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The Diminishing Bitcoin Returns

Bitcoin delivered spectacular returns during its early days, when prices were low. Any hopes of similar returns in the future underestimate how unrealistic prices must become. Bitcoin speculation is on a path of diminishing returns.

Spectacular annual returns were realized during the early days of Bitcoin. In mid-2011, a rise from a few cents to about $20 was equivalent to a return of more than 30,000%.

The early speculators sold, and Bitcoin plunged back to a few dollars by the end of 2011. That was the period when the high returns from speculating in Bitcoin were realized. A path of diminishing returns started afterward.

There was another surge in prices due to publicity, and by the end of 2013, the annual return reached about 10,000% while prices rocketed to around $1,000. A second round of dumping started after the pumping, and prices returned to around $200. During that period, too, many uninformed speculators lost a lot of money. Leveraged investors were ruined.

Prices rebounded and reached about $20,000 by the end of 2018. The annual return got as high as 3,000%, but then another round of dumping started, with prices falling well below $4,000 by the end of the year. Many speculators got hit hard and lost fortunes while expecting prices to hit $100,000, as forecasted by financial gurus and crypto analysts.

As was expected, after the pump and dump, prices rebounded (rinse and repeat), and by 2021 they had reached well above $60,000, while the annual return got as high as $1,100. Many started realizing that returns in the order of 10,000% were no longer possible, despite gurus and analysts doubling down and forecasting prices above $1 million.

This pattern of diminishing returns is depicted in the chart below, which shows the rolling 365-day return of Bitcoin starting at different periods.


Since 2022, the annual return has stayed below 100%. Here is what some crypto enthusiasts may be missing, assuming a starting price of Bitcoin around $30,000:

  • For a 1,000% return, Bitcoin must rise above $330,000.
  • For a 10,000% return, Bitcoin must rise well above $3 million.

These are unrealistic levels given the structure of the market and adoption depth. Spectacular returns in Bitcoin are now in the history books. Speculators have higher odds of making better returns investing in hot stocks than in Bitcoin.

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Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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