As an investor in bitcoin, you are buying a set amount of bitcoin for a specific dollar price. It’s similar to investing $10,000 into a major stock at $100 per share, you will be purchasing 100 shares. If the brokerage allows for fractional shares, you could buy smaller portions of shares.
If you invest that $10,000 and buy bitcoin at $100,000, you would purchase 0.1 BTC. That represents one tenth of a whole share of bitcoin. Since we are not buying a company, bitcoin does not have “shares”. What you are buying is typically referred to as a crypto currency. Bitcoin is the first crypto currency that has lasted over 15 years.
The shares of stock will typically have a limit of how many shares can exist. The company, from time to time, will sell more shares into the market to raise money for the business. They may also buy back shares from the market. Both of these transactions change the total supply of shares available.
With bitcoin, the total number of “bitcoins” that will exist is 21 million. Today, over 19 million are currently in circulation. The remaining coins will be released into circulation on a set schedule through 2140.
Just like buying shares of a company, you must record each purchase of bitcoin and the transaction details so that it can be used for tax purposes. Depending on the way you make the purchase, this may or may not apply. Just be mindful of this as most individual investors may use exchanges that do not do this type of IRS reporting. Regular brokerage firms such as Fidelity, Robinhood, etc will.
In part 3, we will discuss the 21 million supply limit
