Introduction
I was curious what the year-over-year returns for Bitcoin (BTC) look like over the course of its existence, so I created a table of year-end prices going all the way back to 2010 and then calculated the commensurate rates of return. See the table below.
Analysis
Because the earliest years saw extreme price growth (extreme even by BTC standards), I removed them from the table below before proceeding with my analysis so that I could better forecast the potential magnitude of future rates of return, at least to the extent that historical price action (PA) is at all reflective of future PA (N.B. The 2021 price listed below is the price of BTC at the time I created this chart on September 3, not the year-end price, which of course is still nearly four months away).
Looking at the truncated table above, what stands out immediately is that there are only four year-over-year returns that are negative: two 1-year returns (2014 and 2018) and two 2-year returns (2015 and 2019), the latter two of which are due to the residual impact of the steep 1-year drops in 2014 and 2018, respectively.
In other words, and based only on calendar-year returns (i.e., not rolling annual returns), BTC has never had a negative 3-year return. On the contrary, the LOWEST 3-year return in BTC’s history is 31%, which is the return investors would have earned if they purchased BTC on the evening of December 31, 2013 (at $739) and held it until the evening of December 31, 2016 ($971).
This realization is nothing short of remarkable. Stated differently, the lowest annualized rate of return in BTC history for any period at least three calendar years in length is 10% (or more precisely, 9.51%). WORST annual 3-year return ever: 10%.
The table below illustrates all of the annualized rates of return for BTC throughout its history, but again starting with 2013 to eliminate the skew in the data that is induced by including the other-worldly returns achieved between 2010 and 2012.
To further highlight just how extraordinary the rates of return have been for BTC over the past eight years, look at the mean (average) annualized rates of return in the far right column above. The WORST mean annualized rate of return in BTC history is 100%, which is the 4-year mean annualized return (NB: it makes sense that the 4-year annualized rate of return is the lowest rate of return given that the halving cycles are approximately four years in length, meaning that all 4-year returns always include one 1-year bear market (2014 or 2018) and “only” three 1-year bull markets, whereas many of the 1-, 2- and 3-year returns exclude a bear market entirely and the 5-year returns include one bear market and four bull markets rather than “only” three).
Look also at the mean annualized 1-year return in the table above: 229%. This is the rate you’ll often hear @michael_saylor cite in interviews: an average return of 200% annually. No wonder he is always looking for loose change under the cushions to buy more BTC. He gets it. But what’s even more amazing is that this average 1-year rate of return is even greater than many seem to realize. Why? From what I see on Twitter and elsewhere, there seems to be a common misunderstanding: a doubling of one’s investment (2X) is a NOT a 200% gain, it is “only” a 100% gain:
Invest $100, it grows to $200: (200-100)/100 = 100/100 = 1 = 100% OR 200/100 = 2X
Invest $100, it grows to $300: (300-100)/100 = 200/100 = 2 = 200% OR 300/100 = 3X
In other words, the average annualized 1-year rate of return for BTC is more than TRIPLE one’s investment (3.29X or 229%), not “only” double one’s investment.
In what investment over the past eight years could someone have invested $100 on the morning of any given January 1 and have a reasonable expectation that it would MORE THAN TRIPLE by December 31 of that same year? Other than BTC? Exactly none.
3-Year Crypto Winter? Think Again.
As I have stated on Twitter and elsewhere, what the data above also illustrate is that the idea of a 3-year “crypto winter” is largely a myth. Such a crevasse exists only for those who purchased at the very peak of a halving cycle. While not to diminish the misfortune of the many thousands of investors who find themselves in this boat, having bought either at the peak of the 2013 or 2017 cycle (or, heaven forbid, BOTH), such misfortune has been bestowed upon only a sliver of the total BTC investor base. That is to say, a 3-year crypto winter has transpired for only a tiny slice of the BTC investing population, so repeated references to a crypto winter on social media not only distorts the reality but also likely contributes to the patently false narrative that BTC is a poor store of value (alts are another matter entirely).
Poor Store of Value? Think Again.
BTC is unquestionably volatile, but almost always to the upside over any reasonable period of time. Therefore, to suggest it is a poor store of value due to its (clearly asymmetric) volatility is apocryphal. As shown, there have been only two 1-year bear markets in BTC’s entire existence, and they actually lasted only 11 months each, as I illustrated here.
In other words, BTC has proven to be a poor store of value for only two groups of investors: the volatility-sensitive (those who jump in and out of the market repeatedly) and the truly unfortunate (those who invested at the very peak of a halving cycle). On the contrary, BTC has proven to not only be a good store of value for all hodlers (those willing to hodl at least three years), but it has proven to be the single greatest store of value the world has ever known for the truly fortunate (those who purchased at the nadir of either the 2014 or 2018 bear market and then hodled).
Conclusion
Before concluding, let me return to the tables one last time to point out a few other highlights I find interesting and offer a conclusion based on these highlights.
The median and mean values are converging over time (i.e., the 5-year median and mean values are very similar, in contrast to the 1-year median and mean values, which diverge substantially). Such convergence over time increases my confidence that these rates of return, especially the 4-year and 5-year rates of return, may have some utility when trying to forecast future rates of return.
The average total return for BTC over four calendar years is 16X (1500%) and an incredible 37X (3600%) over five years. Put another way, a $5,000 investment in BTC on any January 1 since 2013 has, on average, grown to about $80,000 over the subsequent four calendar years and an incredible $185,000 over the subsequent five calendar years. Good lord…
Finally, and despite claims to the contrary, there is no reason to assume average rates of return will necessarily diminish over time. Note, for example, that the annualized 5-year median and mean rates of return (106% each) are greater than the annualized 4-year median and mean rates of return (102% and 100%, respectively). I delineated the reason for this dip in 4-year returns earlier, but the point deserves emphasis: the longer one hodls BTC, the greater one’s annual returns (i.e., not only total returns), especially if one can hang on at least one full year beyond the length of the typical halving cycle.
There are numerous other observations I could highlight, but the message is clear:
For all that is good in the world, I just need to buy BTC whenever I can ("stack sats") and then protect it like penguin parents protect their unhatched egg.
In other words, I won’t try to time the market and I certainly won’t jump in and out of the market due to its volatility. Instead, I will just let the number-go-up (NGU) technology do its thing until/unless I ever need fiat, and then and only then, will I sell some of my stack. Or even better, I will try to find ways to earn yield and/or borrow fiat against my stack so that, if the stars align, I never need to sell any of my BTC - ever.
If these data illustrate anything, they illustrate that BTC is truly the one and only investment on the planet - said without a trace of hyperbole - that can provide the kinds of return on investment that can result in life-changing wealth without taking outsized risks (learn about the Sharpe Ratio here). Note that I am NOT saying there are no other investable cryptocurrencies - clearly there are, ETH being chief among them - but over the long term while minimizing risk? Nothing compares to BTC.
Go #BTC.