Bitcoin Investment Returns: How Much Can You Make?

Bitcoin's extreme volatility makes it a risky investment. In November 2021, the world's biggest cryptocurrency hit an all-time high of just under $69,000, but by June 2024, it had dropped to around $24,000. That said, if you had bought Bitcoin in January 2021 and sold it at its peak, you would have made a 115% profit.

If you had invested $1,000 in Bitcoin a year ago, you would have made a 133% profit, and your initial investment would be worth $2,331. If you had invested $1,000 five years ago, your investment would have grown by 1,352% to $14,524. If you had bought $1,000 worth of Bitcoin 10 years ago, it would have grown by 7,644% to $77,443.

A $100 investment in Bitcoin today could buy 0.00239 BTC, based on a current price of $41,810.58. If Bitcoin returns to its all-time high, your $100 investment would be worth $164.41, a return of 64.4%.

Bitcoin's all-time high

Bitcoins All-Time High

Bitcoin, the original digital currency, has experienced a meteoric rise since its launch in 2009, increasing from fractions of a penny to an all-time high of $75,830 in March 2024. Its price journey has been volatile, with violent dips and pumps.

2024

Bitcoin reached an all-time high of $75,830 on March 14, 2024, with a market capitalization of $1.44 trillion. This was fuelled by the approval of Bitcoin Spot ETFs, which increased investor interest. However, by August 5, 2024, Bitcoin's price had dropped to $53,010, a 27.82% decline, due to fears of a US recession and rising geopolitical tensions.

2023

After a challenging 2022, Bitcoin witnessed a strong recovery in 2023, ending the year at $42,258. The year started with Bitcoin trading at $16,530 in January and peaked in July at $31,000.

2022

Bitcoin's price continued to gradually decline throughout 2022, falling to $29,000 in May and dropping below $23,000 in June. By the end of 2022, Bitcoin's price had recovered to around $58,483.

2021

Bitcoin reached an all-time high of $69,000 in November 2021, fuelled by events involving Tesla and Coinbase. However, prices were down by 50% by the summer, closing at $30,829 in July.

2020

The Covid-19 pandemic and subsequent government policies caused investors to flock to Bitcoin, with its price rising sharply. It ended 2020 at $28,993, a 416% increase from the start of the year.

2019

Bitcoin experienced a consistent downtrend in 2019, closing the year at around $7,000.

2018

Bitcoin's price collapsed in 2018, closing the year below $4,000.

2017

Media coverage drew in more retail customers, and Bitcoin's price easily broke through price barriers. It ended 2017 at $19,188, a significant increase from its starting price of $1,000.

2013

By the end of 2013, crypto was becoming more accessible, and Bitcoin's price breached $1,000.

2010

Bitcoin's first significant price increase occurred in October 2010 when its value jumped from less than $0.10 to $0.20.

2009

Bitcoin was introduced in 2009 and was originally worth next to nothing. Its first transaction gave it a value of $0.0009 each.

Bitcoin's volatility

Bitcoin is a highly volatile asset. Volatility is a measure of how much the price of a financial asset varies over time. The more volatile an asset, the more risk is associated with holding it. Volatility is usually a statistical measure of the dispersion of returns, such as standard deviation.

Despite its volatility, Bitcoin has historically provided good returns to investors. For example, if you had invested $1000 in Bitcoin five years ago, your investment would have grown by 1352% and be worth around $14,524 as of February 14, 2024.

Bitcoin's ongoing volatility has long been a point of concern for investors, but it is important to note that swings can be intense to both the upside and the downside. If prior cycles are any indication, a blow-off-the-top rally could have $250,000 in play over the coming years.

Bitcoin's value over time

Bitcoin's value has fluctuated significantly since its launch in 2009. The cryptocurrency's price jumped from $0.10 to $0.20 on 26 October 2010, and by the end of the year, it had reached $0.30. In 2011, it started growing past $1, reaching a peak of $29.60 on 8 June 2011. However, a sharp recession in the cryptocurrency markets followed, and Bitcoin's price dropped to close the year at about $5.

Bitcoin had a slow year in 2012, increasing by only a few dollars. However, 2013 witnessed strong gains in price. Bitcoin began the year trading at $13, crossed $100 by April, and then $200 by October. The cryptocurrency crossed $1,000 in November and closed out the year at $732.

Prices slowly climbed through 2016, ending the year at over $900. In 2017, Bitcoin's price hovered around $1,000 until it broke $2,000 in mid-May and then skyrocketed to close at $19,188 on 16 December.

Bitcoin's price moved sideways in 2018 and 2019, with small bursts of activity. For example, there was a resurgence in price and trading volume in June 2019, with the price surpassing $10,000. However, it fell to a closing price of $6,612 by mid-December.

The COVID-19 pandemic in 2020 caused a surge in Bitcoin's price. The cryptocurrency opened the year at $7,161 and closed at $28,993 on 31 December 2020, increasing by 416% from the start of that year.

Bitcoin took less than a month in 2021 to surpass its 2020 price record, breaking $40,000 by 7 January 2021. By mid-April, Bitcoin prices reached new all-time highs of over $60,000. Institutional interest further propelled its price, and Bitcoin reached a peak of $64,895 on 14 April 2021. However, by the summer of 2021, prices had dropped by 50%, closing at $30,829 on 19 July. The cryptocurrency saw another bull run in September, with prices scraping $52,956, but a large drawdown took it to a closing price of $40,597 about two weeks later.

On 10 November 2021, Bitcoin again reached an all-time high of $69,000 before closing at $64,921. In mid-December 2021, Bitcoin fell to a close of $46,211 as uncertainty about inflation and the emergence of a new COVID-19 variant, Omicron, spooked investors.

Between January and May 2022, Bitcoin's price continued to gradually decline, falling to $29,000 on 11 May. This was the first time since July 2021 that Bitcoin closed under $30,000. On 13 June, crypto prices plunged, and Bitcoin dropped below $23,000 for the first time since December 2020. By the end of 2022, Bitcoin had dropped below $20,000.

Fortunes changed for Bitcoin in 2023, with a stellar rise in its price. It opened the year at $16,530 and consistently rose throughout, ending the year at $42,258.

In 2024, the long fight for Bitcoin Spot ETFs came to a close, and the cryptocurrency's price climbed quickly after the fund approvals. In late February and early March, it once again breached $60,000, setting a high of $70,184 on 8 March. On 14 March, Bitcoin continued to set records, reaching $75,830 by mid-day—its highest price to date. As of 13 August 2024, the price of Bitcoin is $60,683.20.

Bitcoin ETFs

The first Bitcoin ETFs were approved in January 2024, marking a significant milestone in the evolution of cryptocurrency as an asset class. Prior to this, investors could gain exposure to Bitcoin through futures contracts or by investing in companies involved in blockchain and crypto-related businesses. However, the launch of spot Bitcoin ETFs provided a more direct and regulated way to invest in Bitcoin through traditional brokerage accounts.

There are two main types of Bitcoin ETFs: spot Bitcoin ETFs and Bitcoin futures ETFs. Spot Bitcoin ETFs directly hold Bitcoins in secure digital vaults, while Bitcoin futures ETFs use financial derivatives such as futures contracts to replicate the price of Bitcoin. Spot Bitcoin ETFs are considered more transparent and intuitive for investors since each share of the ETF corresponds to a specific number of Bitcoins held.

Some popular spot Bitcoin ETFs include the Bitwise Bitcoin ETF (BITB), VanEck Bitcoin Trust (HODL), and Ark 21Shares Bitcoin ETF (ARKB). These ETFs are traded on major stock exchanges, providing investors with a more familiar and regulated environment to invest in Bitcoin.

While Bitcoin ETFs offer several benefits, such as convenience, liquidity, and regulatory oversight, it's important to remember that they are still subject to the volatility and risks associated with the cryptocurrency market. Investors should carefully consider these risks, as well as the fees and expenses associated with Bitcoin ETFs, before deciding to invest.

Bitcoin taxes

Bitcoin is taxed, but how it's taxed depends on how and when you acquired it. The IRS treats all cryptocurrencies as assets similar to property, and the gains or losses on the sale of Bitcoin are treated the same as other capital assets.

If you acquired Bitcoin from mining or as payment for goods or services, that value is taxable immediately as earned income. If you disposed of or used Bitcoin by cashing it on an exchange, buying goods and services, or trading it for another cryptocurrency, you will owe taxes if the realised value is greater than the price at which you acquired it. In this case, you may have a capital gain that's taxable at either short-term or long-term rates.

There are two factors that determine your Bitcoin tax rate: how long you owned it before selling, and your total income for the year. If you owned Bitcoin for one year or less before selling, you'll face higher tax rates of between 10% and 37%. If you owned Bitcoin for more than a year, your rates will be between 0% and 20%. The highest tax rates apply to those with the largest incomes.

The IRS has added a question to tax return forms asking filers about their crypto activity. For the 2023 tax year, the question reads: “At any time during 2023, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?".

To ensure you stay on the right side of the rules, keep careful records. You'll need records of the fair market value of your Bitcoin when you mined or bought it, as well as records of its fair market value when you used or sold it. A Form 1099-K might be issued if you're transacting more than $20,000 in payments and 200 transactions a year. However, both conditions must be met, and many people may not use Bitcoin 200 times in a year. Whether or not you cross these thresholds, you still owe tax on any gains.

While popular tax software can import stock trades from brokerages, this feature is not as common with crypto platforms, so you may need special crypto tax software.

You can write off Bitcoin losses on your tax return, and see if you can reduce your tax liability through a process called tax-loss harvesting. The maximum amount you can write off in one year is $3,000.

Failure to report Bitcoin can be costly. The IRS uses multiple methods to keep tabs on the industry, such as gaining information about tens of thousands of users of popular crypto exchanges by issuing subpoenas. While the IRS may not have the resources to come after every person who fails to disclose cryptocurrency transactions, it's best not to take the risk. If you “carelessly, recklessly or intentionally” ignore tax rules or regulations, which include reporting gains and losses on Bitcoin trades, you’ll face fines in addition to taxes.

Frequently asked questions