Crypto: a market that never closes.

01What a coin is

It is 3 a.m. on a Sunday. The stock market is closed, the banks are closed, and somewhere a trader sells $10 million of bitcoin to a stranger on the other side of the world, settled in minutes with no bank involved. That is the market this lesson is about.

A cryptocurrency is an entry on a blockchain: a shared ledger kept in copies by thousands of computers, with no bank in the middle. Owning bitcoin means controlling a secret key that lets you move a balance recorded on that ledger. Lose the key and nobody can restore it.

The two largest have different purposes. Bitcoin is meant to be scarce money: its rules cap the supply at 21 million coins. Ether is the fuel of the Ethereum network, which runs programs ("smart contracts") that other applications are built on. Thousands of other tokens exist, along with stablecoins built to hold a steady dollar value.

02Why it is hard to value

Every lesson before this one valued something by the cash it pays: dividends, coupons, rent. A bitcoin pays nothing. There are no earnings to divide, no coupon to discount. Its price is whatever the next buyer will pay, which depends on how many people want it, how much exists, and what they believe it will be used for.

• Scarcity. A fixed or slowly growing supply means rising demand has to show up in the price.
• Adoption. More users, more applications and easier access (such as spot ETFs) can lift demand.
• Belief. Much of the price rests on expectations about the future, which can change quickly in either direction.

That's not proof crypto is worthless, or that it is valuable; gold also pays no cash and has held value for thousands of years. It means the usual valuation tools don't apply, and the price has no anchor to fall back on when sentiment turns.

03How people make and lose money

• Price changes: almost all of the return, in both directions.
• Staking: on proof-of-stake networks such as Ethereum, holders who lock up coins to help secure the network are paid new coins. The reward comes in the same volatile coin, and part of the stake can be lost for misbehaving.
• Lending and "yield" products: platforms that pay interest on deposited coins. Some have collapsed and frozen customers' money.

Two costs catch most newcomers. Many exchanges offer borrowed money to trade with, which turns a 20% move into a wipe-out. And small purchases on apps often carry a spread and fees of a few percent, a cost paid again on the way out.

04Five years of the ride

Over the five years to September 2026, measured on month-end closes from our own reports (the last one each report's September 22–23 close), $1,000 in bitcoin grew to about $1,968. The same $1,000 in the S&P 500 with dividends reinvested grew to about $1,920. In ether it shrank to about $917.

From that starting month the endings are close and the paths are not. Bitcoin fell 73% from its month-end peak to its low along the way, ether 77%, the S&P 500 24%. Start instead in December 2022, near the bottom, and $1,000 in bitcoin became about $5,208 against the S&P 500's $2,112. That spread is the lesson: with crypto, when you got in decided more than what you held.

The chart shows one more thing plainly. In 2022, the stock market's bad year, crypto did not hold up as a hedge: from December to December bitcoin fell 64% and ether 68%, while the S&P 500 with dividends fell 18%. They fell together, and crypto fell further.

The full histories are on our bitcoin, ether and VOO reports.

05How to hold it

• An exchange account. Easiest, but the exchange holds your coins; if it fails or is hacked, you can end up in the queue of people it owes money to, with nothing set aside to guarantee you are repaid.
• Your own wallet. You hold the keys. No company can freeze your coins, and no company can recover them if you lose the keys.
• A spot crypto ETF. In January 2024 US regulators approved ETFs that hold bitcoin itself, such as IBIT. You own fund shares in an ordinary brokerage account; a custodian holds the coins, for a yearly fee.

06What can go wrong

• Volatility: falls of 70% or more have happened repeatedly.
• Custody: exchange failures, hacks and lost keys have wiped out holders' coins.
• Fraud: crypto is a favorite tool of scams, from fake platforms to "guaranteed returns".
• Regulation: rules differ by country and can change suddenly.
• No protection: coins on an exchange are not deposits, and deposit insurance doesn't cover them.