The 2018 bitcoin return was -73.56% compared to the US Dollar not including any transaction fees. At midnight UTC to open 2018 on January 1, bitcoin traded at $14,156.40 per coin. At midnight UTC to close December 2018 bitcoin traded at $3,742.70 per coin.
Compare the 3/4 loss on bitcoin in 2018 to the whopping 1,318% 2017 bitcoin return.
Last year we mentioned our opinion that bitcoin is a speculation not an investment – and received a surprising amount of pushback. Our opinion remains unchanged: bitcoin is not an investment with good prospects of storing wealth or anything close to set it and forget it.
Keep this point in mind: speculations do not need to be avoided completely!
On the left-right scale of safe to speculative asset allocation, speculations are even more volatile and uncertain than most of what we consider "investments". You have an array of options in everything from über-safe short-term government securities to mega speculative cryptocurrencies such as bitcoin.
The bottom line: if you are so inclined, speculate in bitcoin only with money you can afford to lose.
If you are young, have time and health to recover from a decline, and have the constitution to handle massive shocks to bitcoin value? Have at it.
We're not particularly bullish on bitcoin, but there is a non-zero chance that it still can offer life-changing gains in wealth. (Case in point: from Jan 1, 2016 you're looking at a crazy high +274.9% gain).
It can also, you know, follow the path of Enron. The point? We don't know how bitcoin will fare. If you want an investment idea, try index funds.
We used historical bitcoin price data from CoinMarketCap to compute the returns and create the graph for this article for 2017 and 2018 bitcoin returns.
If you enjoy volatility and can lose money allocated to bitcoin? Have some fun and go wild! You're the only one to blame if eventually you end up with $0.00... but it's at least possible you multiply the value man-fold.
That also applies to stocks and other assets traditionally assumed to be investments instead of speculations, by the way. Nothing is without risk; even safe government securities often lose money to the steady rise of inflation.
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.
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:
| Price Return | Open | Close | Gain |
| Jan 1, 2017 Start (Midnight UTC) | 998.33 | 14156.4 | 1318.01% |
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.
Growth of a dollar in the S&P 500 and Bitcoin in 2017
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.
We used historical bitcoin price data from CoinMarketCap to compute the returns and create the graph for this article. S&P 500 returns are sourced from S&P Dow Jones Indices.
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.
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).
Bitcoin returns in other years:
What do you see bitcoin doing in 2018? Want to predict a return?
Below is a crude oil price return calculator for the price return on crude oil between any dates since 1987. This isn't contract investment return - it doesn't factor in contango or backwardization, so investor returns will vary compared to price returns. However, you can see price changes in Brent and West Texas Intermediate (WTI) Crude Oil as a function of time with daily resolution, and inflation adjustment.
If you find this interesting, please also see our Treasury Return Calculator, S&P 500 Total Return Calculator, Gold Return Calculator and Daily Inflation Calculator.
The calculator takes its data for Brent and WTI crude daily prices from the St. Louis Fed's website. It updates every evening at 12:00 Eastern, so the data you access will generally be a day behind the current market's close.
WTI Crude Oil and Brent Crude Oil prices are from the St. Louis Fed. Those contracts generally trade Monday - Friday, and the tool will adjust your input dates if you select days with no data.
For the 'last' or 'ending' date, it will use the 'last valid' trading date, but likely won't adjust the date (you can check the result after a calculation).
The daily inflation methodology hasn't changed from the daily inflation calculator. Please see the methodology section there.
The de facto benchmark for crude oil prices used to be West Texas Intermediate. However, a number of oil fields in the North Sea source Brent Oil, and it took over contract pricing. Many other forms and qualities of oil and distillates are now based on the Brent contract price combined with some multiple.
I don't want to pick sides, however – this calculator computes returns for both. To see the decoupling of the major crude benchmarks, here's a graph of the two from 1986 through Summer 2019 (don't worry, the data in the tool is fully updated):
Gold, the 79th element in the periodic table, is perhaps the most controversial of any investments. Every investor seems to have an opinion on the metal. Some people, particularly enamored with the constitution, read into it the necessity for the government to only issue gold (and silver) coins. So, investing in gold... is it a good idea in your portfolio?
Regardless of your viewpoint on the legality of fiat currency, perhaps you have decided to take the plunge and invest some of your hard earned funds into the stuff. There are many ways to approach investing in gold; I will lay out a few approaches to gold investing in this article.
The United States has historically altered between being backed by gold at a fixed rate or a constant rate. Two major events in the history of our currency are pointed at as the most controversial laws our nation has passed with regards to gold and silver backed currency. The first is the "Gold Confiscation Act", or Executive Order 6102 under President Franklin D. Roosevelt. That act banned the 'hoarding' of gold over the amount of $100 for private investors. The second was the August 15, 1971 act by President Richard Nixon to depeg the $35 / oz. gold standard due to excessive spending on Vietnam and President Lyndon Johnson's 'Great Society'. Since 1971, currencies of the world have been fiat currencies, and the rate of gold exchange is set by the market.
Just because beliefs are widely held doesn't mean they accurately reflect reality. Yes, there is a correlation between the devaluation of the dollar and the increase in the price of gold (it is not 100%, stocks are a better inflation hedge). However, gold tends to perform even better in times of deflation (see here and here). Gold's highest performance potential would seem to be linked to an emotional event rather than a monetary one. Gold has historically been used as currency, and its perception as currency might keep it valuable in times of great emotion.
Picture of copper... I guess it's similar to gold
Regardless of the reason why you want to purchase gold, you have decided to take the plunge. The next step you have to consider is how, exactly, you are going to go about that. There are a few options for you to invest in the metal, which I will highlight shortly. It is important to note, that for whatever reason, gold is considered a 'collectible' by the IRS. This means that no matter your holding period, physical gold capital gains you receive will actually be taxed at your marginal rate. See a tax professional for more details... I am not one.
All of these options are a solid bet for investing in gold. Various options have their own advantages and disadvantages. In a true crisis environment, physical gold would probably be better than any of the other options. However, that sort of situation seems unlikely. In a taxable account, ETFs are the most accessible way to invest in gold. Take a look at CEF, which is the Central Fund of Canada (note CEF also holds silver). In a taxable account, you can save money over the other options. Of course, you could stick it in a retirement account and not worry about taxes.
Full Disclosure: That's what I did; I'm invested in a mutual fund that invests some of its assets in physical gold in a tax-free account. Consult a financial advisor if you have any questions.