In my last article about Bitcoin I talked about how a $5000 cryptocurrency investment fund could increase in value over a period of 5 years to a sum of $5 million given a year-on-year fund compound value appreciation rate of 300% per annum.
Such a rate of growth sounds incredible – and I made some points about why it is in theory at least achievable in the cryptocurrency sector.
Now its time to examine this theory in more detail. I began by taking a look at the historical price data for Bitcoin. And this revealed some amazing facts….
There’s a lot that can be said about the future development and price extrapolation of Bitcoin. But for now I’m just going to concentrate on the simple price statistics involved.
First things first. What are we trying to do? To increase $5000 to $5 million over 5 years through constant compound investment and active trading – mainly, though not exclusively, in cryptocurrencies.
That’s a percentage increase over the five years of 10,000%. With active trading and trading with a mixed portfolio of altcoins and bitcoin/altcoin pairs we may be able to achieve this with a lower Bitcoin price appreciation.
But let’s stick with a 10,000% price appreciation for the moment and concentrate solely on Bitcoin.
That means the Bitcoin price currently at the time of writing standing at $3500 would have to increase to $350,000 by 2024.
How does that compare with the actual price history of Bitcoin to date since its appearance on the financial trading scene some 10 years ago?
This has been the development of the Bitcoin price over the last 10 years from June 2009 to March 2019.
Bitcoin Price Development Over 10 Years
YEAR BTC PRICE IN $ USD
2019 3500 (1st Qtr)
First a couple of points to bear in mind about this data. These figures are approximate, both the prices and the percentage figures. I have not calculated them exactly. Actual prices depend on the exchange being referenced.
They are also mid-year (June) and they do not relate to a specific date. The idea is to produce some quick workable data of the price developments over the last 10 years for the purposes of this article.
So, now let’s see how this looks in percentage terms.
Bitcoin Percentage Price Changes Over 10 Years
Annual mid-year to mid-year BTC price change
So the overall value appreciation of one Bitcoin since 2009 to early 2019 has been $0.0001 to $3500
That’s an incredible 3,500,000,000% (3.5 billion percent)! I can’t think of any other asset in the world which has achieved such a rate of growth in value.
However, we can say that 2009 to 2011 were highly exceptional cases since the currency was first establishing itself as a complete newcomer.
So let’s ignore 2009 as that was the early days of Bitcoin and instead run our calculation from mid 2010.
That gives us 5,000,000% price appreciation.
This actually happened – and good luck to those who held Bitcoin from that time. But it’s a unique one-off type situation that doesn’t happen every day – or every year.
The guy who bought 2 pizzas in 2010 for 10,000 Bitcoins has no doubt been kicking himself ever since.
So to avoid over-skewing our results, let’s also leave out 2010 completely and run our calculation from mid 2011 to early 2019.
That yields 23,300% price increase. Now we are returning to Planet Earth – but it’s still an extremely impressive rate of return on capital by any standard.
And that’s with a current Bitcoin price of around $3500. It doesn’t take into account the price peak at the start of 2018 when BTC reached over $19,000. If you had held from 2011 and sold at that peak then your capital appreciation would have been way in excess of 23 thousand percent. For a Bitcoin price increase from $15 in 2011 to $19,000 at the 2018 peak it would have been around 126,000%.
So far so good.
Now let’s take a look at some 5 year periods in the past history of Bitcoin. Again, we’ll ignore 2009 to 2011 completely and start our calculation in mid 2011.
Selected 5 Year Period Bitcoin Price Appreciation
So the above figures reveal a number of interesting points.
Firstly, leaving aside the early first 2 years when Bitcoin was new on the scene, we can see there has been spectacular price growth over that time of over 23,000%.
However, two of those three selected 5 year periods have yielded appreciation of below 10,000%.
Secondly, parabolic runaway price rises occur from time to time as the public jump on and FOMO (fear of missing out) takes hold. The latest and biggest one to date occurring in late 2017 and early 2018.
Thirdly, while all three 5 year periods have experienced excellent value appreciation, we have also seen a number of substantial crashes in prices in individual years. The latest being the 2018 bear market which affected not just Bitcoin but the cryptocurrency sector across the board.
2017-2019 saw falls of around -70% in the BTC price. And from the early 2018 market price peak of over $19,000, down to $3500 by early 2019 Bitcoin had an 80% fall in price.
Price appreciation can be seen to be irregular year-on-year. A fat year tends to be followed by a lean year. There have also been at least four years in the last ten which have seen substantial falls. So almost half of the time Bitcoin can be said to fall year-on-year.
Fourthly, the rate of appreciation for each of the five year periods has been falling. Halving first, and then falling by some 90% in the last 5 year period. There has still been a substantial increase compared to many other asset classes, but it’s well down on the rates of appreciation that happened in the first two periods.
But the general long term trend is still strongly upwards. This has been confirmed by a university professor called Giovanni Santostasi who has produced a best-fit logarithmic graph of the price trend of Bitcoin since the mining of the first blockchain “genesis block” in 2009.
The graph confirms that despite the at times substantial price falls, Bitcoin always recovers over time and then goes on to scale new highs in price. The long-term logarithmic upward price trend remains true.
This is good news for long term investors, such as those looking to turn $5000 into $5 million in 5 years.
What’s The Likely Future Price Development of Bitcoin?
Can we expect such substantial price rises to continue in the future?
This is where we get into analyzing the fundamentals of Bitcoin and the cryptocurrency sector. As this article is focused mainly on Bitcoin price history and projections, I’m only going to look at the fundamental aspect very briefly. I’ll cover this area in more detail in a later post.
Bitcoin and other blockchain-based cryptocurrencies are still an emerging and developing technology, even after ten years. Bitcoin is still not at peak take-up or anywhere near it. There is scope for plenty of innovation. There is room for new Bitcoin-based services and utilities.
Retail merchant take-up is still limited. Accessibility and usability for the general public is still poor. Using Bitcoin might seem simple and straightforward to the geeks and programmers with their heads in their code, but for the average person it’s still overly complicated and this deters more widespread take-up.
There are also ongoing problems with cryptocurrency exchange hacks, break-ins, Bitcoin theft, wallet loss, loss of wallet keys, and so on. Government and banking regulatory uncertainty also still plagues Bitcoin in many jurisdictions.
Governments and regulators are still finding their way in their relationship to cryptocurrency. Banks are often still difficult if not openly hostile toward Bitcoin. Getting access to the Bitcoin system through the banking sector and via fiat-cryptocurrency exchanges is still cumbersome.
I’ll talk more about these and other issues in later articles.
But once these problems begin to be resolved and the situation settles down, the way will be open to much greater levels of participation than Bitcoin has at present. There could then be a massive take-off in price.
However in the near future the market is likely to be wary of another sudden parabolic price rise due to strong recent memories of what happened last time. So next time round there will probably be more caution and this will dampen the peak. But a peak is still more likely than not to be followed by a substantial fallback.
Another point here is that big institutional investors are also now active in the Bitcoin market. The sector is no longer the preserve of small scale or retail traders or geek fanatics. These investors are much more clued-up and risk-averse than the retail traders tend to be.
So this will have an effect on price developments. There will be sudden movements up – and sudden movements down as large amounts of “whale” money get sloshed around through the Bitcoin trading environment. We saw this phenomena especially in 2018.
And crypto moves fast. Big rises and falls can occur in the course of just a few days. Bitcoin is not like forex, nor does it move like the stock market. Its price movements have more similarity to a volatile commodity asset.
There is still a great deal of development and competition in the cryptocurrency and Bitcoin space from altcoins. In many respects, Bitcoin is a lagging technology. So investments and trading in altcoins can be more profitable (and possibly also more risky) than just trading in Bitcoin.
It’s also quite possible that the wild Bitcoin fever that we saw in 2017 and into early 2018 may not be repeated to the same extent. Investors are now more cautious. Cryptocurrency has lost some of its shine. We were in the early adoption phase. We could now be coming to the end of that phase.
Thus we might not get to experience the same rate of strong price appreciation that we saw in previous years. The rate of growth could become more moderate.
So to summarize some general points from all this:
1. Crypto and Bitcoin are still a very high risk asset class. The technology is still relatively new and developing and no-one knows for certain how it will pan out in the future. So while there is big profit opportunity, this also brings with it high risk of loss. As such, a capital fund should never be invested 100% or anywhere near this level in crypto.
2. Diversification in different asset classes besides crypto – stocks, bonds, commodities, gold, silver etc is essential for any balanced risk-managed portfolio. It’s all the more essential with cryptocurrency. However, this will have consequences for overall profitability. Risk can be reduced – but so will potential earnings.
3. Altcoins can help reduce risk and enable positive gearing of value appreciation through the mechanism of trading in BTC/Altcoin pairs. But likewise, this technique can also exacerbate losses.
4. Parabolic price rises and peaks tend to occur suddenly. But they are always followed by a substantial fallback. To profit from this and to avoid losses, exit points are crucial.
5. Individual years can be down. And a bad year can also be followed by another bad year, or a largely flat year. This can adversely affect trading outcomes depending on entry and exit points and trading strategies.
6. Finally, selecting optimum market entry and exit points is vital. Get this wrong and you can be losing substantially in comparison to where you might have been.
7. And related to this, the Bitcoin market has since at the time of writing fallen by 80% from the latest peak – which makes for a healthy basis for future rises.
As for actually reaching the 10,000% growth in capital appreciation over a five year period, trading patterns and method will also play a key role.
In practice, while the cryptocurrency space offers plenty of opportunity for profit situations, there is also, as in all trading, plenty of room for error and trading positions which lose money. I’ll talk about this aspect in a later post.
Finally, let me say I don’t share the extreme over-hyped enthusiasm of some commentators – such as Max Kaiser, John McAfee and others who predicted a $1 million price or similar for Bitcoin within just a few years. I think the actual outcome will most likely be something much more modest.
Exponential asset appreciation need not last forever. As the saying goes “past performance no guarantee”. There is likely to be an eventual end to the strong upward trend and an end to the road.
Developments in the cryptocurrency sector could overtake Bitcoin and leave it behind with another cryptocurrency, or currencies taking over from its top position. There is always a chance Bitcoin could become relegated to the doldrums in the future.
But I suspect Bitcoin most likely has a long way yet to go. We still have ample scope for profit realization and capital appreciation.
So although turning $5000 into $5 Million in 5 years is by no means certain and will not be easy, Bitcoin price history shows that it is indeed possible.
ps. What are you going to do with your $5 Million Dollars? – “I’m going to buy $5 Million Dollars worth of chocolate ice-cream!” (Laurel & Hardy ‘Come Clean’ 1931)