The Wolf Den #403 - Does Bitcoin Appreciate 200% A Year?
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This newsletter is sponsored by PHEMEX, the world's best crypto exchange for both spot and leverage. Sign up with the link above and get some free Bitcoin - up to $3600 worth. PHEMEX is also celebrating their two year anniversary by sharing 2 BTC with 10 lucky winners to help them realize their dreams: https://anniversary.phemex.com/#dream-sectionOne of the popular arguments we use when trying to "orange pill" someone is that "on average, Bitcoin appreciates 200% a year." Let’s assess the veracity of this claim.Before I look closer at the numbers, I want to briefly look at the early history of Bitcoin. Bitcoin began its journey without a price. A look back at old archives and the original mailing list will show that Satoshi was freely distributing coins to early adopters from the stack that he accumulated mining. There was once a Bitcoin faucet that freely distributed 5 coins if you created an address and clicked a button. As interest grew from 1 person to 10 people to 100, cheap prices were agreed upon for large sums of coins at varying rates. We lack a solid record of price from this time.It wasn't until Mt. Gox opened in 2010 and miners slowly popped up around the world that the asset began to hold value. You could argue that Bitcoin technically rose millions of percent in the early days, but that does not reflect reality or help to verify our claim. Extreme volatility, typically in the early years of an asset, should be considered an outlier in determining an average YOY (year over year) return. Frankly, any figure of extreme upside or downside can skew an average over time.Pokemon cards weren’t widely considered an investment until recently. To take their recent explosive growth and spread that over the cards' lifespan and claim that the cards appreciate xxx% on average YOY would be ridiculous.Amazon stock still climbs, but to attribute early gains from the bookstore to the webstore to today and calculate an average rate of return would be foolish.You get the point. The same idea applies to Bitcoin.With the disclaimers out of the way, let’s see how the original claim holds up. I decided to look at Bitcoin’s opening price on January 1st, starting in 2011. I chose 2011 because Bitcoin has unreliable price history prior to this year. Mt. Gox, the first Bitcoin exchange, was founded in mid 2010. There are plenty of price record sites you can use, the one I used can be found HERE.Bitcoin’s Historical Price Appreciation January 1st, 2011 - $0.30 January 1st, 2012 - $4.72January 1st, 2013 - $13.51January 1st, 2014 - $754.97January 1st, 2015 - $320.44January 1st, 2016 - $430.72January 1st, 2017 - $963.66January 1st, 2018 - $14,112.20January 1st, 2019 - $3,743.13January 1st, 2020 - $7,212.63January 1st, 2021 - $28,994.01January 1st, 2022 ≈ $47,000Now that a starting price is established, let’s start at $.3 from 2011 and suppose a 200% appreciation YOY until January 1st, 2022.The result is $.3, $.9, $2.7… $53,144 - WOW. Let’s write it out to make sure our math is correct.Bitcoin’s Price Appreciation From $.30 With A Fixed 200% Increase YOYJanuary 1st, 2011 - $0.30 January 1st, 2012 - $.90January 1st, 2013 - $2.7January 1st, 2014 - $8.1January 1st, 2015 - $24.3January 1st 2016 - $72.9January 1st, 2017 - $218.7January 1st, 2018 - $656.1January 1st, 2019 - $1,968.3January 1st, 2020 - $5,904.9January 1st, 2021 - $17,714January 1st, 2022 ≈ $53,144As you can see, the numbers actually work out incredibly well at the finish line. Remember, we are discussing an average, so there was no expectation that the January 1st numbers would line up. Some years were better than others. Although price history isn’t reliable pre-2011, we could go back and assign values to 2008, 2009, and 2010 respectively as $.01, $03, and $.1 and the experiment fits almost perfectly into the model. This was even a shocker to me, because I didn't work backwards on this. I was truly unsure how this would work out. The $53,000 figure is close to where we are today. That said, I'm not convinced that the claim works as broadly as it's used.The issue is that claiming that "Bitcoin appreciates 200% YOY" is misleading in a number of ways. The statement is implied to mean that, on average, this is the return you should expect given a large enough sample of years. The number should hold up if enough data points are included, regardless of where you start on the timeline. That means it shouldn't only work from 2011...And this is where the problem begins. Bitcoin is only 13 years old, with meaningful price action for roughly a decade. Regardless, two cycles worth of data (roughly 8 years) should bring us somewhere close to the 200% YOY average. The problem is that it doesn’t add up. I checked against a starting point of January 1st 2012, 2013, 2014... and it failed miserably.I suspect it would probably fail at more points too, but I only checked these three.With that in mind, it would be inaccurate to say that, from 2012 until now, Bitcoin appreciates on average 200% YOY (same for 2013, 2014, and so on). This drastically reduces the usability of the claim, as it basically limits it to a narrow set of parameters. It's true if you start on an arbitrary date in one specific year. Otherwise, it falls apart.The further you pull back the weeds on this, the more complicated it gets. You could take the average price of each year instead of the January 1st price point for better verification, but the numbers still don't add up and nobody making the claim is considering this. Do the 200%ers dig as deep as we just did? I may look further into this in the future, but for the time being, I have enough evidence to refute this claim. If you do want to see how the 200% figure was originally calculated, the Tweet HERE shows where it came from. He averaged the percentage gain each year to reach 200% - fair and accurate, but only true if you start in 2010 and end in 2020, as he did. Sliding the scale makes the claim inaccurate. People have taken this very specific data set and broadly made a claim using it.The issue lies in the fact that the numbers are correct in both my experiment and his (if you start at the right spot), but the general awareness of the idea has been misconstrued.The 200% claim can only ever weaken over time. Nothing can rise on average 200% YOY indefinitely - it would have to eat the value of every asset in the universe to keep up with that rate. The claim is fun, palatable for a new person looking to get into Bitcoin, and the sentiment is accurate. Bitcoin has been the best performing asset since it was created. If we are being honest, this is largely a result of growth in the early days before it was considered a meaningful asset.This is not to be taken as a negative - it's more of a thought experiment on the way we present the asset to newcomers. In This Issue:Does Bitcoin Appreciate 200% YOY?Bitcoin Thoughts And AnalysisChart RequestsMore Predictions For 2022Sber Bank Launches Blockchain ETFThe Wolf Of All Streets Podcast Ft. Max BoonenMy Recommended Platforms And ToolsIF YOU HAVE ANY ISSUE WITH THE NEWSLETTER OR YOUR SUBSCRIPTION, PLEASE CONTACT: PREMIUMSUPPORT@GETREVUE.CO
The Wolf Den #403 - Does Bitcoin Appreciate 200% A Year?
The Wolf Den #403 - Does Bitcoin Appreciate…
The Wolf Den #403 - Does Bitcoin Appreciate 200% A Year?
This newsletter is sponsored by PHEMEX, the world's best crypto exchange for both spot and leverage. Sign up with the link above and get some free Bitcoin - up to $3600 worth. PHEMEX is also celebrating their two year anniversary by sharing 2 BTC with 10 lucky winners to help them realize their dreams: https://anniversary.phemex.com/#dream-sectionOne of the popular arguments we use when trying to "orange pill" someone is that "on average, Bitcoin appreciates 200% a year." Let’s assess the veracity of this claim.Before I look closer at the numbers, I want to briefly look at the early history of Bitcoin. Bitcoin began its journey without a price. A look back at old archives and the original mailing list will show that Satoshi was freely distributing coins to early adopters from the stack that he accumulated mining. There was once a Bitcoin faucet that freely distributed 5 coins if you created an address and clicked a button. As interest grew from 1 person to 10 people to 100, cheap prices were agreed upon for large sums of coins at varying rates. We lack a solid record of price from this time.It wasn't until Mt. Gox opened in 2010 and miners slowly popped up around the world that the asset began to hold value. You could argue that Bitcoin technically rose millions of percent in the early days, but that does not reflect reality or help to verify our claim. Extreme volatility, typically in the early years of an asset, should be considered an outlier in determining an average YOY (year over year) return. Frankly, any figure of extreme upside or downside can skew an average over time.Pokemon cards weren’t widely considered an investment until recently. To take their recent explosive growth and spread that over the cards' lifespan and claim that the cards appreciate xxx% on average YOY would be ridiculous.Amazon stock still climbs, but to attribute early gains from the bookstore to the webstore to today and calculate an average rate of return would be foolish.You get the point. The same idea applies to Bitcoin.With the disclaimers out of the way, let’s see how the original claim holds up. I decided to look at Bitcoin’s opening price on January 1st, starting in 2011. I chose 2011 because Bitcoin has unreliable price history prior to this year. Mt. Gox, the first Bitcoin exchange, was founded in mid 2010. There are plenty of price record sites you can use, the one I used can be found HERE.Bitcoin’s Historical Price Appreciation January 1st, 2011 - $0.30 January 1st, 2012 - $4.72January 1st, 2013 - $13.51January 1st, 2014 - $754.97January 1st, 2015 - $320.44January 1st, 2016 - $430.72January 1st, 2017 - $963.66January 1st, 2018 - $14,112.20January 1st, 2019 - $3,743.13January 1st, 2020 - $7,212.63January 1st, 2021 - $28,994.01January 1st, 2022 ≈ $47,000Now that a starting price is established, let’s start at $.3 from 2011 and suppose a 200% appreciation YOY until January 1st, 2022.The result is $.3, $.9, $2.7… $53,144 - WOW. Let’s write it out to make sure our math is correct.Bitcoin’s Price Appreciation From $.30 With A Fixed 200% Increase YOYJanuary 1st, 2011 - $0.30 January 1st, 2012 - $.90January 1st, 2013 - $2.7January 1st, 2014 - $8.1January 1st, 2015 - $24.3January 1st 2016 - $72.9January 1st, 2017 - $218.7January 1st, 2018 - $656.1January 1st, 2019 - $1,968.3January 1st, 2020 - $5,904.9January 1st, 2021 - $17,714January 1st, 2022 ≈ $53,144As you can see, the numbers actually work out incredibly well at the finish line. Remember, we are discussing an average, so there was no expectation that the January 1st numbers would line up. Some years were better than others. Although price history isn’t reliable pre-2011, we could go back and assign values to 2008, 2009, and 2010 respectively as $.01, $03, and $.1 and the experiment fits almost perfectly into the model. This was even a shocker to me, because I didn't work backwards on this. I was truly unsure how this would work out. The $53,000 figure is close to where we are today. That said, I'm not convinced that the claim works as broadly as it's used.The issue is that claiming that "Bitcoin appreciates 200% YOY" is misleading in a number of ways. The statement is implied to mean that, on average, this is the return you should expect given a large enough sample of years. The number should hold up if enough data points are included, regardless of where you start on the timeline. That means it shouldn't only work from 2011...And this is where the problem begins. Bitcoin is only 13 years old, with meaningful price action for roughly a decade. Regardless, two cycles worth of data (roughly 8 years) should bring us somewhere close to the 200% YOY average. The problem is that it doesn’t add up. I checked against a starting point of January 1st 2012, 2013, 2014... and it failed miserably.I suspect it would probably fail at more points too, but I only checked these three.With that in mind, it would be inaccurate to say that, from 2012 until now, Bitcoin appreciates on average 200% YOY (same for 2013, 2014, and so on). This drastically reduces the usability of the claim, as it basically limits it to a narrow set of parameters. It's true if you start on an arbitrary date in one specific year. Otherwise, it falls apart.The further you pull back the weeds on this, the more complicated it gets. You could take the average price of each year instead of the January 1st price point for better verification, but the numbers still don't add up and nobody making the claim is considering this. Do the 200%ers dig as deep as we just did? I may look further into this in the future, but for the time being, I have enough evidence to refute this claim. If you do want to see how the 200% figure was originally calculated, the Tweet HERE shows where it came from. He averaged the percentage gain each year to reach 200% - fair and accurate, but only true if you start in 2010 and end in 2020, as he did. Sliding the scale makes the claim inaccurate. People have taken this very specific data set and broadly made a claim using it.The issue lies in the fact that the numbers are correct in both my experiment and his (if you start at the right spot), but the general awareness of the idea has been misconstrued.The 200% claim can only ever weaken over time. Nothing can rise on average 200% YOY indefinitely - it would have to eat the value of every asset in the universe to keep up with that rate. The claim is fun, palatable for a new person looking to get into Bitcoin, and the sentiment is accurate. Bitcoin has been the best performing asset since it was created. If we are being honest, this is largely a result of growth in the early days before it was considered a meaningful asset.This is not to be taken as a negative - it's more of a thought experiment on the way we present the asset to newcomers. In This Issue:Does Bitcoin Appreciate 200% YOY?Bitcoin Thoughts And AnalysisChart RequestsMore Predictions For 2022Sber Bank Launches Blockchain ETFThe Wolf Of All Streets Podcast Ft. Max BoonenMy Recommended Platforms And ToolsIF YOU HAVE ANY ISSUE WITH THE NEWSLETTER OR YOUR SUBSCRIPTION, PLEASE CONTACT: PREMIUMSUPPORT@GETREVUE.CO