Financial Glossary
Complex financial and Bitcoin terms explained in plain, simple language. No jargon, no confusion.
Digital money that works without banks. There will only ever be 21 million Bitcoin.
Bitcoin is a decentralized digital currency created in 2009 by Satoshi Nakamoto. It runs on a peer-to-peer network where transactions are verified by miners and recorded on a public ledger called the blockchain. Unlike traditional money, no government or bank controls it, and the total supply is mathematically capped at 21 million coins.
A digital record book that everyone can see but nobody can cheat. Every Bitcoin transaction is written in it.
A blockchain is a chain of data blocks, each containing a list of transactions. Once a block is added, it cannot be changed without altering every block that comes after it — making fraud nearly impossible. Bitcoin's blockchain is maintained by thousands of computers worldwide, ensuring no single entity can control or manipulate the records.
The smallest unit of Bitcoin — like a cent is to a dollar. 1 Bitcoin = 100,000,000 satoshis.
Named after Bitcoin's creator Satoshi Nakamoto, a satoshi (sat) is one hundred millionth of a Bitcoin (0.00000001 BTC). Because Bitcoin's price is high, most everyday transactions are denominated in satoshis. For example, if 1 BTC = $100,000, then 1 satoshi = $0.001.
Every 4 years, the reward miners get for processing Bitcoin transactions is cut in half. This makes Bitcoin scarcer over time.
Bitcoin's halving is a programmed event that reduces the block reward by 50% roughly every 210,000 blocks (about 4 years). The most recent halving in April 2024 reduced the reward from 6.25 to 3.125 BTC per block. Halvings reduce the rate of new Bitcoin creation, increasing scarcity and historically triggering significant price increases in the following 12-18 months.
Using powerful computers to process Bitcoin transactions and earn new Bitcoin as a reward.
Bitcoin mining is the process of using specialized hardware (ASICs) to solve complex mathematical puzzles. The first miner to solve the puzzle gets to add a new block of transactions to the blockchain and receives the block reward plus transaction fees. Mining secures the network and is the mechanism through which new Bitcoin enters circulation.
A digital app or device that stores your Bitcoin. Think of it like a bank account you fully control.
A Bitcoin wallet stores the private keys that give you access to your Bitcoin on the blockchain. Wallets can be software (apps on your phone or computer), hardware (dedicated physical devices like Ledger or Trezor), or even paper. The key distinction is between custodial wallets (a company holds your keys) and non-custodial wallets (you hold your own keys).
A secret password that proves you own your Bitcoin. Never share it with anyone.
A private key is a long string of numbers and letters that acts as the master password to your Bitcoin. Anyone who has your private key can spend your Bitcoin. This is why the crypto saying 'not your keys, not your coins' is so important — if an exchange holds your keys, they technically control your Bitcoin.
12 or 24 words that can restore your entire Bitcoin wallet if your device is lost or broken. Write them down and keep them safe.
A seed phrase (also called mnemonic phrase or recovery phrase) is a human-readable backup of your private keys. It typically consists of 12 or 24 words from a standardized list. With these words, you can recover all your Bitcoin on any compatible wallet. Store them offline in a secure location — anyone with your seed phrase has full access to your funds.
Holding your own Bitcoin instead of leaving it on an exchange. You are your own bank.
Self-custody means you personally control the private keys to your Bitcoin, typically using a hardware wallet. This eliminates the risk of exchange hacks, freezes, or bankruptcies (as seen with FTX in 2022). The trade-off is that you are solely responsible for securing your keys — if you lose them, no one can help you recover your Bitcoin.
Keeping your Bitcoin on a device that is not connected to the internet, like a hardware wallet.
Cold storage refers to any method of storing Bitcoin offline, away from potential internet-based attacks. Hardware wallets (Ledger, Trezor, BitBox) are the most popular form. Other methods include paper wallets and steel seed phrase backups. Cold storage is considered the gold standard for securing large amounts of Bitcoin long-term.
Investing a fixed amount of money into Bitcoin at regular intervals (e.g., $100 every week), regardless of the price.
Dollar Cost Averaging is a strategy where you invest the same amount on a regular schedule — weekly, bi-weekly, or monthly. When prices are low, your fixed amount buys more Bitcoin; when prices are high, it buys less. Over time, this averages out your purchase price and removes the stress of trying to time the market. Studies show DCA is one of the most effective strategies for volatile assets like Bitcoin.
Slang for holding your Bitcoin long-term instead of selling. Originally a typo for 'hold'.
HODL originated from a 2013 Bitcoin forum post where a user misspelled 'hold' during a market crash. It has since become a rallying cry in the Bitcoin community, often reinterpreted as 'Hold On for Dear Life.' The HODL strategy means buying Bitcoin and holding it through price swings, based on the belief that its long-term trajectory is upward.
Having enough money so you don't need to work for a living. Your investments cover all your expenses.
Financial freedom (also called financial independence) is the point where your passive income from investments covers all your living expenses. In the context of Bitcoin retirement planning, this means your Bitcoin portfolio has grown large enough that you can withdraw a sustainable amount each year (typically 4%) to cover your lifestyle without depleting the principal.
Financial Independence, Retire Early — a lifestyle movement focused on saving aggressively to retire decades before the traditional age.
The FIRE movement advocates extreme saving rates (50-70% of income) and investing the savings to achieve financial independence as early as possible. FIRE followers typically aim for a portfolio of 25x their annual expenses, based on the 4% withdrawal rule. Bitcoin has become increasingly popular in FIRE circles due to its high historical returns.
A rule of thumb: you can withdraw 4% of your retirement portfolio each year without running out of money.
The 4% rule comes from the Trinity Study (1998), which found that retirees who withdraw 4% of their portfolio in the first year (adjusting for inflation thereafter) have a very high probability of their money lasting at least 30 years. This means you need 25x your annual expenses saved up. For example, if you spend $40,000/year, you need a $1,000,000 portfolio.
To retire, you need 25 times your yearly expenses saved up. Spend $40,000/year? You need $1,000,000.
The 25x Rule is the inverse of the 4% withdrawal rate. It gives you a simple target: multiply your annual expenses by 25 to find your 'Financial Freedom Number.' This is the portfolio value at which you can sustainably withdraw 4% per year to cover your expenses. WenMoon uses this principle to calculate when your Bitcoin portfolio will reach financial freedom.
A mathematical model predicting Bitcoin's price will follow a specific growth curve over time, similar to how cities and technologies grow.
Developed by physicist Giovanni Santostasi, the Power Law model plots Bitcoin's price on a logarithmic scale against time. It shows a remarkably consistent upward corridor that Bitcoin's price has followed since its inception. The model projects approximately 35% annual growth and suggests Bitcoin's price trajectory is driven by network effects similar to those seen in other natural and technological systems.
A model that predicts Bitcoin's price based on how scarce it is — less new supply means higher price, just like gold.
Created by anonymous analyst PlanB, the Stock-to-Flow model measures the ratio between existing supply (stock) and new annual production (flow). Bitcoin's S2F ratio doubles approximately every 4 years due to halvings, making it increasingly scarce. The model compares Bitcoin to commodities like gold and silver, projecting approximately 40% annual growth. While controversial, it has been directionally accurate over multiple halving cycles.
A colorful chart showing whether Bitcoin is currently cheap, fair-priced, or expensive based on historical patterns.
The Bitcoin Rainbow Chart overlays a logarithmic regression band on Bitcoin's historical price. The bands range from dark blue ('basically a fire sale') through green ('still cheap') to red ('maximum bubble territory'). While not a precise prediction tool, it helps visualize where the current price sits relative to Bitcoin's long-term growth trajectory. WenMoon uses a 25% annual growth rate for this model.
A period when prices are going up and investors are optimistic. In Bitcoin, bull markets can see 500-1,000%+ gains.
A bull market is a sustained period of rising prices, typically driven by positive sentiment, increasing adoption, or macro factors. Bitcoin bull markets have historically lasted 12-18 months following each halving, often resulting in new all-time highs. During Bitcoin's 2020-2021 bull market, the price rose from approximately $10,000 to $69,000.
A period when prices are falling and investors are worried. Bitcoin bear markets typically see 50-80% drops from the peak.
A bear market is characterized by falling prices, negative sentiment, and reduced trading activity. Bitcoin bear markets have historically followed bull market peaks, with drawdowns of 50-85%. While painful, these periods have always been temporary — Bitcoin has recovered to new all-time highs after every bear market. Bear markets are often the best time to accumulate Bitcoin via DCA.
The highest price Bitcoin (or any asset) has ever reached.
An All-Time High is the peak price an asset has reached in its entire trading history. Bitcoin has set numerous ATHs throughout its existence: $1 (2011), $1,000 (2013), $20,000 (2017), $69,000 (2021), and $100,000+ (2024). Each cycle has reached higher ATHs, consistent with Bitcoin's long-term growth trajectory.
How much an investment drops from its highest point. A 50% drawdown means the price fell by half.
Drawdown measures the decline from a peak to a trough. In the WenMoon Compare tool, maximum drawdown is shown for each asset class. Bitcoin's maximum drawdown has been around 85% (2011, 2014), while the S&P 500's worst was about 55% (2008). Understanding drawdowns is crucial for retirement planning — you need to be prepared for significant drops without panic-selling.
How much a price swings up and down. Bitcoin is more volatile than stocks, meaning bigger gains but also bigger drops.
Volatility measures the degree of price variation over time. Bitcoin's annual volatility is typically 50-80%, compared to 15-20% for the S&P 500 and 10-15% for gold. While high volatility means higher risk in the short term, it has also meant dramatically higher returns for long-term holders. Bitcoin's volatility has been gradually decreasing over time as the market matures.
The average yearly growth rate of an investment over multiple years, smoothing out the ups and downs.
CAGR shows the annualized return of an investment as if it grew at a steady rate each year. For example, if $10,000 grows to $100,000 over 10 years, the CAGR is approximately 26%. It's useful for comparing investments over the same period. Bitcoin's CAGR since inception has been around 100%+, though this is expected to decrease as the market matures. WenMoon's Compare tool shows CAGR for each asset.
The total value of all Bitcoin in existence. Calculated by multiplying the current price by the total number of coins.
Market capitalization is calculated as price × circulating supply. Bitcoin's market cap exceeded $1 trillion in 2021, putting it among the world's most valuable assets. Market cap is often used to compare Bitcoin to other assets: gold's market cap is approximately $15 trillion, and the global stock market is approximately $100 trillion. Some analysts project Bitcoin could eventually reach gold's market cap.
A platform where you can buy, sell, and trade Bitcoin using regular money (like dollars or euros).
Cryptocurrency exchanges are marketplaces that match buyers and sellers. Centralized exchanges (CEX) like Coinbase, Kraken, and Binance act as intermediaries — you deposit money, and they facilitate trades. The key differences between exchanges are: fees, available features, security, regulatory compliance, and whether they offer self-custody options. WenMoon's Exchanges page compares popular platforms.
Identity verification required by most exchanges — you'll need to upload an ID and sometimes a selfie.
KYC is a regulatory requirement where financial institutions must verify the identity of their customers. Most regulated exchanges require KYC before you can buy Bitcoin. This typically involves providing your name, address, date of birth, and a government-issued ID. While some see KYC as an invasion of privacy, it's a legal requirement in most jurisdictions and helps prevent fraud and money laundering.
Government-issued money like US dollars (USD) or euros (EUR) that isn't backed by a physical commodity.
Fiat currency is money declared legal tender by a government but not backed by a physical commodity like gold. Since the US abandoned the gold standard in 1971, all major currencies are fiat. Bitcoin was created partly as a response to the unlimited printing of fiat money by central banks, which leads to inflation and currency devaluation over time.
When prices go up over time and your money buys less. A $100 grocery bill today bought more food 10 years ago.
Inflation is the rate at which the general level of prices rises, eroding purchasing power. Central banks target 2% annual inflation, but actual rates can be much higher. At 3% inflation, your money loses half its purchasing power in about 24 years. Bitcoin is seen as an inflation hedge because its supply is fixed at 21 million — no central bank can 'print' more Bitcoin.
Something that holds its worth over time. Gold has been a store of value for thousands of years; many believe Bitcoin is the digital version.
A store of value is an asset that maintains its purchasing power over long periods. Traditional stores of value include gold, real estate, and certain currencies. Bitcoin is increasingly considered a digital store of value (or 'digital gold') due to its fixed supply, decentralization, portability, and divisibility. Unlike gold, Bitcoin can be sent anywhere in the world in minutes and divided into 100 million units.
A faster, cheaper way to send small Bitcoin payments. Think of it as an express lane on top of the main Bitcoin highway.
The Lightning Network is a 'Layer 2' payment protocol built on top of Bitcoin's blockchain. It enables near-instant transactions with fees of fractions of a cent, making Bitcoin practical for small everyday payments like buying coffee. Transactions happen off-chain in payment channels and are only settled on the main blockchain when channels are closed, dramatically increasing Bitcoin's transaction capacity.
A fund you can buy through a regular stockbroker that holds Bitcoin for you, so you don't need to manage a wallet yourself.
A Bitcoin ETF tracks the price of Bitcoin and trades on traditional stock exchanges like the NYSE. Spot Bitcoin ETFs were approved in the US in January 2024, allowing investors to gain Bitcoin exposure through their existing brokerage accounts and retirement accounts (401k, IRA). While convenient, ETFs mean you don't actually hold Bitcoin — the fund does. This means you can't use the Lightning Network, and you're relying on the ETF issuer for custody.
All of your investments combined — your Bitcoin, stocks, bonds, real estate, etc.
A portfolio is the total collection of financial investments held by an individual or institution. Diversification — spreading investments across different asset classes — is a common strategy to manage risk. In the context of WenMoon, your Bitcoin portfolio value is calculated based on your current BTC holdings plus projected future purchases through DCA, multiplied by the projected Bitcoin price.
Money you earn without actively working — like interest on savings or withdrawals from a large enough investment portfolio.
Passive income is earnings derived from investments, rental properties, or businesses that require minimal active involvement. In Bitcoin retirement planning, passive income comes from systematically selling a small percentage (typically 4%) of your Bitcoin portfolio each year. Once your portfolio is large enough (25x annual expenses), these withdrawals can sustain your lifestyle indefinitely.
How much stuff your money can actually buy. When prices go up (inflation), your purchasing power goes down.
Purchasing power measures the quantity of goods and services that a unit of currency can buy. Inflation gradually erodes purchasing power — $100 in 2000 has the same buying power as roughly $180 today. Bitcoin holders argue that Bitcoin preserves and grows purchasing power over time because its supply is fixed while fiat currencies are constantly printed, diluting their value.