FOREIGN TRADE UNIVERSITY

FACULTY OF PROFESSIONAL ENGLISH

--------◊◊☼◊◊--------

RESEARCH PAPER
Subject: TECHNICAL ENGLISH
Topic: RISK AND RETURN FROM INVESTING BITCOIN

Instructor: MS. Phan Kim Thoa

Class: TAN434(2.2/2021).2-BS
Team: 5
Students:

Ordinal number Full name Student code

1 Vu Thi Ngan Giang 1813310036
2 Le Quynh Mai 1813310100
3 Do Khue Nhan 1813310122
4 Nguyen Ha Phuong 1813310132
5 Nguyen Thi Van 1813310182

Ha Noi - June, 2021

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 TABLE OF CONTENTS

ABSTRACT...................................................................................................................... 3
INTRODUCTION............................................................................................................ 3
1. The urgent of the topic..............................................................................................................3
2. Research scope...........................................................................................................................4
3. The subject research..................................................................................................................4
4. Objectives of the study..............................................................................................................4
5. The research method.................................................................................................................4
CHAPTER 1: THEORETICAL BASIS.........................................................................4
1. Risk..............................................................................................................................................4
2. Return.........................................................................................................................................5
3. Relationship between risk and return......................................................................................8
CHAPTER 2: BITCOIN TREND.................................................................................11
1. Definition of bicoin..................................................................................................................11
2. The popularity of bitcoin.........................................................................................................12
CHAPTER 3: THE RISKS AND RETURNS OF BITCOIN......................................15
1. The high returns of Bitcoin.....................................................................................................15
2. Risk from Bitcoin investment.................................................................................................18
CHAPTER 4: CONCLUTION......................................................................................21
1. Result........................................................................................................................................21
2. Future work..............................................................................................................................22
3. Conclusion................................................................................................................................23
REFERENCES............................................................................................................... 25

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ABSTRACT
This research paper investigates, especially Bitcoin in recent time, the relationship
between risk and return. Recently, the cryptocurrency- Bitcoin is becoming more and
more popular in the financial market. One of the event is that Tesla has plan to accept
payments in Bitcoin, which makes price of Bitcoin to increase rapidly in May 2021. The
research paper examines the high returns of investing Bitcoin and considers whether risks
are likely to become higher with returns. Based on the conclusions of various scientific
research papers, in investing, risk and return are highly correlated. Increased potential
returns on investment usually go hand-in-hand with increased risk.Using the risk-reward
tradeoff principle, low levels of uncertainty are associated with low returns and high
levels of uncertainty with hogh returns. The paper concludes by strongly suggesting that
everybody should step to secure their funds, and brace theirselves for the future of the
market.

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INTRODUCTION
1. The urgent of the topic

In modern society today, virtual currencies are rapidly gaining popularity. ATMs for
transactions in virtual currencies are appearing in Western countries, digital money can
be bought and sold on the Internet and many serious financial analytics companies have
started tracking digital currency fluctuations and investment forecasts.

Like any other means of payment, Bitcoin, even without being a secured currency, is
integrated into the existing economy. So, like everyone, carries certain risks. So far, the
future of virtual currency seems promising. However, unexpected drops in the rate make
even the most seasoned investors be wary.

Therefore, to not begin to in vain, it is necessary, at a minimum, to study all the returns
and risks associated with working with cryptocurrency, especially bitcoin. It is the reason
that motivates our team do the research about the topic “Risk and return from investing
bitcoin”.

2. Research scope

The research scope of this research is bitcoin trend and the risk, return of bitcoin.

3. The subject research

The subject research mainly focuses on analyzing the return and risk of bitcoin, and also
mentions the trend and development of bitcoin so that we make assumptions about its
future.

4. Objectives of the study

To analyze the risks and returns of Bitcoin investment

To offer solutions to invest Bitcoin effectively

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5. The research method

Qualitative method: learn articles, research articles, statistics from websites.

CHAPTER 1: THEORETICAL BASIS

6. Risk 

6.1. Definition

“Risk is defined in financial terms as the chance that an outcome or investment’s actual
gains will differ from an expected outcome or return. Risk includes the possibility of
losing some or all of an original investment.”
(Investopedia)

6.2. Types of risk

In general, financial theory classifies investment risks affecting asset values into two
categories: systematic risk and unsystematic risk.
Systematic risks, also known as market risks, are risks that can affect an entire economic
market overall or a large percentage of the total market. Systematic risk is the risk of
losing investments due to factors such as: economic, political and social system, that have
influence on the performance of the overall market. Market risk is unlikely to be easily
mitigated through portfolio diversification. Systematic risks are further subdivided into
interest rate risk, market risk, and purchasing power risk. 
Unsystematic risk, also known as specific risk, is a category of risk that only affects an
industry or a particular company itself. It is the risk of losing an investment due to
company or industry-specific hazards. Examples include a change in management, a
product recall that could drive down company sales, a new competitor in the marketplace
with the potential to take away market share from a company. Investors often use
diversification to manage unsystematic risk by investing in a variety of assets.
Unsystematic risks are subdivided into business risk and financial risk.

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6.3. Risk and Diversification

Diversification is considered as the most basic and effective strategy for minimizing risk.
Diversification is based heavily on the concepts of correlation and risk. A well -
diversified portfolio will consist of different types of securities from diverse industries
that have varying degrees of risk and correlation with each other’s returns. 
There are several ways to plan for and ensure adequate diversification including:
 Spread portfolio among many different investment vehicles including cash, stocks,
bonds, mutual funds, EFT and other funds.
 Stay diversified within each type of investment including securities that vary by
sector, industry, region and market capitalization. 
 Include securities that vary in risk. We are not restricted to picking only blue-chip
stocks. 

7. Return

7.1. Definition and measurement

“Return can be defined as the actual income from a project as well as appreciation in the
value of capital. Thus there are two components in return—the basic component or the
periodic cash flows from the investment, either in the form of interest or dividends; and
the change in the price of the asset, commonly called as the capital gain or loss.” 
(www.yourarticlelibrary.com)
A positive return is the profit, or money made on an investment or venture. Likewise, a
negative return represents a loss, or money lost on an investment or venture. Returns are
often annualized for comparison purposes, while a holding period return calculates the
gain or loss during the entire period an investment was held.
Total return is measured as
Total return = Cash payments received + Price change in assets over the period /
Purchase price of the asset.

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In connection with return we use two terms—realized return and expected or predicted
return. Realized return is the return that was earned by the firm, so it is historic. Expected
or predicted return is the return the firm anticipates to earn from an asset over some
future period.

7.2. Types of return

 Nominal Return:
“A nominal return is the net profit or loss of an investment expressed in the amount of
currency before any adjustments for taxes, fees, dividends, inflation, or any other
influence the amount.”
(Investopedia)
It can be calculated by figuring the change in the value of the investment over a stated
time period plus any distributions minus any outlays. Distributions received by an
investor depend on the type of investment or venture but may include dividends, interest,
rents, rights, benefits, or other cash-flows. Outlays paid by an investor depend on the type
of investment or venture but may include taxes, costs, fees, or expenditures paid by an
investor to acquire, maintain, and sell an investment.
 Real return:
“A real rate of return is adjusted for changes in prices due to inflation or other external
factors. This method expresses the nominal rate of return in real terms, which keeps the
purchasing power of a given level of capital constant over time.” 
(Investopedia)
Adjusting the nominal return to compensate for factors such as inflation allows us to
determine how much of our nominal return is real return. Knowing the real rate of return
of an investment is very important before investing because inflation can reduce the value
as time goes on, just as taxes also chip away at it. Investors should also consider whether
the risk involved with a certain investment is something they can tolerate given the real
rate of return. Expressing rates of return in real values rather than nominal values,

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particularly during periods of high inflation, offers a clearer picture of an investment's
value.
 Return ratios:
Return ratios are a subset of financial ratios that measure how effectively an investment is
being managed. They help to evaluate if the highest possible return is being generated on
an investment.
 Return on Investment (ROI)
ROI is defined as the return per dollar invested. ROI is calculated by dividing the dollar
return by the initial dollar investment. This ratio is multiplied by 100 to get a percentage.
Assuming a $200 return on a $1,000 investment, the percentage return or ROI = ($200 /
$1,000) x 100 = 20%.
 Return on Equity (ROE)
Return on Equity (ROE) is a profitability ratio calculated as net income divided by
average shareholder's equity that measures how much net income is generated per dollar
of stock investment. If a company makes $10,000 in net income for the year and the
average equity capital of the company over the same time period is $100,000, the ROE is
10%.
 Return on Asset (ROA)
Return on Asset (ROA) is a profitability ratio calculated as net income divided by
average total assets that measures how much net profit is generated for each dollar
invested in assets. It determines financial leverage and whether enough is earned from
asset use to cover the cost of capital. Net income divided by average total assets equals
ROA.
For example, if net income for the year is $10,000, and total average assets for the
company over the same time period is equal to $100,000, the ROA is $10,000 divided by
$100,000, or 10%.

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8. Relationship between risk and return

8.1. Relationship

A fundamental idea in finance is the relationship between risk and return. The greater the
amount of risk an investor is willing to take, the greater the potential return. Risks are
likely to come in various ways and investors need to be compensated for taking on
additional risk. For example, the U.S. Treasury bond is considered one of the safest
investments and when compared to a corporate bond, provides a lower rate of return. A
corporation is much more likely to go bankrupt than the U.S. government. Because the
default risk of investing in a corporate bond is higher, investors are offered a higher rate
of return.

8.2. Risk and return tradeoff

“The risk and return tradeoff, also known as the risk-return spectrum, is the balance
between the desire for the lowest possible risk and the highest possible returns.”
(Investopedia)
It is regarded as an investment principle that indicates that the higher the risk, the higher
the potential return. To calculate an appropriate risk - return trade off, investors must
decide how much risk they are willing and able to accept for a desired return. This will be
based on their own risk tolerance. The general progression is: short-term debt, long-term
debt, property, high-yield debt, and equity.
The following chart shows a visual representation of the risk and return tradeoff for
investing, where a higher standard deviation means a higher level or risk - as well as a
higher potential return. 

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 Source: Image by Sabrina Jiang  © Investopedia 2020

8.3. Measurement of Risk and Return

The asset pricing model (CAPM) is a model that describes the relationship between
systematic risk and expected return for assets, particularly stocks. CAPM is widely used
throughout finance for pricing risky securities and generating expected returns for assets
given the risk of those assets and cost of capital.
The formula for calculating the expected return of an asset given its risk as
follows:
ERi=Rf+β(ERm-Rf)
where:
ERi: expected return of investment
Rf: risk-free rate
β: beta of the investment
(ERm-Rf): market risk premium

Investors expect to be compensated for risk and the time value of money. The risk-free
rate in the CAPM formula accounts for the investor taking on additional risk.

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For example, imagine an investor is contemplating a stock worth $100 per share today
that pays a 3% annual dividend. The stock has a beta compared to the market of 1.3,
which means it is riskier than a market portfolio. Also, assume that the risk-free rate is
3% and this investor expects the market to rise in value by 8% per year. 

The expected return of the stock based on the CAPM formula is:
3%+1.3(8%-3%)=9.5%

8.4. Beta’s role in CAPM

“Beta is a measure that firms can use in order to determine an investment’s return
sensitivity in relation to overall market risk. It is also referred to as a measure of the
sensitivity of the asset’s returns to market returns, its nondiversifiable risk, its systematic
risk, or market risk.” 

(www.yourarticlelibrary.com)

Higher-beta investments tend to be more volatile and therefore riskier, but provide the
potential for higher returns. Lower-beta investments pose less risk, but generally offer
lower returns. Take the stock market for example, where beta measures a stock’s relative
volatility - that is, it shows how much the price of a particular stock jumps up and down
compared with how much the entire stock market jumps up and down: 

 If a share price moves  exactly in line with the market, then the stock's beta is 1.
 A stock with a beta of 1.5 would rise by 15% if the market rose by 10%.
 A stock with a beta of 1.5 would fall by 15% if the market fell by 10%.

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CHAPTER 2: BITCOIN TREND
1. Definition of bicoin

Bitcoin (BTC) is one of the first cryptocurrencies to rise to popularity and successfully
record transactions on a secure, decentralized blockchain-based network.

Bitcoin launched in early 2009 by its pseudonymous creator Satoshi Nakamoto (5 April
1975 (claimed), Japan (claimed)). Bitcoin is the largest cryptocurrency measured by
market capitalization and amount of data stored on its blockchain. The Bitcoin software is
free and available online to anyone who wants to run a Bitcoin node and store their own
copy of the Bitcoin blockchain. As Bitcoin matures, engineers have designed additional
protocols to improve the speed and privacy of Bitcoin transactions, including the Omni
Layer, Lightning Network and Liquid Network. Only approximately 21 million Bitcoins
will ever be created. New coins are minted every 10 minutes by Bitcoin miners who help
to maintain the network by adding new transaction data to the blockchain.

There is no physical version of the currency, so all Bitcoin transactions take place over
the Internet. Unlike traditional currencies, Bitcoin is decentralized, meaning it is not
controlled by a single bank or government. Bitcoin uses peer-to-peer (P2P) technology to
operate; managing transactions and the issuing of Bitcoins is carried out collectively by
the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin
and everyone can take part. Through many of its unique properties, Bitcoin allows
exciting uses that could not be covered by any previous payment system.

Understanding Bitcoin

The Bitcoin system is a collection of computers (also referred to as "nodes" or "miners")

that all run Bitcoin's code and store its blockchain. Metaphorically, a blockchain can be
thought of as a collection of blocks. In each block is a collection of transactions. Because
all the computers running the blockchain has the same list of blocks and transactions, and

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can transparently see these new blocks being filled with new Bitcoin transactions, no one
can cheat the system.

Balances of Bitcoin tokens are kept using public and private "keys," which are long
strings of numbers and letters linked through the mathematical encryption algorithm that
was used to create them. The public key (comparable to a bank account number) serves
as the address which is published to the world and to which others may send Bitcoins.

The private key (comparable to an ATM PIN) is meant to be a guarded secret and only
used to authorize Bitcoin transmissions. Bitcoin keys should not be confused with a
Bitcoin wallet, which is a physical or digital device that facilitates the trading of Bitcoin
and allows users to track ownership of coins. The term "wallet" is a bit misleading, as
Bitcoin's decentralized nature means that it is never stored "in" a wallet, but rather
decentrally on a blockchain.

In this way, Bitcoin other cryptocurrencies operate differently from fiat currency; in
centralized banking systems, currency is released at a rate matching the growth in goods;
this system is intended to maintain price stability. A decentralized system, like Bitcoin,
sets the release rate ahead of time and according to an algorithm.

2. The popularity of bitcoin

As one of the key driving forces behind the increasing value of Bitcoin, is its widespread
usage across the world with many now choosing to make payments via Bitcoin instead of
using other methods. For consumers, a possibility to use Bitcoin means increased ease
and convenience in addition to higher security if comparing to a credit or debit card due
to significantly lower risk of identity theft and fraud during online trading. Popularity
among consumers is growing also because acceptance of Bitcoins is increasing among
businesses. Nowadays, trading in real life is also possible using Bitcoins – from
restaurants and coffee shops to real estate companies and other establishements who
accept Bitcoins. It is more than likely that with the growing value and popularity, the

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number of businesses and retailers that accept Bitcoins will continue to rise. Among
others, it is possible to point out various other benefits of Bitcoin:

2.1. Global accessibility

With Bitcoin, all payments in the world can be fully interoperable. Bitcoin allows any
bank, business or individual to securely send and receive payments anywhere at any time,
with or without a bank account. Bitcoin is available in a large number of countries that
still remain out of reach for most payment systems due to their own limitations. Bitcoin
increases global access to commerce and it can help international trades to flourish.

2.2. Cost efficiency

With the use of cryptography, secure payments are possible without slow and costly
middlemen. A Bitcoin transaction can be much cheaper than its alternatives and be
completed in a short time. This means Bitcoin holds some potential to become a common
way to transfer any currency in the future. Bitcoin could also play a role in reducing
poverty in many countries by cutting high transaction fees on workers' salary.

2.3. Control against fraud

An unprecedented level of security is possible with Bitcoin. The network provides users
with protection against most prevalent types of fraud like chargebacks or unwanted
charges, and Bitcoins are impossible to counterfeit. Users can backup or encrypt their
wallets. Hardware wallets make it very difficult to steal or lose money. Bitcoin is
designed to allow its users to have complete control over their money.

2.4. Crowdfunding

Bitcoin can be used to run Kickstarter-like crowdfunding campaigns, in which

individuals pledge money to a project that is taken from them only if enough pledges are
received to meet the target. Such assurance contracts are processed by the Bitcoin
protocol, which prevents a transaction from taking place until all conditions have been
met.

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2.5. Trust and integrity

Bitcoin offers solutions to many of the trust problems that plague banks. With selective
accounting transparency, digital contracts, and irreversible transactions, Bitcoin can be
used as a ground to restore trust and agreement. Crooked banks cannot cheat the system
to make a profit at the expense of other banks or the public. A future in which major
banks would support Bitcoin could help to reinstate integrity and trust in financial
institutions.

2.6. Resilience and decentralization

By way of decentralization, Bitcoin created a different type of payment network with an

increased level of resilience and redundancy. Bitcoin can handle millions of dollars in
trades without requiring military protection. With no central point of failure such as a
data center, attacking the network is difficult. Bitcoin could represent an interesting step
forward in securing local and global financial systems. Flexible transparency

All Bitcoin transactions are public and transparent and the identity of the people behind
transactions are private by default. This allows individuals and organizations to work
with flexible transparency rules. For instance, a business can choose to reveal certain
transactions and balances only to certain employees just like a non-profit organization is
free to allow the public to see how much they receive in daily and monthly donations.

2.7. Automated solutions

Automated services usually have to deal with costs and limitations of cash, or credit card
payments. This includes all kinds of vending machines, from train tickets to soda
machines. Bitcoin is suited to be used in a new generation of automated services to cut
their operating costs. Imagine self-driving taxis or a store where you can pay for your
purchases without waiting in line. Many ideas are possible.

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2.8. Dispute mediation

Bitcoin can be used to develop innovative dispute mediation services using multiple
signatures. Such services could make it possible for a third party to approve or reject a
transaction in case of disagreement between the other parties without having control of
their money. Since these services would be compatible with any user and merchant using
Bitcoin, this would likely lead to free competition and higher quality standards.

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CHAPTER 3: THE RISKS AND RETURNS OF BITCOIN

1. The high returns of Bitcoin

Bitcoin is the original cryptocurrency with a fixed limit of 21 million coins. The rate of
inflation will halve to 3,125 Bitcoins around May 2024 and continue to halve every 4
years until a total of 21 million Bitcoins are issued in 2140.

Bitcoin is the most typical, first born, and most widely used cryptocurrency in e-
commerce. Businesses tend to want to pay in Bitcoin to minimize costs. By February
2021, Bitcoin's base currency is valued at more than US$805 billion - the cryptocurrency
with the largest market value. Large fluctuations in the value of each Bitcoin have
prompted criticism of Bitcoin's economic suitability as a currency.

Historical Summary

- Mean annual return: 408.8%

- Min annual return: -72.6%
- Max annual return: 1318.0%

We can find that the annual return of Bitcoin is very high.

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Historical Price

Source: CoinMarketCap

According to professor Mark T. Williams, in 2014, the price volatility of Bitcoin was 7
times higher than that of gold, 8 times of the S&P 500 and 18 times that of the US dollar.
The value of Bitcoin has gone through many bubble cycles, for example: In 2011, the
Bitcoin price increased from $0.30 to a peak of $32 before returning to $2. In the second
half of 2012 and during the financial crisis in Cyprus, the price of Bitcoin rose to US$266
before returning to US$50. On November 29, 2013, the Bitcoin price peaked at $1,242.
Except for 2014, from 2009 to 2016, Bitcoin was the fastest growing currency in the
world. From 2009 to 2016, the price of Bitcoin has increased by 1,269,730 times. From
less than 4,800 USD/Bitcoin in mid-March 2020, this virtual currency started a strong
rally and reached nearly 30,000 USD/Bitcoin by the end of 2020, continued to skyrocket
in early 2021.

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A series of factors, including moves from big businesses, have pushed the price of
Bitcoin virtual currency to continuously rise to all-time highs.

One of the reasons why the Bitcoin price has skyrocketed recently is the pro-Bitcoin view
of famous businesses such as Tesla, Mastercard. Last week, Tesla said it had purchased
$1.5 billion worth of Bitcoin and plans to accept Bitcoin as a means of payment when
purchasing its products. Tesla boss, the world's richest person Elon Musk assessed that
Bitcoin has even "better" liquidity than cash.

In addition to the reason that large businesses are more open to Bitcoin, the passage of
trillions of dollars in financial stimulus measures to cope with the Covid-19 pandemic is
also a contributing factor to the price increase of Bitcoin. Bitcoin. The fact that central
banks print more money can push inflation up, in that context, investing in assets such as
Bitcoin, stocks, and emerging market currencies is considered a measure to help preserve
prices.

Many experts believe that Bitcoin is seen as an effective tool against the effects of
inflation and a falling dollar. The rate of Bitcoin is not pegged to any other currency but
is completely dependent on the supply and demand of the market. Bitcoin is one of the
purest free-market assets because it is freely traded in huge volumes globally without any
regulation.

Most experts invest 0% to 3% of their holdings in this asset. This has been an extremely
volitile asset with years of tenfold growth and other years with more than 80% losses.

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Comparison of Bitcoin, gold and S&P 500 price

Source: vn.tradingview.com

Looking at the chart, we see that the volatility of Bitcoin is greater than that of gold and
the S&P 500. Bitcoin's returns are up to several hundred percentiles, while the others
fluctuate very little, even negative. Compared to investing in stocks or gold, investing in
Bitcoin produces many times greater returns. But besides that, it also has some potential
risks.

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2. Risk from Bitcoin investment

2.1. The legal framework

Currently, the Bitcoin market is operating without any major regulations, which means
there is no legal framework to regulate the market. The government does not have a clear
stance on cryptocurrency, the market is just too new.
It is not taxed, which can make it enticing as an investment opportunity. However, a lack
of taxation can lead to problems should Bitcoin pose as competition for government
currency. As of now, cryptocurrency is not a widely accepted currency, but the future is
ever-changing. There is no telling what the state of the Bitcoin market could be in a few
years’ time.
As a result, cryptocurrencies are among the largest unregulated markets in the world. The
research, The Review of Financial Studies, finds that approximately one- quarter of
Bitcoin users are involved in illegal activity. The authors estimate that around 76%
billion of illegal activity per year involve Bitcoin (46% of Bitcoin transactions), which is
close to the scale of the U.S and European markets for illegal drugs.
The cryptocurrencies and the Bitcoin in particular are transforming the black markets by
enabling “black e-commerce”

2.2. The volatile and fluctuating market

There is no legal framework, the price of Bitcoin is constantly changing without daily
trading limit. The limit will protect the investors from speculators and manipulations.
For example, in Vietnam, according to the provision of the Securities Law, all of
securities on the market must be followed the daily trading limit as following:
The maximum trading limit
The trading limit
HOSE HNX UPCoM
The normal trading
7% 10% 15%
session
The first trading
20% 30% 40%
session

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 Source: The Securities Law
However, there is no law to manage the Bitcoin

Source: coindesk.com
For one year, the price of Bitcoin increase more than 6 times, from $10.000 in April 2020
to more than $60.000 in 2021. If the investor happened to purchase a Bitcoin on May
10th, 2021, the price topped $58.102. Days later, on the May 24th, buyers could not sell
their investment for than $34.260. The Bitcoin market is constantly rippling back and
forth. With such an unpredictable market, there is no telling if investors get a return on
their investment. To avoid a massive loss, they must keep a vigilant eye on the market.

2.3. The young technology

Cryptocurrency is still a very young technology. Bitcoin came about 10 years ago, and it
has yet to develop into something solid. With so many changes occuring in the past few
years, there is no telling how the market will evolve. Bitcoin as we know it may become
useless in the furure.

The Bitcoin system could contain unexploited flaws. As this is a fairly new system, if
Bitcoins were adopted widely, and a flaw was found, it could give tremendous weath to
the exploiter at the expense of destroying the Bitcoin economy.

22
The best way to approach this new investment opportunity is with caution and due
diligence. The investors should take the steps to secure their funds, and brace theirselves
for the future of the market.

2.4. Limited use

Bitcoin may be a step toward a new moneytary exchange; however, there are few
companies that accept it as a viable form of currency, some online shops. Currently,
Tesla- the corporation supplying sustainable energy with electric cars, solar.. announced
it has bought $1.5 billion worth of Bitcoin and will start accepting payments in Bitcoin in
exchange for its products “subject to applicable laws and initially on a limited basis”.
Days after, CEO of Tesla- Elon Musk refuses Bitcoin as a payment method and the price
of Bitcoin are dropping for many consecutive sessions.

2.5. Financial loss

Bitcoin has been referred to as a Ponzi scheme, with people at the top benefiting off the
ignorance of others. As more people but into Bitcoin, it creats a bubble economy. When
the bubble bursts, Bitcoin will essentially become useless; there will be many people
holding onto cryptocurrency, intending to sell but unable to unload. There is no return on
the investment, which can equal a very painful financial loss.

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CHAPTER 4: CONCLUTION

1. Result

Bitcoin has sparked debates on many platforms the world over. Most internet users know,
or at least have heard about bitcoin as one of the first cryptocurrencies to rise to
popularity and successfully record transactions on a secure, decentralized blockchain-
based network. At the moment, bitcoin’s popularity and adoption are increasing at a fast
rate. the reasons for the increasing Bitcoin’s popularity is its global accessibility, cost
efficiency, control against fraud, crowdfunding, trust and integrity, resilience and
decentralization, automated solutions and dispute mediation.

About the return of bitcoin: From the evidence and analysis in the research, it can be seen
that the volatility of bitcoin is greater than that of gold and the S&P 500. The value of
Bitcoin has gone through many bubble cycles, including moves from big businesses, have
pushed the price of bitcoin virtual currency to continuously rise to all-time highs. In
general, Bitcoin's returns are up to several hundred percentiles, while the others fluctuate
very little, even negative. Compared to investing in stocks or gold, investing in bitcoin
produces many times greater returns. But besides that, it also has some potential risks.

About the risk of bitcoin: High risk, high return ! Bitcoin can bring high returns, of
course it also contains a lot of risks, including the incomplete legal framework, the
volatile and fluctuating market, the young technology, limited use and financial loss.

2. Future work

In this section, we state aspects of bitcoin we have not considered and possibilities for
further extensions.

2.1. Bitcoin and Inflation

Bitcoin advocates regularly point out that Bitcoin is not affected by inflation. They draw
attention to the fact that there is a limited amount of Bitcoin, a situation they compare to

24
the regular money circuit, where in principle central banks can introduce an infinite
amount of money to the market. While it is true that this tells us something about the
amount of Bitcoin, it tells us nothing about the rate of inflation, which is measured in
terms of price development rather than the development of the amount of money. So the
example tells us nothing about inflation. In order to make any claims about inflation in
the world of Bitcoin, you would need to identify exactly which goods and services were
being traded in Bitcoin globally, how large a share each individual product has of
purchases in Bitcoin, and what the price development of every product (in Bitcoin) is
over time. Only then can a price index be constructed for Bitcoin to measure its
progression over time. But that information does not exist and will not be made available.
Because that would require far-reaching transparency throughout the Bitcoin world, to an
extent that would undermine the core philosophy of Bitcoin, which privileges privacy and
pseudonymity over transparency. The claim that Bitcoin is not affected by inflation,
therefore, is unfounded.

2.2. Could Bitcoin Become a Global Currency?

No, Bitcoin cannot do that. Nor can any crypto or regular currency. The whole concept of
a global currency is flawed. The theory of optimal currency areas teaches that currency
areas have an optimal size. Whether a currency area may be called an optimum currency
area (OCA) depends on the economic and political cohesion in that area and, in the words
of Nobel laureate Robert Mundell, “the optimum currency area is not the world”
(Mundell, 1961). Monetary autonomy is also important. Policymakers of particular
currency areas want to be able to influence the money supply within their economy so
that there is not excessive inflation or deflation. In Europe, we have the EMU, a currency
area in which political integration is not yet complete. Given how hard it is to achieve
political cohesion in a group of about twenty countries that are similar in many ways, the
chances that it could be achieved on a global scale are zero.

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3. Conclusion

Appearing more than 10 years ago, Bitcoin is considered the world's first
cryptocurrencies, in fact has increased in value and is increasingly popular. However,
because it has become an kind of investment, Bitcoin has both potential for profit
opportunities and risks. Like any other means of payment, Bitcoin, even without being a
secured currency, is integrated into the existing economy.

However, at the end of May 2021, the bitcoin market wobbled with a series of
unfavorable information related to new regulations about cryptocurrencies of countries
around the world such as China, the US, and Iran,… Investing in Bitcoin today is a very
risky undertaking. There is no guarantee of minimum profitability or, at least, break-even
investments. All investors who are going to work with cryptocurrency today must
understand what the currency is about and have a clear plan of action for all sorts of
scenarios. In addition, an inexperienced investor should invest only the amounts that he is
willing to lose without serious consequences.

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