When should I invest in Bitcoin?

Bitcoin as an investment

Bitcoin - the quick buck?

Everyone has heard them: the stories of Bitcoin fans who believed in the future of cryptocurrencies very early on and got rich with Bitcoin. A pizza that was ordered (at today's price) for hundreds of millions of euros with Bitcoins, a Brit who accidentally threw away his Bitcoin hard drive (also over 100 million), the Winklevoss twins, who even became billionaires through Bitcoin.

From 2011 to 2019, with the exception of 2014 and 2018, Bitcoin was one of the best investments in the world almost every year in retrospect. Critics speak of one of the largest bubbles that has ever existed. However, this already happened when the price of a bitcoin broke through € 10, at € 100, € 1,000 and, more recently, at € 10,000. So far the market has had a different opinion.
The fact is: NOBODY knows how bitcoins and other cryptocurrencies will perform in the future. There has simply never been a new asset class in this form.

So is it really that wrong to invest in Bitcoin?

Imagine the following situation: someone gives you 20,000 euros, but makes the payment subject to the following condition: you get 18,000 euros immediately, you can invest 2,000 euros and will only get the result in 10 years. What would you do?

1.) Simply store 2,000 euros in cash?
Then in 10 years you will have 20,000 euros, but how much can you still buy with it? * cough inflation *

2.) Buy a fixed-term deposit account or globally diversified equity index funds?
A certainly sensible decision, after all, the risk of total loss is low, and if things don't go completely stupid, you might have 22,500 euros at the end of the 10 years.

3.) After you have already secured the 18,000 euros, you put 2,000 euros in a speculative investment like Bitcoin
In 10 years, the additional 2,000 will either be gone (it was all just hype) or worth a lot more (because the concept of cryptocurrencies works). There is practically nothing in between.

Even for the risk-averse investor, the third method suddenly looks very attractive. Why is that? Because the situation eliminated the risk. In any case, you get out of the whole thing with 18,000 euros more, possibly with significantly more.

So the question of whether you should invest in Bitcoins or other cryptocurrencies depends from personal attitude to risk from.

A feeling of risk is not everything, however. Even investment decisions with a very low risk make no sense if the expected value is negative (see explanation). Nobody would make the following bet, for example: You roll 2 dice, for every number you roll you get 1 euro, but if you roll two sixes you lose 1 million euros. Low risk but clearly negative expected value: 35 * 1 euro + 1 * (-1 million euros) / 36 = -27,000 euros expected value.
So for a good investment decision you need one positive expected value.

The third factor that plays a role in the decision is that Damage in the event of a total loss: Every millionaire would toss a coin at a game in which he loses 1,000 euros for “heads” and wins 3,000 euros for “tails” (positive expected value).
Someone who has saved 50,000 euros for their pension would probably not put their pension at risk by flipping a coin, even if they get 500,000 euros on “tally” (clearly positive expected value).

What does all of this have to do with Bitcoin?

Two of the three above factors are known when deciding whether to invest in Bitcoin:
- your own risk affinity.
- the amount that, in the worst case, would not cause much damage.

The only thing that is not known is whether the investment in Bitcoin has a positive expected value or not. Otherwise it would be too easy. However, you can calculate this expected value for yourself if you speculate on certain events:

Expected value for Olli Optimist, who buys bitcoins for 1,000 euros

Olli Optimist was fed up with the financial system in 2013 when he stumbled upon Bitcoin (at the price of € 100). He informs himself and thinks “this could be a solution”. But he is realistic enough to see that Bitcoin is still very young. He is convinced that the chance that the whole thing will fail is definitely 70%. But if it works, a course of 2,000 euros is possible. He invests 1,000 euros. Because with these assumptions it has a clearly positive expected value of 4,700 euros. In addition, the 1,000 euros won't hurt him if he lost it completely.

This is his assessment and the expected value for the years 2013, 2016 and 2017:

yearBitcoin courseChance of total lossChance of successCourse in case of successExpected value
2013100 €70 %30 %2.000 €+ 4.700 €
20161.000 €50 %50 %10.000 €+ 3.500 €
201710.000 €20 %80 %50.000 €+ 2.200 €

Expected value for Pauli pessimist who keeps his hands off Bitcoin

Pauli Pessimist also heard about Bitcoin for the first time in 2013 and thinks: What kind of cheese will never work. Accordingly, he assumes 95% that Bitcoin will soon be worthless, but concedes a remaining chance of 5% that the bubble will continue to reach 1,000 euros. Of course, he is right not to invest, because his expected value is -550 euros (with 1,000 euros stake). He also sees no future in the following years:

This is his assessment and the expected value for the years 2013, 2016 and 2017:

yearBitcoin courseChance of total lossChance of successCourse in case of successExpected value
2013100 €95 %5 %1.000 €- 550 €
20161.000 €95 %5 %5.000 €- 800 €
201710.000 €95 %5 %20.000 €- 950 €

Both Olli and Pauli made the right decision for them at the time!

How the course developed in the end is irrelevant. It is the expected value that counts.

Total loss possible? Indeed! But it doesn't matter!

“Financial supervision warns of a total loss of Bitcoin” is just one of many cautionary notes on the subject of Bitcoin. Even if the financial supervisory authority is of course right, the above examples show that this is no reason to demonize Bitcoin and other crypto currencies as investment opportunities.
It's no different than when investors invest in startups. 90% of all startups fail and thus mean a total loss for investors. Why do venture capital companies invest (strangely enough in this case not “speculate”) in startups? Positive expected value! If only 1% of the startups become the new Facebook, Google etc., the investment has more than paid off. Just like such investments, cryptocurrencies are a typical high risk / high reward situation.


Nobody knows how the subject of Bitcoin and cryptocurrencies will develop in the next few years. It can all collapse or existing asset classes can run out a large part of the investment. As long as you base your personal investment decisions on a positive expected value and the risk is known, it is a good idea to buy bitcoins.
Therefore again important:
Only invest in Bitcoin or other crypto currencies that you can bear in the event of a total loss!