Bitcoin’s Financial Returns (Full Calculations) - Joakim Book
Bitcoin’s Financial Returns Full Calculations Joakim Book

When not otherwise stated, I use the end-of-year bitcoin-to-dollar price (BTCUSD) of $7,180. This is always the end-price we’re concerned with, Pt in the formulas.

For return calculations, we also need an initial price, Pt-1. I begin the piece by citing three early estimates of the the first bitcoin trades of the last decade, $0.5, $0.07 or even $0.0036:

  • 100*(7,180/0.5 –1) = 1,435,900% return
  • 100*(7,180/0.07 –1) = 10,257,043% return
  • 100*(7,180/0,0036 –1) =199,444,344% return

We’re already starting to see the immense power that a lower base produces.

I mention Jordan Lyanchev’s piece where he simultaneously claims an 8,900,000% return, a $0.07 initial dollar price and an exchange rate to USD of about $7,300 at the time of his posting. That’s not possible:

  • 100*($7,300/0.07 –1) = 10,428,471%,
    (which I rounded to “almost 10,500,000%)

Alternatively, if we run the formula in reverse, plugging in the 8,900,000% return and the (known) current price of $7,300, we get an initial bitcoin price of $0.082:

8,900,000 = (7,300/x -1) *100
89,001 = 7,300/x
x= 0.08202.

If we plug some other December 2019 prices into the formula, replacing $7,300 with $7,200 or $7,500, we see that Lyanchev’s initial price still doesn’t make sense. We’d have to plug in prices of below $6,675 for $0.07 to be within rounding, given a return of 8,900,000% (prices only seen for a brief twenty-four hours on Dec 17–18).

More likely, he miscalculated the statement in the CNN article (“$1 turned into $90,000″) to mean “8,900,000%” when it should have been 8,999,900% — and actually, 9,002,500% given later information. But what’s a few thousand (or almost a hundred thousand) percent among friends?

This latter figure is what I referred to as “just north of nine million percent.”

Further displacing a few hundred thousand (or million?) percent return is Jamie Redman at First his title reports 8.9 million percent. Then his text cites the 8,999,900% return implied by the supposed Bank of America report ($1 in bitcoin 2010 turned into $90,000 at the end of 2019). And finally his first price data cites a bitcoin for $0.003 in March 2010.

Quickly plugging in that initial price to our formula combined with the price at Redman’s publication (~$7,200), we get — hold on now — a return of almost two-hundred-and-forty million percent:

  • 100*($7,200/0.003 –1) = 239,999,900%

I wonder, if the purpose of measuring bitcoin’s magnificence by its dollar-return figures, wouldn’t you wanna go with the higher ones? If you can substantiate the $0.003 price, the calculation is not wrong; why not say “240 million percent” instead of various numbers around 9 million percent?

Without much details, Hajric at Bloomberg vaguely states that bitcoin returned “more than 9,000,000%,” which we have seem is roughly accurate given an initial price of a little more than $0.07.

Uncertainty prevails regarding bitcoin’s early dollar-values. Clarification: the differences between these very small numbers are huge, which the initial calculations above show; normally, we might switch fund manager when they underperform by 1–2 percentage points — whereas here we’re throwing around millions of percent like they’re nothing.

That is, 0.082 is eleven times bigger than 0.0067, but for the final Total Return calculations that difference amounts to a roughly hundred million percent return. The numbers from low bases quickly become staggering:

A few pennies there becomes unfathomable returns — millions, tens of millions and hundreds of millions of percent— there.

The pizza story holds that in May, Laszlo Hanyecz paid 10,000 bitcoins to a third party who, in turn, ordered him two Papa John’s pizza. If priced at $25, implied BTCUSD exchange rate implied $0.0025 (25/10,000); if including the tip that Hanyecz claims were involved, that’s 0.003 (30/10,000).

I write that NFLX closed the decade with a 4,135% return. According to Yahoo Finance, Netflix’s first price of the decade was $7.64, and its closing price on Dec 31, 2019 was $323.55. Plugging it into our formula gets us:

TR = (323.55/7.64 -1)*100 = 4,134,95%

Shifting the decade back a little bit so that I can capture NFLX’s all-time-high (intra-day trading) of $423.21 on June 21, 2018, I get almost 11,000% return based on an initial price from June 23rd, 2008 ($3.82):

TR = (423.21/3.82 -1)*100 = 10,979%

When I cherry-pick the to inflate NFLX stock return even more, I used the following dates and numbers:

  • ATH of $423.21 on June 21, 2018
  • Starting price of $0.37 on Oct 7, 2002

TR = (423.21/0.37 -1) *100 = 114,281%

which I quoted as almost 115,000% return.

For Amazon, I use compare its IPO price of $1.50 in May 1997 to its peak close ($2012.71) on Aug 27, 2018. While intentionally measured bottom-to-peak to maximize return, I still only get little over hundred thousand percent over 21 years:

TR = (2012.71/1.5 -1)*100 = 134,080%

From $0.02 to $3 in a single day:

TR = (3/0.02 -1)*100 = 14,900%

Multiplied by 253 trading days — imagining that Gateway could keep this growth throughout the year, which of course is a ridiculous assumption — yields me 3,769,700% return (14,900*253 days).

Using Pier 1 Imports journey from 11 cents on March 13, 2009 to its peak at $504 on May 13, 2013, we can construct pretty unfathomable returns:

TR = (504/0.01 -1) *100 = 458,081%

which I rounded to 460,000% return in four years.

For Medifast, the diet management company that still exist and is included in the S&P600 small cap index, I can generate 284,00% over 19 years by carefully selecting the starting date at December 1999 when the stock traded at $0.09. It closed on September 12, 2018 at $255,94:

TR = (255.94/0.09 –1) *100 = 284,278%

The shares for beverage company Monster’s predecessor (Hansen’s Natural) traded on Nasdaq for as low as 6 cents during May 2001 — and we can find share prices of $0.01 as recent as April 1996.

Its all-time-high from January 2018 (which is it currently approaching again) is of $68.91. Measured from the dot-com crash:

TR = (68.91/0.06 -1)*100 =114,750%

from the low-point in April 1996:

TR = (68.91/0.01 -1)*100 = 689,000%

For MNST to approach lifetime bitcoin-esque returns, say the 8,755,000% return cited above, Monster only needs to reach xxx, which I obtained from running the formula in reverse:

8,775,000 = (x/0.01 -1) * 100
87,750 = (x/0.01–1)
87,751 = x/0.01

A share price for MNST of $877.51 might be outrageous and definitely unreachable in the next few years, but it’s “only” 1,276% return up from current levels:

(877.51/63.75–1)*100 = 1,276.49

Despite Tesla’s noticeable returns over the last few years, they simply cannot keep up in the total return-league for one simple reason: they IPOed at $17 dollars, and the stock price has never fallen low enough (the lowest I found was $14.98). That pretty much means that Tesla will never reach the never-never land of hundred thousand (or millions) of percent. Why?

The denominator is always going to be too big.

Tesla was an opportune contender for the 2010–2020 decadal trophy, as its IPO took place in May 2010. In the last eight months alone (on June 3rd, the stock bottomed out at $179.01) the stock has boomed some 158% after hitting a recent ATH of $462.06:

TR(eight months) = (462.06/179.01–1)*100=158.12%
TR (since IPO) = (462.06/17–1)*100 =2,618%
TR (since all-time-low) = (462.06/14.98–1)*100 =2,984.51%

Not bad, but nowhere near

Using a span to calculate more “fair” comparable numbers for bitcoin — where people could really access them over well-established exchange — is tedious as we’re dealing with a huge range.

The lowest price quote I find during this time period is from lala, and the highest yyy. Calculating returns based on current prices at around $7,800 yields the following percentage returns:

TR(2013-bottom) = (7,800/108.58 -1)*100 = 7,083%
TR(2015-top) = (7,800/1,154.93 -1)*100 = 575.3%

Now, we’re in definitely in the same league as the tech and biotech successes of the last decade.

Bitcoin’s returns are one-off. That is, they cannot repeat themselves.

Not even excessive claims about prices going “to the moon” will see bitcoin repeat its million-percent returns. Why? Because bitcoin no longer has a low base to start from.

Using today’s $7,885, a run to $100,000, $250,000 or a $1,000,000 amounts to returns of:

TR(100k) = (100,000/7,885 -1)*100 =1,168%
TR(250k) = (250,000/7,885 -1)*100 =3,070%
TR(1m) = (1,000,000/7,885 -1)*100 =12,582%

We may confidently state that bitcoin’s return dominance is over.

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