The 2017 Bitcoin return was +1,318% not including any transaction fees. At midnight UTC after 12/31/2016 bitcoin traded at 998.33 a coin and one year later traded at 14,156.4 a coin.
2017 Bitcoin Return: Cryptocurrency is Not an Investment
Bitcoin is a digital currency built on top of a public, digital ledger known as a blockchain. Bitcoin is ‘mined‘ by miners incorporating recent transactions into a collection called a block while searching for a nonce. A target nonce, or number used once, is added to the current block where the block is hashed with a result less than a specific target (read: a hash with leading zeros).
If a suitable nonce is found, the miner distributes it for others to verify. The crypto bit in cryptocurrency comes from the usage of cryptographic hash functions. These functions are one-way or non-reversible – that is, they are easy to verify, but believed “impossible” (read: would take an improbably long time) to invert. SHA-256, in particular, backs the proof of work system in bitcoin and allows miners to verify a nonce.
The proof of work system and the history represented by the blockchain are what, in theory, back digital currency with value. However, the practical value of bitcoin comes from market participant agreement on the current trading price. As long as bitcoin can be exchanged for goods and necessities – or another thing that can – it has a value. Often we use its exchange rate with the dollar as a useful abstraction to help readers understand that current value.
Here are the dollar price returns on bitcoin in 2017:
|Jan 1, 2017 Start (Midnight UTC)||998.33||14156.4||1318.01%|
Bitcoin is Speculation, Not Investment
A 1,318% gain in a single year is an off-the-chart return for any asset class. Recall that an investment in the S&P 500 returned around 21.14% in 2017. Stated another way, one dollar in the S&P 500 would have grown to $1.21 by the end of the year while a dollar in bitcoin would have grown to $14.18.
Even though you can ‘invest’ your money in bitcoin, it’s much closer to speculation than traditional investment (don’t let this article’s category fool you). Whether or not you have confidence in the value of the digital currency ecosystem or the underling mechanisms (such as the blockchain), digital currencies are extremely volatile. They are not appropriate for holding in a traditional asset allocation and by the traditional understanding of an “investment”.
That warning aside, you can speculate in bitcoin with money you can afford to lose. Many bitcoin holders (or HODLers, as they prefer to be called) are young and have the time to make up for any speculative losses. Before allocating any of your portfolio to any digital currency, consider your own capacity to recover and whether or not you’ll need the money.
As we went to press, bitcoin’s current performance illustrates how quickly fortunes can change. Bitcoin is down over 30% in 30 days, penalizing latecomers to the currency. While still up thousands of percentage points in a relatively short time-frame (just a few years), you can’t buy in the past – you can only get in during the present. Need an investment idea? Here’s a vote for index funds.
Source on the 2017 Bitcoin Return Calculations
We don’t currently have any tools or calculators on site which serve digital currency communities. Watch this space though, that’s probably going to change.
2017 Bitcoin Return: Near Unbelievable
Just like your fantasy football league (which also isn’t an investment), speculation doesn’t have to mean ‘avoid entirely‘. There is an undeniable psychological thrill from holding extremely volatile assets such as bitcoin and other digital currencies.
If you enjoy the volatility and can lose the money you allocate? Do your due diligence and have some fun – but know there’s no one to blame but yourself if the price settles at $0.00.
To a lesser degree, that also applies to stocks and other assets traditionally assumed to be investments instead of speculations. Of course, traditional currencies do sometimes fail, stocks go to zero, and bonds don’t pay out or lose to inflation. However, extreme volatility in digital currencies implies those scenarios are more likely.
To summarize: always be careful with your money; you’re the best steward of your own money and judge of risk tolerance. Be particularly careful before speculating in bitcoin or other “alternate” coins (alt-coins).
What do you see bitcoin doing in 2018? Want to predict a return?