July 19, 2021
Greg Cipolaro

Bitcoin’s Long-Term Compounding Effects

Bitcoin can be an enticing asset for investment professionals - high volatility at times, liquid markets, numerous trading venues, and a variety of derivatives at one’s disposal make bitcoin a tantalizing asset for short-term traders. However, we believe it is bitcoin’s long-term appreciation, throughout cycles and market volatility, that makes it a valuable asset for investment managers.

There are some important takeaways from this analysis that may not be obvious to investors. Yes, bitcoin has historically exhibited high annualized returns, but it is the range of returns that we find most interesting, particularly the worst-case return of 28.8%. This says to us that even if investors had bought at cyclical or local tops, but held for 5 years, the worst they would have compounded their investment is 28.8%. This worst-case return scenario is greater than the maximum return for most asset classes and greater than the 75th percentile for all asset classes. We encourage investors to consider this fact given the common concerns about market timing and investment entry point.


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