Just before his inauguration, President Donald Trump launched his own cryptocurrency token or ‘meme coin’ for his supporters to purchase — adding another example of his efforts to have a crypto-friendly second presidency. While Trump continues to voice his support, some cryptocurrencies, specifically Bitcoin, is soaring in value. In December, Bitcoin hit the $100,000 mark shortly after Trump announced he would nominate a cryptocurrency advocate to be the next chair of the Securities and Exchange Commission. While Bitcoin’s value seems to be skyrocketing, some experts warn of its volatility. Curious on whether to invest? NYU Stern School of Business Finance professor David Yermack discusses the potential benefits and risks of investing in crypto, specifically Bitcoin. Yermack has been teaching a course on cryptocurrency since 2014. Get the basics on Bitcoin Cryptocurrency is a digital currency bought and sold directly without the use of a third party, like a bank. Bitcoin is the world’s first cryptocurrency, created in 2008 by a person or persons that went by the pseudonym Satoshi Nakamoto. There are a variety of ways buyers can purchase bitcoin: through cryptocurrency exchanges like Coinbase, Binance, and Kraken; stockbrokers like Robinhood; bitcoin ATMs; exchange-traded funds, money transfer apps, wallet software and even mine the bitcoins themselves.Bitcoin is then stored in a digital wallet made up of a unique set of numbers and letters. The wallet can be online, on your computer or on an external hard drive. Unlike traditional stock markets, the crypto market is open for trading 24/7. The way Bitcoin’s value is determined also slightly differs from traditional assets. Bitcoin’s value is determined by supply, demand and market sentiment. It’s supply is fixed. There will only ever be 21 million coins produced and experts estimate all the bitcoins will be mined by 2140. On the other hand, demand goes up and down for reasons “nobody has any idea,” Yermack said. “A bond is worth the value of the payments that are going to be made by the company over time and how risky those payments are and so forth,” Yermack said. “But with Bitcoin, it’s purely speculative value. And this may be unnerving to you, but I would point out that the U.S. dollar has exactly the same foundation.” What are the potential risks? While Bitcoin’s value appears to be surging over time, experts say the coin is extremely volatile. Since its conception in 2009, there have been several times when Bitcoin lost over 50% of its value. For example, in November 2021, Bitcoin’s value was around $65,000. By June 2022, Bitcoin’s value plummeted 60 percent to around $19,000. Another risk is that Bitcoin and other cryptocurrencies do not have a centralized network. According to the Federal Trade Commission, if a person sends cryptocurrency to the wrong person, a wallet password is lost, a wallet is stolen or an online exchange platform goes defunct, users are likely to find that no one can step in to help recover their funds. Transactions are irreversible.Bitcoin users can also be prone to cyberscams and malware attacks that target people’s passwords, also known as private keys. The FTC has provided a checklist on how to avoid cryptocurrency scams. What are the potential benefits? While Bitcoin can be volatile, it’s also had some extreme highs. In 2024, its value soared after the U.S. Securities and Exchange Commission approved spot bitcoin exchange-traded funds and Trump’s public support of crypto.And while there have been several instances where wallets, service providers and applications have been hacked, Bitcoin’s network has remained secure. “The Bitcoin network has never been hacked in 16 years now,” Yermack said. “Now it’s widely regarded as the safest, most robust computer network ever.” So, should you invest? With the potential benefits and risks in mind, experts suggest thinking about their risk tolerance, which is the amount of risk a person is willing to take in order to potentially get better profits. “Nobody should be investing in this who can’t afford to lose their investment,” Yermack said. Potential buyers should treat crypto like any other asset, keeping their portfolio diversified. For those interested in purchasing Bitcoin, Yermack suggests putting 2% of your money in crypto. “If you’re taking any more risk than that, be prepared to lose your money, you know, because it can go down,” Yermack said. “You might do very well, but there’s no guarantee.” PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiPiFmdW5jdGlvbigpeyJ1c2Ugc3RyaWN0Ijt3aW5kb3cuYWRkRXZlbnRMaXN0ZW5lcigibWVzc2FnZSIsKGZ1bmN0aW9uKGUpe2lmKHZvaWQgMCE9PWUuZGF0YVsiZGF0YXdyYXBwZXItaGVpZ2h0Il0pe3ZhciB0PWRvY3VtZW50LnF1ZXJ5U2VsZWN0b3JBbGwoImlmcmFtZSIpO2Zvcih2YXIgYSBpbiBlLmRhdGFbImRhdGF3cmFwcGVyLWhlaWdodCJdKWZvcih2YXIgcj0wO3I8dC5sZW5ndGg7cisrKXtpZih0W3JdLmNvbnRlbnRXaW5kb3c9PT1lLnNvdXJjZSl0W3JdLnN0eWxlLmhlaWdodD1lLmRhdGFbImRhdGF3cmFwcGVyLWhlaWdodCJdW2FdKyJweCJ9fX0pKX0oKTs8L3NjcmlwdD4=
Just before his inauguration, President Donald Trump launched his own cryptocurrency token or ‘meme coin’ for his supporters to purchase — adding another example of his efforts to have a crypto-friendly second presidency.
While Trump continues to voice his support, some cryptocurrencies, specifically Bitcoin, is soaring in value.
In December, Bitcoin hit the $100,000 mark shortly after Trump announced he would nominate a cryptocurrency advocate to be the next chair of the Securities and Exchange Commission.
While Bitcoin’s value seems to be skyrocketing, some experts warn of its volatility.
Curious on whether to invest? NYU Stern School of Business Finance professor David Yermack discusses the potential benefits and risks of investing in crypto, specifically Bitcoin. Yermack has been teaching a course on cryptocurrency since 2014.
Get the basics on Bitcoin
Cryptocurrency is a digital currency bought and sold directly without the use of a third party, like a bank. Bitcoin is the world’s first cryptocurrency, created in 2008 by a person or persons that went by the pseudonym Satoshi Nakamoto.
There are a variety of ways buyers can purchase bitcoin: through cryptocurrency exchanges like Coinbase, Binance, and Kraken; stockbrokers like Robinhood; bitcoin ATMs; exchange-traded funds, money transfer apps, wallet software and even mine the bitcoins themselves.
Bitcoin is then stored in a digital wallet made up of a unique set of numbers and letters. The wallet can be online, on your computer or on an external hard drive.
Unlike traditional stock markets, the crypto market is open for trading 24/7.
The way Bitcoin’s value is determined also slightly differs from traditional assets.
Bitcoin’s value is determined by supply, demand and market sentiment. It’s supply is fixed. There will only ever be 21 million coins produced and experts estimate all the bitcoins will be mined by 2140.
On the other hand, demand goes up and down for reasons “nobody has any idea,” Yermack said.
“A bond is worth the value of the payments that are going to be made by the company over time and how risky those payments are and so forth,” Yermack said. “But with Bitcoin, it’s purely speculative value. And this may be unnerving to you, but I would point out that the U.S. dollar has exactly the same foundation.”
What are the potential risks?
While Bitcoin’s value appears to be surging over time, experts say the coin is extremely volatile. Since its conception in 2009, there have been several times when Bitcoin lost over 50% of its value.
For example, in November 2021, Bitcoin’s value was around $65,000. By June 2022, Bitcoin’s value plummeted 60 percent to around $19,000.
Another risk is that Bitcoin and other cryptocurrencies do not have a centralized network.
According to the Federal Trade Commission, if a person sends cryptocurrency to the wrong person, a wallet password is lost, a wallet is stolen or an online exchange platform goes defunct, users are likely to find that no one can step in to help recover their funds. Transactions are irreversible.
Bitcoin users can also be prone to cyberscams and malware attacks that target people’s passwords, also known as private keys. The FTC has provided a checklist on how to avoid cryptocurrency scams.
What are the potential benefits?
While Bitcoin can be volatile, it’s also had some extreme highs.
In 2024, its value soared after the U.S. Securities and Exchange Commission approved spot bitcoin exchange-traded funds and Trump’s public support of crypto.
And while there have been several instances where wallets, service providers and applications have been hacked, Bitcoin’s network has remained secure.
“The Bitcoin network has never been hacked in 16 years now,” Yermack said. “Now it’s widely regarded as the safest, most robust computer network ever.”
So, should you invest?
With the potential benefits and risks in mind, experts suggest thinking about their risk tolerance, which is the amount of risk a person is willing to take in order to potentially get better profits.
“Nobody should be investing in this who can’t afford to lose their investment,” Yermack said.
Potential buyers should treat crypto like any other asset, keeping their portfolio diversified.
For those interested in purchasing Bitcoin, Yermack suggests putting 2% of your money in crypto.
“If you’re taking any more risk than that, be prepared to lose your money, you know, because it can go down,” Yermack said. “You might do very well, but there’s no guarantee.”
