Bitcoin Values Just Surpassed $100,000. Here Are 5 Things to Know

Understand the hype around the oldest and most valuable cryptocurrency

David Rodeck and Allan Roth,

AARP

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Published December 05, 2024

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When Bitcoin emerged in 2009, each one was worth less than a penny. Now, after a wild ride of ping-ponging up and down for years, they're worth over six figures apiece, piquing interest among older adults who are curious about investing in Bitcoin but may be unfamiliar with it.

With each Bitcoin surpassing $100,000 in value, now is a good time to brush up on how this type of cryptocurrency works, where it began, and other key information you'll want to know.

How does Bitcoin work?

Bitcoin is a cryptocurrency, which means it's not sponsored or managed by any government and exists only electronically — not as paper bills or metal coins. And unlike U.S. dollars, which can be minted by the Federal Reserve, there is a finite amount of Bitcoins. New Bitcoins are created through a process called "mining," essentially using powerful computers to solve complex mathematical problems, but the total number of Bitcoins that will exist is capped at around 21 million.

Although it's becoming increasingly common to be able to buy things with Bitcoin, if you want to take profits in Bitcoin, you have to translate them into dollars by making transactions. You can buy and sell fractions of Bitcoins, so each transaction doesn't need to add up to $100,000.

Bitcoin transactions are considered secure because they use “blockchain” technology, a type of database that records transactions across many different computers. Because Bitcoin transactions are anonymous, scammers often target Bitcoin holders (more on that below).

To buy or sell Bitcoin, you need a “digital wallet” — a piece of software that can transmit Bitcoins between users. Don't worry about technology challenges: You can open a digital wallet pretty easily from numerous sources, such as Coinbase, Binance and Trezor. If you want to invest in Bitcoin but not actually go through the hassle and expense of owning it, you can invest in exchange-traded funds (ETFs) that track the price of Bitcoin. The value of the ETF, a cross between a stock and a mutual fund, goes up and down along with Bitcoin's price. You can buy and sell ETFs through a basic brokerage account with a firm like Fidelity, E-Trade or Charles Schwab.

In addition, you can transfer money between your digital wallet and someone else’s anonymously to buy a pizza, purchase jewelry or even sell a car, provided the other party in the transaction accepts Bitcoins.

But know this: Your digital wallet is password-protected, and if you lose your password, you lose access to your Bitcoin (and other cryptocurrencies stored in it). There is no “reset my password” feature if you forget it. According to a recent study by Fortune and blockchain analysis firm Chainalysis, there are an estimated 1.8 million "lost" Bitcoins.

Where did Bitcoin come from?

Bitcoin's origin story has the makings of a whodunit. It was launched in 2009 by a shadowy figure (or figures) using the pseudonym Satoshi Nakamoto, who published a white paper online proposing a currency that didn't need to go through a financial institution. Fifteen years later, despite the efforts of many sleuths, Nakamoto's true identity remains a mystery.

With Bitcoin’s recent rally, its pioneer — rumored to hold more than 1 million Bitcoins — is said to be one of the richest people in the world, with some estimates ranking Nakamoto’s net worth above that of Walmart heirs Jim and Rob Walton.

How many other cryptocurrencies are there?

Bitcoin has no shortage of competitors. The number of cryptocurrencies has ballooned in recent years, says Zach Gordon, an accountant with RedFive, which handles accounting for cryptocurrency clients. There are more than 11,000 on the market today.

Bitcoin is the oldest and most valuable, with a total value of nearly $2 trillion. Ethereum is the second most valuable cryptocurrency, worth around $430 billion.

Other big cryptocurrencies include Binance Coin, Solana, Tether and XRP. And don’t forget about Dogecoin, which was infamously launched as a joke in 2013 to make fun of the first cryptocurrency bull market, using a Shiba Inu dog for its branding. Dogecoin has a total value of more than $60 billion.

Video: How Crypto Investments Scams Work

Is Bitcoin a safe investment?

While there’s potential for huge gains, the potential for huge losses is high too. As an investment, Bitcoin is highly volatile and unpredictable, with massive price swings, making it a risky option for retirees who'd feel more comfortable keeping their cash in safer, interest-bearing investments such as certificates of deposit and money market accounts. Consider: A single tweet from Elon Musk in May 2021 sparked around a 12 percent drop in Bitcoin's price in just two hours.

Theft is also an issue. More than $1.7 billion in cryptocurrency was stolen in 2023, according to Chainalysis. Scammers target Bitcoin holders as well, since the bad actors can use the Bitcoin they steal without revealing their identity. Older adults are often the victims.

“You’re interacting with people you never meet and you can never visit,” with currency you can’t touch, says Joseph Rotunda, director of the Enforcement Division at the Texas State Securities Board. “It’s a medium that caters to fraud.”

To avoid scams, never share your digital wallet's password; don’t trust people who promise you can make quick and easy money or outlandish returns with Bitcoin (if an offer sounds too good to be true, it probably is); and don’t respond to solicitations involving Bitcoin from an unknown source (steer clear of messages on WhatsApp, Facebook, email or text).

If you decide to buy Bitcoin — or any other cryptocurrencies — make sure to follow digital safety practices, such as using a strong password and two-factor authentication, to help protect your account, advises Philip Martin, chief security officer at Coinbase, a cryptocurrency exchange platform.

Are there taxes for Bitcoin gains?

As with more traditional assets, such as stocks, bonds and mutuals funds, when you sell crypto you typically owe capital gains taxes. Profits are considered short-term capital gains if you owned the coins for less than a year and long-term gains if you owned them for at least a year. Short-term gains are taxed at your tax rate for ordinary income, Long-term gains are typically taxed at lower rates — 15 percent or less for most people.

It’s your responsibility to track any crypto sales that you make, so “keep a log of every transaction,” suggests Gordon. You can use a program like CoinTracker, CoinLedger or Koinly to do the transaction tracking and tax calculations for you; these services typically charge around $50 per year for 100 transactions and cost more as the number of trades increases.

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David Rodeck is a writer based in New York City. He has written for Kiplinger’s Personal Finance, Forbes Advisor and Investopedia. Before becoming a full-time writer, Rodeck was a financial advisor.

Allan Roth is a practicing financial planner who has taught finance and behavioral finance at three universities and has written for national publications including The Wall Street Journal.