You mentioned early adopters were taking HIGH risk for a potentially high return, but what were they risking? a couple of cents of electricity bill? I don't call that a high risk.
In calculating risk vs. return you have to take into consideration two factors: the magnitude of the upside and the probability of the upside (and downside too as a matter of fact). If you take those two into consideration and do the analysis, I see it would make more sense investing in Bitcoin at its earlier stages...
We can talk more about that if you want, but it seems that you don't....boo!
Now you're talking about return.
Certainly, the potential return
might have been higher for those who were involved earlier. That's already stated in the part about the "
HIGH risk for a potentially high return".
However, the fact that a there is a chance for a high return does not change the fact that there is also a high risk.
Back then, there was only 1 exchange (MtGox).
Back then there was only 1 wallet (Bitcoin-Qt).
Back then nobody knew what governments thought of it.
Back then there was almost nowhere to use it.
Back then someone could crash the market by selling a few thousand dollars worth.
Back then, nobody knew if it would catch on or not.
Now, there are multiple exchanges.
Now there are multiple wallets.
Now the several governments have stated that they are not against it.
Now there are many places to use it
Now a sale of $10,000 doesn't even register as a dip in the market.
Now it is clear that it has caught on.
You can't be intellectually honest and say that risk is higher now than it was then. You are either intentionally trying to mislead people, or you don't understand the concept of risk. The fact that you claim to have a degree in finance does not explain why you don't have a good grasp on the concept of risk.
Are you seriously trying to say that it is more risky now to invest $100,000 in bitcoin than it would have been to invest $100,000 in bitcoin in late 2011?
I am thinking, maybe because I have an advanced understanding of the topic I dont explicitly mention the basics. Same way if you are debating with a physicist about the laws of quantum mechanics he will assume you know about the laws of gravity.
Here's how I would explain my thoughts to someone who has no idea about risk & return:
Suppose when Bitcoin was at 1$ per unit probability of success was 5%
and the potential return IF it got successful is 100,000% (I can give you a more complicated model with a probability distribution either continuous or not...but I will keep it simple with these numbers)
In which case,
potential payoff is 5% * 100,000% = 5,000% (Sounds like a good investment)
You can even go further by considering different scenarios or even calculate the break-even point for each scenario but again, I'll keep it simple and stop here. For the only purpose of this post is to make my point clear once and for all.
NOW suppose you are doing the same calculation for Bitcoin today, considering each bitcoin is 1000$ per unit, then probability of more success = 80% (notice how probability of success went up significantly) and potential return IF it got more successful is 500% (notice however the decrease in that number).
In which case
potential payoff is now 80% * 500% = 400% (lower than the previous 5,000%)
[these are my own chain of thoughts, and may not be reality....but I'm trying to walk you through how some people might think about it in terms of risk vs. return]
Now I agree I might have used wrong wording in my previous post, would have been more accurate saying "less risk and less return, but return goes down in higher magnitude than risk, making the overall equation less attractive" but didn't wana sound too fancy :p
Clear?
