This past week has been an absolute roller coaster for the cryptocurrency markets. The markets rose significantly higher than most anticipated, reaching a high of nearly $20,000 per coin. This was followed by a sharp drop that sent many coins into a deep state of shock.
In the days that followed, the markets have tried to find their footing. While many expect the price of Bitcoin (BTC) to decline, currently at $8,000, it is holding steady at the time of writing.
This volatility has resulted in some investors cashing out in profit while others are still in the red. It’s a good time to ask – what is the return on investment (ROI) of betting $2,000 and getting $3,600 back?
The Short Answer
The short answer to this question is to simply calculate the profit you would have made by buying a specified number of coins at the market price and then selling them at a profit. For example, if you had purchased 100,000 Bitcoin at the current market price of $8,000 and then sold them for $12,000, your profit would be $4,000.
The long answer is a little more complicated due to the fact that you need to consider both the risk and the reward associated with cryptocurrency investments. To put it simply, the risk is the possible loss of capital; the reward is the profit obtained from any increase in the value of the coins.
Let’s examine how to calculate the ROI of betting $2,000 and getting $3,600 back.
To calculate how much you will profit based on the example above, we need to consider some basic math. First, we will assume that you bought 100,000 Bitcoin at the current price of $8,000. Second, you want to sell these same coins for $12,000, which is a 25% profit. Third, for the sake of simplicity, we will assume that you can immediately sell your Bitcoin for $12,000 without any fees or slippage. This would be considered a “no-risk” opportunity, as the price is always better than the market price.
Now we can begin to calculate how much you will profit if the Bitcoin price goes up. To do this, we will need to take the total price you paid for the coins ($200,000) and divide it by the current price of Bitcoin ($8,000), which yields a 25% profit. This calculation yields a profit of $3,600.
Let’s examine some other scenarios. Say you purchased 100,000 Bitcoin, but the price fluctuates and drops to $6,000. In this case, your profit for the same sale ($12,000) would be only 16.67%, or $1,600 (100,000 / 6,000).
This is a dangerous game to play. Even the pros are beginning to realize that the price of Bitcoin could one day collapse – potentially losing all of your investment along with it. Because of this risk, I recommend avoiding this kind of speculation and investing in coins that you believe in and understand.
Finally, let’s assume that the price of Bitcoin rose to $14,000 but then dropped to $9,600. In this case, your profit from the same $12,000 sale would be 12.5% ($1,250).
While the risk of purchasing coins and hoping for the best is exciting and potentially lucrative, it is also a high-risk undertaking. As I mentioned above, all cryptocurrencies are inherently risky due to the nature of the investment; however, there are levels of risk that you need to be aware of.
For example, if you have only $1,000 to invest in a coin, you might want to consider avoiding most of the risks associated with cryptocurrency ownership. In most cases, you are risking more than you are getting back. That is, if the price goes up, you will make a profit, but you are also risking your entire investment. When prices drop, you will lose money. Even in the best case scenario, you are losing money on the investment, but you are also gaining the appreciation of your coins.
In conclusion, this is a dangerous game to play. Anyone considering this speculation should understand the risks involved and consider those before making any moves. Of course, if you put in the time and research, the rewards can be great – but it’s not for the faint of heart.
The rewards associated with cryptocurrency speculation are twofold. First, you are achieving financial freedom through the appreciation of your coins. Second, you are contributing to the public good through the invention of usable applications and protocols that enable Bitcoin and other cryptocurrencies to function.
In most cases, the rewards for participating in the growth of cryptocurrencies far outweigh the risks involved. For example, if you participated in the early days of Bitcoin and made a small investment, you would have seen your investment multiply many times over. You would also be contributing to the wealth of the entire network, as well as enjoying the benefits of financial independence.
In some cases, the rewards can be great but the risks are high. For example, if you invested a large sum of money in a coin and it appreciates sharply in value, you might make a lot of money, but the risk of losing your entire investment is also great. In these cases, it’s better to sit out. Better to wait and see how the market plays out rather than to put yourself in a situation where you might lose everything.
Overall, this is a great opportunity to make money, but you need to be aware of the risks involved. It’s important to consider how you will benefit monetarily as well as how you will contribute to the growth of crypto as a whole. Decide for yourself whether the rewards outweigh the risks or not.