Comment on Bitcoin hits $69,000 in new record high
PlantJam@lemmy.world 6 months agoIf 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.
Comment on Bitcoin hits $69,000 in new record high
PlantJam@lemmy.world 6 months agoIf 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.
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
PlantJam@lemmy.world 6 months ago
That makes perfect sense, thank you for the thorough explanation!