Bitcoin has been around for a few months. The world’s largest cryptocurrency by market capitalization hit an all-time high above $63,000 in April, but lost 50% of its value over the next three months. The price of the coin fell below $30,000 recently in the last week.
The cryptocurrency soared over the weekend, thanks in part to a recent show of support from big names like Tesla and SpaceX CEO Elon Musk, Twitter and Square CEO Jack Dorsey at the “The B-Word” conference.
Bitcoin was trading above $38,000 as of Monday afternoon. Although it is far from its peak, bitcoin is still up 33% over the year.
Bitcoin’s popularity soared in 2017 when it went from $900 to nearly $20,000 in less than a year. But it has become as well known for its downfalls as it is for its rallies and has seen its value plummet on several occasions. They are volatile for the same reason they are valuable – there is no central authority that can intervene in the market.
But unlike other cryptocurrencies, such as dogecoin, which have also seen similar ups and downs, bitcoin is more technologically advanced and has a scarcity built into its creation process.
The market capitalization of Bitcoin is currently around $736 billion. This is much larger than the $277 billion market cap of Ethereum, the second largest cryptocurrency by market capitalization.
If you had invested in bitcoin last July, it would have grown by 252% over the past 12 months. A bitcoin purchase of $1,000 on July 26, 2020 — at $10,990.87 per coin — would be worth $3,525.65 at the Monday morning price of $38,750, according to CNBC calculations.
If you zoom out further, the growth curve is steeper. On July 26, 2016, $1000 could have bought you 1.52 bitcoins at $656.17 per coin. Today this investment is valued at $58,900, which is a growth of 5805%
Going back 10 years, Bitcoin’s growth rate is six digits. In July 2011, two years after its creation, the cost of one coin was $13.91. At the time, $1,000 would have bought you 71.89 bitcoins, which would be worth $2,785,737.50 today. This number represents a growth of 278,476.56%.
By comparison, a $1,000 investment in the S&P 500 will increase by 39.3% since last July, 123.78% since 2016 and 305.97% since 2011. This means that $1,000 has grown to $1,393.31 in the last year, $2,237.84 in the last 5 years and to 4,059.68 dollars over the past decade. But that doesn’t mean S&P is a worse investment. In fact, legendary investor Warren Buffett says it’s the best place for most people to invest their money.
Unlike bitcoin, which is known to be volatile, the S&P 500 is a relatively reliable investment. It also has a proven track record spanning decades in providing returns to investors.
When it comes to cryptocurrencies, remember that past performance is no guarantee of future returns, and experts have warned investors not to put more money into cryptocurrencies than they feel comfortable losing.
If you decide to get into cryptocurrency, consider not making a large purchase at once, but instead averaging the cost in dollars by spreading it out over smaller purchases over time.
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