Financial Literacy: Cryptocurrency Basics and Volatility Worksheet

Question 1

Define cryptocurrency in your own words. Include two features that make it different from traditional money held in a bank account.

Accepted Answer

Cryptocurrency is a digital asset that can be used to transfer value online. Two features that make it different from traditional bank money are that many cryptocurrencies run on decentralized networks and transactions are recorded on a blockchain rather than only in a bank's private records.

Question 2

A student says, "Bitcoin is just a file saved on your computer." Explain why this statement is not accurate.

Accepted Answer

The statement is not accurate because Bitcoin ownership is recorded on a blockchain, not simply stored as a file on one computer. A wallet stores keys that allow a person to access and control cryptocurrency, but the transaction record exists on the network.

Question 3

Match each term with its meaning: blockchain, private key, exchange, wallet. Write one sentence for each match.

Accepted Answer

A blockchain is a shared digital record of transactions. A private key is secret information used to control cryptocurrency. An exchange is a platform where people can buy and sell cryptocurrency. A wallet is a tool that stores keys and helps users send or receive cryptocurrency.

Question 4

A cryptocurrency price was $2,000 on Monday and $2,500 on Tuesday. Calculate the percent increase from Monday to Tuesday.

Accepted Answer

The price increased by $500. The percent increase is $500 divided by $2,000, which equals 0.25, so the price increased by 25%.

Question 5

A cryptocurrency price was $80 on Friday and $60 on Saturday. Calculate the percent decrease from Friday to Saturday.

Accepted Answer

The price decreased by $20. The percent decrease is $20 divided by $80, which equals 0.25, so the price decreased by 25%.

Question 6

Look at a line graph showing a cryptocurrency that starts at $100, rises to $140, falls to $90, rises to $130, and ends at $70 over five days. Describe what the graph shows about volatility.

Accepted Answer

The graph shows high volatility because the price changes sharply over a short time. The cryptocurrency rises and falls by large amounts instead of staying close to one stable value.

Question 7

An investor buys $300 worth of a cryptocurrency. One week later, its value falls by 40%. What is the investment worth after the decrease?

Accepted Answer

A 40% decrease of $300 is $120. The investment is worth $300 minus $120, which equals $180 after the decrease.

Question 8

An investor's cryptocurrency holding is worth $180 after a price drop. The next week, it rises by 50%. What is it worth after the increase? Explain why this does not return the investment to $300.

Accepted Answer

A 50% increase of $180 is $90, so the holding is worth $270 after the increase. It does not return to $300 because the 50% gain is calculated from the lower value of $180, not from the original $300.

Question 9

A pie chart shows a student portfolio with 70% in a savings account, 20% in a stock index fund, and 10% in cryptocurrency. Explain one reason a person might limit cryptocurrency to a small part of a portfolio.

Accepted Answer

A person might limit cryptocurrency to a small part of a portfolio because its price can be very volatile. Keeping only a small portion in cryptocurrency can reduce the chance that one risky asset causes a large loss to the whole portfolio.

Question 10

List three risks a person should consider before buying cryptocurrency.

Accepted Answer

A person should consider price volatility, the risk of scams or fraud, and the risk of losing access to a wallet or private key. They should also understand that some cryptocurrencies may have limited regulation or unclear long-term value.

Question 11

A table compares two assets. Asset A changes by 1% to 2% most days. Asset B changes by 8% to 15% most days. Which asset is more volatile, and what does that mean for risk?

Accepted Answer

Asset B is more volatile because its daily price changes are much larger. This means Asset B may have a higher risk of sudden losses, although it may also have larger short-term gains.

Question 12

Explain why researching a cryptocurrency project is important before investing. Include at least two things a person might research.

Accepted Answer

Researching a cryptocurrency project is important because not all projects are reliable, useful, or safe. A person might research the project's purpose, the team behind it, its security history, how its supply works, and whether trusted sources have reported concerns.

Financial Literacy: Cryptocurrency Basics and Volatility

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