If you do any searching, you can easily find articles about bitcoin’s risk and volatility all over the internet. I’m talking about mainstream media sources like Forbes, Wired, CNN and The Wall Street Journal just to name a few. What’s interesting about all of these publications is that they all make note of how volatile and risky bitcoin is but not enough articles touch on Bitcoin’s opportunity for gain vs. risk of loss. I would like to take a second to change that narrative and compare the risk vs. the reward.

Understanding Risk vs. Reward

Before we dive into the differences between bitcoin’s risk vs. reward, let’s first take a moment to understand basic risk vs. reward in standard finance. When you invest in a stock, bond, mutual fund, IRA or any other financial product, you have the intention of making a return. If there was no return on that investment, you wouldn’t put your money there. This is why it’s smart to put money into stocks, mutual funds, and all those other legacy finance tools. These are often a safe risk with a safe return.

Most of these legacy financial products are based on the type of risk that they come with. Putting your money into a savings account might get you a 1% return annually …if you’re lucky. It’s toted as a low-risk place to put your money but comes with a low opportunity for gain.

Other higher yield accounts come with more stipulations such as you have to keep them locked up for a certain amount of time or the risk of loss is greater. Typically, the greater the opportunity for gain, the greater the risk of loss.

The Bitcoin Gamble

Since so many mainstream publications all seem to think that Bitcoin is such a risky gamble, let’s compare it to gambling.

“Even money” is a common term at almost every Casino. For every dollar you wager on an even-money bet, you will get an additional dollar back if you win. You risk 100% of your bet in an attempt to win a 100% profit but you are only capable of gaining what you are willing to risk. If you ask any investor, a 100% gain is unbelievably good but not if you are risking 100% of your investment to get it.

Different wagers increase your reward but the risk also increases in relation to the reward. In short, all gambles come with a risk that is relative to the reward.

Now, what about betting on the calculated risk of Bitcoin? Let’s take a look at both the risk or loss and the opportunity for gain. For this observation, we are going to use the price of Bitcoin from February 3rd, 2016 of $350 USD.

Bitcoin and The Risk of Loss

I am going to jump right to the hard facts about Bitcoin’s risk.

If Bitcoin completely fails, you will lose 100% of your investment. It’s that simple.

Now let’s be a bit more realistic about the potential of that ever actually happening.

(Some context: I wrote this article when the price of bitcoin was $350 back in 2016)

Unless you’re paying absolutely no attention at all, you will sell before the price reaches absolutely zero. So, let’s just say that something terrible happens, the price of bitcoin falls to $180 and then you decide to sell it because you think it will only go lower. That means that your losses would be somewhere between 0% – 50%. That’s a pretty substantial loss but it’s not a 100% loss like gambling in a casino.

Now let’s look at Bitcoin’s potential for gain.

Bitcoin and The Opportunity for Gain

If bitcoin “succeeds” and achieves widespread adoption, the price will increase substantially with market demand. I am not going to try to predict exactly how substantially but a single coin went from being worth just fractions of a penny to now being worth about $350 USD at today’s price (February 3rd, 2016). To date, the highest price that Bitcoin has ever reached is $1,216.73 USD which happened back in 2013. That’s about 325% more than today’s price. So in comparison to today’s price, the opportunity for long-term gain is at least 0% – 325% (since we have already observed it going so high before). Also, since the supply of new bitcoins is steadily decreasing while the awareness and demand are steadily increasing, it makes economic sense that we will continue to see upward pressure on the price over time.

Updated April 29th, 2019

I originally wrote this article back in 2016 when the price of bitcoin was only about $350 but since then the opportunity for gain has proven to be pretty substantial. As I am updating this article, the price of bitcoin is $5155.97. That’s a 1473% increase in the price since I published this piece. Even if you were to buy bitcoin today, it could potentially lose 100% of it’s value (in relation to fiat prices). But the opportunity for a gain much greater than 100% is still very real since we have already seen the price of bitcoin achieve an all-time high greater than $18,000 USD.

Why Should I Use Bitcoin?

Although we have no idea what will happen in years to come, we can make educated guesses as to what will happen as the supply of new coins continues to slow down. I personally predict that the opportunity for gain will far outweigh the risk of loss.

I am not able to give any sort of financial advice but if you’re interested in experimenting with bitcoin, you might enjoy reading about the 210,000 block HODL theory. It makes it pretty clear that if you buy and hodl for at least 210,000 blocks (approx 4 years), you are likely to see just how much opportunity for gain that there is with Bitcoin.

If you would like to help more people to use bitcoin, please consider starting a conversation in the real world with one of our shirts.