Bitcoin: Best-Performing Asset of the Decade?

On the first day of the new decade, bitcoin’s price was $7,180. On January 1, 2010, it might have been $0.50, or $0.07, or even $0.0036. It’s hard to tell, as there wasn’t exactly a liquid bitcoin–dollar market at that time and price histories are hard to come by.

As we’ll see, the only way that an asset can post the spectacular returns that have lately been celebrated for bitcoin is by starting from a ridiculously low base. Whether bitcoin in these early days qualifies as an asset is a different question that I try to avoid here, as well as its viability as a base money or global monetary regime.

The above numbers suggest that bitcoin’s return over the decade 2010–20 was easily in the millions, tens of millions, or even hundreds of millions of percent (full calculations are available on my supplementary Medium page). Accordingly, bitcoin’s “best performance” status becomes statistically self-evident. Yes, anything with some positive price in the tens, hundreds, or thousands of dollars that can claim a starting point close enough to zero (i.e., with several zeros after the decimal point) will inevitably post astronomical returns. That’s trivial.

How true is the claim? Where does it come from, and how well does bitcoin hold up against other assets? Does it even make much sense to speak of bitcoin’s performance in the millions of percent? Perhaps most importantly, does that tremendous price change say anything about the notorious cryptocurrency’s future potential?

Bitcoiners Celebrating the New Decade

As 2019 drew to a close, a number of commentators proclaimed bitcoin the best-performing asset of the 2010s. We might quibble over definitions, and whether a line of code that a few computer geeks were playing with in 2010 qualified as an “asset,” but let’s take the numbers at face value and see where that takes us.

Jordan Lyanchev at CryptoPotato claims that bitcoin began the decade at a dollar price of $0.07 and therefore posted returns of 8,900,000 percent. The sources he provides are altogether fishy and lead nowhere, but let’s say he’s right. At the time of his posting, bitcoin traded at $7,300, which the reader quick with arithmetic soon realizes won’t support his calculation as those price data suggest a return of almost 10,500,000 percent. Alternatively, a return of 8,900,000 percent on a bitcoin price of $7,300 suggests a starting price just north of $0.082. Even if we plug in slightly different current prices or total returns, Lyanchev’s numbers are wrong in details, but perhaps they are roughly right?

The claim that bitcoin posted seven-digit returns seems to originate with a CNN news story by Paul R. La Monica from mid-December, when bitcoin had fallen to below $6,700 for a few days (for the rest of the month, bitcoin traded squarely within the $7,200–$7,400 range). According to La Monica, a report issued by Bank of America Securities (if anybody knows of this report, please send it to me) claims that a dollar invested in bitcoin “at the start of the decade … would now be worth more than $90,000.” Citing the same supposed report, Carl Quintanilla specified that one dollar in 2010 would have turned into $90,026 through bitcoin’s spectacular rise. For that return (just north of 9 million percent) to equal $7,200 (or even $7,400), we would again need an initial bitcoin price of more than $0.08 — again, not $0.07, which is a commonly used initial price from July 2010 (see for instance John Edwards’s article at Investopedia).

William Suberg at Cointelegraph also proclaimed bitcoin’s immense success, quoting 8,990,000 percent gains from the same CNN source as if a few hundred thousand percent here or there wouldn’t matter. Well-known characters in the crypto-space like Barry Silbert and even Michelle Phan relayed numbers to the same effect.

The most impressive displacement of numbers came from Jamie Redman at the wallet app and bitcoin news site Bitcoin.com. Reporting based on the same CNN source as the others, his title states “8.9 million percent” — but the body of the text cites the 8,999,900 percent return consistent with the CNN story. However, Redman also lists some early price data, where his arithmetic seems somewhat off.

In March 2010 a bitcoin allegedly traded for $0.003, roughly one-twentieth of the numbers that other 9-million proclaimers seem to have used. At the time of his publication, bitcoin traded at $7,200, which would amount to a decade return of 239,999,900 percent. If we’re in the business of announcing bitcoin’s superiority through inflating return numbers as much as possible, why didn’t we go with 240-million percent return?

On New Year’s Eve, Vildana Hajric at Bloomberg lent even more credibility to the 9,000,000 percent return claim. Instead of providing us with sources, she cites obscure Bloomberg data, and again dates the starting point to July 2010: “The largest digital token, trading around $7,200, has posted gains of more than 9,000,000% since July 2010, according to data compiled by Bloomberg.”

Naturally, claims to this effect made the usual rounds in the crypto world‘s tremendous echo chambers, diluting the source and citing varying return estimates.

Bitcoin’s Early Price History

Accessing bitcoin prices from the last few years is easy; they are posted, listed, displayed, and traded everywhere. Accessing prices from the early 2010s is a lot harder, and usually stretches the very definition of a “price.” The popular cryptocurrency trading platform Coinbase only lists trades back to January 2013. CoinDesk, a cryptocurrency news and media site, only lists bitcoin–dollar prices back to the fall of 2013.

The earliest commercial exchanges of bitcoin for dollars took place on a few since-closed trading platforms, including the infamous Mt. Gox, Bitcoin Market, and New Liberty Standard. Separating real transactions from fraudulent transactions, unsuccessful forum bids and made-up numbers on these defunct platforms — or even accessing some trading data — is far from easy. Hopefully some savvy programmer can recreate that early data and plug them into the return formulas I’ve posted on Medium.

According to bitcoin researcher Konrad Graf, the earliest known offer of bitcoin for dollars took place on October 5, 2009, on the website New Liberty Standard (NLS). The “price” (insofar it was even a price; we don’t know how many of these offers were realized on NLS) was calculated as the electricity cost for mining bitcoin using average U.S. electricity costs. This early price rumor amounted to one-thirteenth of a penny ($0.00076) — i.e., about one-hundredth of the $0.07–$0.082 range I’ve been addressing above. In late 2009 and early 2010, there are some confirmed purchases valuing bitcoin somewhere between $0.001 and $0.0067.

It is unclear how much was traded at these prices. Looking back through the early forum chats on bitcoin, we can find numerous offers and price quotes. The question is, of course, how many of them actually took place and what was merely forum chatter. Even today, a price quote or bid on a stock market is not what we mean by “price”; I can place an order of $10 for Tesla or Apple stock, if I want to, but that doesn’t make it the market price. We expect an actual change of asset ownership in exchange for money by two different parties before we label something a price — and usually, quite a lot more than just one.

Graf reports that in the first week of 2010, a bitcoin averaged $0.0036, almost five times the New Liberty Standard offer from a few months before. Again, this price is altogether mystical and it’s rather unclear how Graf obtained it.

Next up is the infamous pizza transaction, where Laszlo Hanyecz in May 2010 famously sent 10,000 bitcoin to a third party that paid with a credit card for the delivery of Papa John’s pizzas, priced at $25 (or $30, including tip) to Hanyecz’s house. This implied a dollar–bitcoin exchange rate of $0.0025 (or $0.003), a threefold increase over that early NLS  quote but still far away from those seven or eight cents.

Beginning in July 17, 2010, we have better and more consistently priced dollar–bitcoin exchange rates.

Blockchain.info, an information and trading platform for various cryptocurrencies, lists $0.05 as its first bitcoin trading price, with $0.08 and $0.09 a few days later. On July 22, again, the quote is again for $0.05, foreshadowing the large price fluctuations that bitcoin has gone through during its entire life cycle. These numbers presumably stem from early trading activities at Mt. Gox. Graf quotes similar figures for 2010 and 2011, trading in the region of $1 — the parity with the U.S. dollar that was widely celebrated in February 2011 — and $10 before breaching $100 in October 2013.

I might quibble with the definitions of “assets” and “price” here, and precisely pinning down bitcoin’s price as it entered the 2010s seems rather hopeless. To illustrate the explosive impact it makes for our return calculations, consider the differences in return based on the end-of-year price of $7,180 compared to some of these numbers.

Initial Price ($) Implied Total Return(BTCUSD=$7,180)
0.00076(NLS fall 2009 price quote) 944,736,742%
0.001(first known FX rate, 2009) 717,999,900%
0.0025(pizza transaction) 287,199,900%
0.0036(Graf’s first rate of 2010) 199,444,344%
0.0067(BTC Market bid, March 2010) 107,164,079%
0.05(first Mt. Gox trade) 14,359,900%
0.07(number often quoted by news outlets) 10,257,042%
0.09(price peak on second day of trading) 7,977,677%
0.30(end-of-year price 2010, via Blockchain.com) 2,393,233%
1(Parity Party, Feb. 9, 2011) 717,900%

If you want, you can pick any of these numbers as your starting price for bitcoin. One thing is clear: were Darth Vader or Luke Skywalker into statistics, he might have said that the force is strong with the effect of a very low base.

What’s the Competition Like?

Many financial sites have posted return comparisons of the stocks that best rewarded their owners over the last decade. In the technology age, it is unsurprising that we find some household tech names like Netflix or Amazon on those lists.

Indeed, putting bitcoin’s million-percent returns in perspective, Lyanchev and Redman directly compare it with Netflix’s returns over the same time period. Once we get through the logic behind this and the statistical cherry-picking I will engage in below, you’ll see why that’s probably the wrong comparison to make.

In January 2010, pre-streaming Netflix was already a well-established company, listed on Nasdaq, but with a share that traded at only $7.64 back then. On December 31, Netflix closed at $323.55 for a total return of 4,135 percent. While an absolutely stunning return over 10 years, it is barely visible against bitcoin’s returns in the millions of percent.

The limitation “of the decade” is a fairly arbitrary timeline for an asset class that has existed for a mere 11 years (there’s no fundamental reason why January 1 of one year and December 31 of another should have a particular relationship); shift it a few years forward or back and the returns “of the 2010s” would be markedly different.

While I fully admit that there don’t seem to be any listed stocks that have returned as much as bitcoin during that particular 10-year period, let me try to put that financial return into perspective by being a bit more relaxed on the specific time period. This is not, mind you, to take away from the stunning financial achievement of bitcoin, but to illustrate that the effect of a very, very low base rules the roost here. Besides, considering bitcoin’s race to almost $20,000 in the fall of 2017, and then back to way below $10,000 in recent years, there are several ways to cherry-pick my dates such that bitcoin’s returns even underperform the S&P over the last few years.

Some Contenders to Bitcoin’s Returns

If I cherry-pick my Netflix dates a bit more and shift back the 10-year period a little bit, I can easily achieve an almost 11,000 percent return from June 2008 to June 2018. Extending my time period backward to October 9, 2002, I can post above 111,000 percent return over 16 years. Again, the effect of a low base is what matters here: as Netflix shares bottomed out at $0.35 and peaked at $419.47 in June 2018 (intra-day trading), I can reach almost a 115,000 percent return. The base truly matters.

Some additional competition comes from Amazon, another tech giant whose development from small-scale online bookseller in the beginning of the internet to massive all-around retailer today is nothing short of extraordinary. Investopedia calculates that an investment in Amazon from the time of its IPO in 1997 to that of its all-time-high in the fall of 2018 would have generated a return of 120,000 percent. Judging by Yahoo Finance, the peak at which Amazon closed on August 27, 2018, was actually $2,012.71 per share, for a 134,000 percent return over 21 years.

That’s still far away from bitcoin’s 9,000,000 percent (by a factor of almost 70), but these are at least ballpark figures.

Another extravagant example comes from Gateway Industries, a then-dormant but still publicly listed company that jumped from $0.02 to almost $3 — in a single day. That allegedly happened after Robert Sillerman announced a reverse takeover, mostly to acquire the pink sheet listing. Those numbers suggest 14,900 percent, in a single day! If we want to play with statistics here, we can (linearly) annualize that return over by 253 trading days and reach 3,769,700 percent. From a low base, reaching big numbers is easy pickings.

There ought to be more penny stocks-turned-success stories that can boast of similarly outrageous returns.

A less artificial example comes from Pier 1 Imports, a Houston-based trading company that reached $504 per share on May 13, 2013. A mere four years and two months earlier, the stock traded as low as 11 cents. If we extrapolate that 458,000 percent return during four years over a decade, that’s reaching the millions of percent.

The next candidate comes from a diet-diet management company, Medifast, a company with some 400 employees that’s included in the lesser-known S&P 600 small-cap index. On September 12, 2018, the stock closed at $255.94, having traded at $0.09 in December 1999, for 284,000 percent over 19 years.

How to Post Astronomical Returns? Start From Next to Nothing

By now, the pattern for reaching these kinds of numbers ought to be clear: begin from a very, very small base, and grow to some large positive number. It doesn’t even have to be thousands of dollars, as Medifast, Pier 1, or even Netflix attest to.

Some of the examples, like Pier 1 (whose shares trade at $11 today) or Gateway Industries (no longer listed), indicate that to achieve the spectacular returns we’re concerned with here, a company has to be so far down the toilet that everybody believes that bankruptcy is all but guaranteed — but then manages to not only turn it around but instill investors with enough confidence in its “to the moon” prospects that they trade their shares at much higher levels.

You might plausibly object that most of these supposed rivals to bitcoin’s return were obvious bubbles that couldn’t possibly sustain that kind of (cleverly cherry-picked) return. Then again, that raises invokes the question of whether bitcoin is a bubble that will face a similar fate in the next couple of years — a question I am intentionally abstracting from here — and so the comparison is somewhat even.

Monster, the beverage company most known for its energy drinks, has existed under the name Hansen’s Natural since the 1930s and had its shares trading on Nasdaq since the 1990s. While a long-standing company, it was not always as successful as its current global achievements might suggest. In the aftermath of the dot-com collapse, Monster’s shares on Nasdaq traded as low as six cents — and we can find share prices of one cent as recently as April 1996.

Compared to its all-time-high of $68.91 in January 2018 (which it is currently approaching again), that amounts to 115,000 percent return from the dot-com crash and almost 700,000 percent from April 1996. Compared to bitcoin, the return is still an order of magnitude too small and the timeframe is about twice what a correct comparison ought to be. Another thousand percent or so from current levels, and Monster’s lifetime returns can beat even bitcoin’s.

Why Not Tesla?

The effect of a very low base is what drives astronomical returns in the hundreds of thousands or even millions of percent. It is also why Tesla will never even make the list. Despite its timely IPO in May 2010, and its stunning 158 percent increase in the last eight months, the share price never fell much below its initial trading at $17; the lowest trade I could find was at $14.98, which makes for a total return until this week’s all-time high (intra-day trading) of $462.06 of 2,982 percent.

My point is not that bitcoin’s spectacular price increase over the last decade did not happen, but that anything that grows large from a very small (below $1) beginning will post mind-blowing return figures. With enough flexibility and cherry-picking in my timeline, I produced numbers that by no means approach bitcoin’s rise to fame but are at least not entirely unheard of in the recent history of asset markets. Picking your timeline with care, quite a number of investments can produce, if not percentage returns in the millions like bitcoin, at least a few hundred thousand.

All you need is a very, very low base and a sufficiently large boom.

Did Bitcoin Post the Highest Returns of the 2010s, and Does It Really Matter?

The question of whether bitcoin’s rise is merely a fluke fueled by extraordinarily cheap money or a revolutionary discontinuity in human history is somewhat separate from its return during the 2010s. It has been immensely profitable for those who held it, even if we define “prices” and “asset” conservatively enough or pick starting numbers late in bitcoin’s development.

The cryptocurrency’s eye-popping dollar returns are predominantly a matter of starting point; if we define it early enough and start at low enough prices, the resulting astronomical returns follow, trivially, as a matter of statistics.

I freely admit that no matter how I sliced or diced the returns for some of the candidates I selected, I could not even remotely approach bitcoin’s 9 million, 14 million, or 240 million percent return.  None of the candidates assessed approached bitcoin’s returns, taken from the low points described above. However, all of those securities at least had the benefit of being (somewhat) actively traded on recognized and widely available platforms. Bitcoin probably didn’t have that going for it until — at best — 2013. Judging bitcoin’s current price at around $7,800 against those numbers “only” produce returns of a few hundred or thousand percent.

Nothing to disregard, but hardly revolutionary.

Insofar as bitcoin is not a computer geek’s fluke or a financial bubble, its seven-digit returns (or eight-digit, or nine-digit returns) are a one-off; it can’t happen again. Why? It no longer has the benefits of a ridiculously low base. Even if bitcoin should “go to the moon” from here, say to $100,000 (or $250,000 or even $1,000,000), that’s “only” a 1,200 percent (3,100 percent or 12,600 percent) increase from current levels. That’s an insane amount of wealth creation for those who manage to HODL it, but not at all out of reach for the Amazons or the Netflixs of the future and nothing like what bitcoin has done so far.

Sure, bitcoin’s returns over the last decade have dominated every other asset we can compare it with, but that still doesn’t tell us what we need to know about the future viability of this extraordinary development in human monetary affairs.

Besides, past performance is, as they say, not an indication for future results.
Made available by the American Institute for Economic Research.

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Joakim Book

Joakim Book holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019.