Comment on Bitcoin hits $69,000 in new record high

• Aatube@kbin.melroy.org ⁨6⁩ ⁨months⁩ ago

  I don't see the sense in your calculations

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  • PlantJam@lemmy.world ⁨6⁩ ⁨months⁩ ago

    If it has a 50% chance to increase by 10,000% or a 50% to decrease by 90%, the average expected price is an increase of about 5,000%. It’s a finance thing.

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    • iopq@lemmy.world ⁨6⁩ ⁨months⁩ ago

      It’s not the expected price per se, but the expected payoff of the investment

      We may never sell at 5000% because we’re looking for 10000% so we might ignore that price until it either hits our sell point on either side. Either 10000% gain or 90% loss

      The value of the investment is then our expected value, but also decreased by risk-free rate for every year we expect to hold to make 10000% profit and divided by half for the probability of 50%

      So if we expect to hold for 100 years on average to achieve that price, it’s not a good investment because you can just buy bonds that yield 5% to achieve that return (131.5x after 100 years)

      But if we expect to hold it for ten years, it becomes attractive

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      • PlantJam@lemmy.world ⁨6⁩ ⁨months⁩ ago

        That makes perfect sense, thank you for the thorough explanation!

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  • abhibeckert@lemmy.world ⁨6⁩ ⁨months⁩ ago

    If you make bets like that, not just once but repeatedly in a broad portfolio, you will get filthy rich.

    But that’s based on the false assumption “it’s just as likely”. The price of bitcoin is not random, and to really get filthy rich you want to use a decision process that better understands market pricing patterns.

    A wonderful video on that was posted a week ago: www.youtube.com/watch?v=A5w-dEgIU1M

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  • iopq@lemmy.world ⁨6⁩ ⁨months⁩ ago

    It’s called expected value

    50% you expect a certain payoff, so the EV of this situation is 0.5 * payoff

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    • Buffalox@lemmy.world ⁨6⁩ ⁨months⁩ ago

      Thank, nice perspective on investing you’ve made overall in this thread. 👍

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