Bitcoin (^BTCUSD) is down over 56% YTD. Based on its own history since it was last at this price there is a high probability of doubling from here. This article looks at those probabilities and Bitcoin's expected return.
Bitcoin is at the point where a small retracement of its previous highs can turn into a giant return. It closed last year at $47,686 per BTC token, but as of July 10, it’s now at $20,623.
So, even if the BTC token rises to $41,246, or a double from here, it would still be down 13.5% YTD. And if it were to rise back to where it was a month ago, it would be up 42.86%.
That’s just the simple math. But it is also fairly probable of happening. Let’s look at that.
Expected Return for BTC
We could put together a matrix of expected probabilities and the related expected return (ER) scenarios of investing in Bitcoin. But just to simplify things let’s take two scenarios and then average them. The first is a positive scenario and the second is a less-than-positive outcome.
For example, on the bright side, let’s say there is a good possibility that Bitcoin could double from here. And let’s just assume for simplicity’s sake it takes a year to occur.
So, let’s say there is a 60% chance it will double, or rise 100%. That makes its expected return (ER) 60% (i.e., 0.6 x 100%).
However, let’s say, in a not-so-positive scenario, there is an alternative 40% chance the stock will rise 50%. That gives it an ER of a 20% gain (i.e., 0.40 x0.50).
Therefore, the combined ER for the two is a 100% probability of an 80% gain (i.e., 60% +20%). Investors can expect that Bitcoin will rise to $37,121, i.e., 80% over today’s price of $20,623.
The Probability Bitcoin Doubling From History
The last time Bitcoin doubled, it took only 75 days, according to CoinTelegraph. But the fastest this ever occurred, according to CaseBitcoin was in 2021, when it took just 22 days. It rose from $21,000 to $42,000 in just three weeks and one day.
Does that sound familiar? Bitcoin is just below $21,000 now at $20,623. In fact, it is already up 14% from its lows of $18,084.
Here is another way to look at this. Let’s look at Bitcoin’s recent history.
Bitcoin gains since the last time it was at today’s price — Mark R. Hake, CFA
The last time Bitcoin was at this price was in late Dec. 2020. Since then Bitcoin rose over 200% to above $63,000, then fell over 50% to just above $30,000 in July 2021.
Then it proceeded to more than double again to over $67,000 in November 2021. Next, it fell almost 40% to $36,000, popped up 30% to over $47,000 in April 2022 and since then has slid over 50% again to where it is today.
In other words, there have been 3 times Bitcoin has risen since it was last at today’s price level. It rose 200%, then 100%, then 30%. Therefore, the average gain was 110% when it rose.
Adjusting the Expected Return
That makes the probability that Bitcoin will rise 100%, or double from here, extremely likely. In fact, I would argue the probability is much greater than 60% as in my positive scenario above. It’s more like 80% of a 110% gain, with just a 20% chance of rain — up just 50%.
That makes the total expected return equal to 98%. That is seen by doing this calculation: (80% x 110% = 88%) + (50% x 20% = 10%), so, 88% +10% = 98% (i.e., a double).
In other words, expect Bitcoin to double from here to $41,000 per BTC token. And it probably won’t take anywhere near a year to occur, if past history is any guide.
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