How punishing is it to be out of the crypto market?
One dollar invested in the US stock market 1900 would have gained you $270 the year 2013. If you had missed the best five days each year, you would have ended up with $0.10. How punishing is it to be out of the crypto market?
Looking at Bitcoin prices between February 2, 2012 and October 25, 2018, we analyze how concentrated the gains are, i.e. on how many days the majority of the gains of Bitcoin have developed.
Disclaimer: The data set is not fully complete (four days are missing data), there are multiple exchanges with somewhat different prices, and the daily change is presented with only four decimal accuracy.
With that in mind, let’s see what we got!
The Real World
If we did not remove any trading days, the bitcoin has risen with 105626%, from $6.1 to $6,443.16 (it differs slightly from the price @ Investing because we have manually calculated it day by day). The following diagram, showing Bitcoin price over the past years, is surely familiar.
The 99%
So what happens then when we remove the top 1% of the trading days? Out of all 2441 trading days, the top 1% contains all the days that gained more than 13.95%. The list consists of the following days
Aug 20, 2012, gain: 26%
Mar 19, 2013, gain: 15%
Apr 03, 2013, gain: 14%
Apr 08, 2013, gain: 16%
Apr 09, 2013, gain: 23%
Apr 17, 2013, gain: 36%
Apr 18, 2013, gain: 17%
May 04, 2013, gain: 15%
Oct 03, 2013, gain: 17%
Nov 08, 2013, gain: 14%
Nov 18, 2013, gain: 24%
Nov 21, 2013, gain: 27%
Dec 09, 2013, gain: 28%
Dec 19, 2013, gain: 27%
Dec 26 2013, gain: 14%
Mar 03, 2014, gain: 17%
Jan 15, 2015, gain: 19%
Aug 19, 2015, gain: 24%
Jul 17, 2017, gain: 15%
Jul 20, 2017, gain: 27%
Sep 15, 2017, gain: 14%
Dec 06 2017, gain: 17%
Dec 07, 2017, gain: 23%
Dec 26 2017, gain: 15%
They are spaced out as follows
Losing out on these days, the best 1%, would have given you a 1316% gain vs 105625%. That means a bitcoin today would have been worth $80.3 instead of $6,443.16.
Conclusion
As it is in the stock market, being out of the market at any time is punishing. The best way is to invest as soon as possible, and enter through dollar cost averaging. That means you diversify away the risk of entering at a peak by entering over time. Each peak and valley becomes less impactful, and you bet instead that the market will rise over time. In the stock market, due to value generation from assets, this is almost guaranteed. In the crypto market it is not. But if you don’t believe that the market will rise, why would you want to enter crypto at all? ;)
If you want to read more about solid financial theories applied to the crypto market, read our full study.
