types of Bitcoin ETFs: spot and futures. A spot Bitcoin ETF aims to provide investors with direct exposure to the current market price of Bitcoin. In this case, "spot" refers to the immediate or current price of Bitcoin. A spot Bitcoin ETF typically holds actual Bitcoin as its underlying asset and attempts to track the real-time price of Bitcoin as closely as possible. On the other hand, futures Bitcoin ETFs do not hold actual Bitcoin. Instead, they use Bitcoin futures contracts to gain exposure to the cryptocurrency. A Bitcoin futures contract allows investors to speculate and bet on the future price of Bitcoin.

The first Bitcoin-linked ETF was the ProShares Bitcoin Strategy ETF (BITO), which mainly uses futures contracts. It was approved by the SEC in October 2021 and is listed on the New York Stock Exchange. In January 2024, the SEC approved the first 11 spot Bitcoin ETFs, including those from Grayscale, Bitwise, BlackRock, and Valkyrie.

However, it's important to consider the limitations and risks associated with investing in Bitcoin ETFs. These include tracking errors, regulatory uncertainty, market and ETF liquidity, the rolling of futures contracts, and cybersecurity risks.

Crypto credit cards

Crypto.com Visa Card

The Crypto.com Visa Card is a prepaid card that can be topped up using bank transfers, credit/debit cards, or cryptocurrency. It offers up to 5% back on all spending, airport lounge access, and exclusive merchandise. The card is available in several tiers, with benefits varying depending on the level. The higher tiers require the user to stake or lock up CRO tokens for a period of 180 days.

Brex Card

The Brex Card is targeted at startups and offers a baseline rate of 1 point per $1 spent. However, if it is your only company card, you can earn higher rates through its Exclusive rewards program. These include 7 points per dollar spent on rideshares and taxis, 4 points per dollar on travel booked through the Brex portal, and 3 points per dollar on restaurants. As of May 12, 2021, cardholders can redeem their Brex rewards for Bitcoin and Ethereum, with 100 points earning 70 cents worth of crypto.

Venmo Credit Card

The Venmo Credit Card allows users to opt to automatically purchase cryptocurrency using their cash-back rewards. The crypto is purchased through the Venmo app, and there is no additional transaction fee for this. However, a cryptocurrency conversion spread is built into each monthly transaction, meaning Venmo charges a small spread between the crypto market price and the current exchange rate.

Gemini Credit Card

The Gemini Credit Card automatically earns crypto rewards in bitcoin and over 50 other cryptocurrencies on the Gemini exchange. The card was announced in early 2021 and is now available to the public in all 50 states.

Mastercard Crypto Card Program

Mastercard offers a Crypto Card Program to enable everyday purchases. Mastercard can help crypto partners to launch their own branded solutions, and card issuance varies based on local regulations.

Bitcoin mining

The Bitcoin mining process always starts with a block that contains a group of transactions. The transactions have already gone through an initial security check by the network to verify that the sender has enough Bitcoin and has provided the correct key to their wallet. The network then creates a hash (a string of characters) for the block of transactions. Bitcoin miners start generating hashes using mining software. The goal is to generate the target hash—one that's below or equal to the block's hash. The first miner to generate the target hash gets to attach the block to their copy of the Bitcoin blockchain. Other miners and Bitcoin security nodes then check that the block is correct. If so, the block is added to the official Bitcoin blockchain. The Bitcoin miner then receives block rewards. Blocks offer a set amount of Bitcoin as a reward; the amount is cut in half for every 210,000 blocks that are mined (this is called Bitcoin halving).

Mining is conducted by miners using hardware and software to generate a cryptographic number that is equal to or less than a number set by the Bitcoin network's difficulty algorithm. The first miner to find the solution to the problem receives bitcoins as a reward, and the process begins again. This reward is an incentive that motivates miners to assist in the primary purpose of mining: to earn the right to record transactions on the blockchain for the network to verify and confirm.

Frequently asked questions