Jackson (10 months as of this post) is the first grandkid on my side of the family…which means he gets all the attention. As an example, about two months ago, my Mom, Dad, and younger sister drove 9 hours just so they could hang out with him!
As part of this extended family reunion, we rented an Airbnb house in the Hudson Valley to enjoy some early fall foliage, go apple picking, and just be in a more relaxed / spread out environment compared to a tiny apartment in Brooklyn.
I’m consistently surprised how just 1-2 hours outside of New York City, it is a 180 degree change of pace from the hustle and bustle of the city.
With that slower pace, we spent a lot of time just hanging out at the house. That means, we had a lot of time to talk. And you can probably guess what I talked to them about…
Bitcoin, of course!
My Mom was on one end of the spectrum. Even though she hasn’t taken the time to study the fundamentals yet, she has seen the price go up and up and up, and is of the mindset that it makes sense to buy some in case that trend continues.
However, my Dad was on the other end of the spectrum. Each night, we talked about different aspects of bitcoin, including what problem it is solving, and why it seems to die but then comes back stronger each time. For context, My Dad is on the verge of retirement and had lots of concerns about putting his hard earned money into this “magic internet money”.
I helped him get past each issue, and through those daily conversations, saw some “ah ha moments”. And while he wasn’t going all in on bitcoin, he did say he would buy some and treat it like an insurance policy.
(if I’m being honest, part of me thinks his real “ah ha moment” was to agree and buy some just so I would stop talking about bitcoin…)
Just before he pulled the trigger though, he said the famous words, “the price just went up a lot. I’m going to wait until the price comes down a little bit before I buy…”
Back in September, while we were at the Hudson Valley house, the price of bitcoin was $51k. My Dad wanted to wait until it was back in the mid-40’s (where it had been a few weeks prior to the trip).
As I write this, bitcoin is at $65k.
And unfortunately, he is still waiting for the dip…
“I’m too late”
I’ve noticed that with my Dad, as well as other friends who are interested to buy bitcoin (but haven’t bought any yet), there is a prevailing feeling that they’ve missed the boat and are “too late”.
I believe the exact opposite is true. And that’s what I want to talk about today.
If anything, I believe we are still early. And there are still life-changing (not hyperbole) gains ahead for those who get past the hump and commit to buy and hold bitcoin.
After reflecting, I’ve finally figured it out. I know why I, (as someone who owns bitcoin) feel we’re early, and at the same time, why my Dad (as someone who doesn’t own bitcoin) feels he is late.
I believe it’s because my Dad was (and still is) looking at the bitcoin price chart all wrong.
And it all comes down to one small setting change – whether to view the price of bitcoin on a linear scale (the default view on Coinbase, CNBC, Google Finance, etc) vs. a logarithmic scale.
Using one view, you’ll feel like you are too late. Using the other, you’ll clearly see where the price is headed next and feel like you are early.
Let me explain. And trust me, you don’t need a math pro to follow along.
The problem with a linear scale chart
I’m sure it has been years since taking a math class, so let’s first get our bearings. On a chart above with a linear scale, the vertical y-axis goes 1 → 2 → 3 → 4. Put another way, each increment is spaced out evenly. On the chart above, that would be $10k, $20k, $30k, etc.
When looking at a chart of bitcoin price through a linear scale, it’s easy to see why you would feel like you’ve missed the boat. On the chart above, it appears that up until mid 2020, the price was relatively flat. But then, at the end of 2020, the price just starts violently shooting up, up, and UP.
Of course, this leads to the feeling that:
- “it’s too late, I’ve missed out” AND / OR
- “I’ll wait to buy because anything that goes up that fast has to come crashing back down soon”
I believe that a linear scale is not the correct way to look at the price of bitcoin over time. That’s because it always makes it feel like you are too late. And that is a big mistake.
The problem is that a linear scale hides previous all time highs, like when bitcoin went from ~$100 to ~$1,000 in 2013 (which is a barely a blip on the chart). See below.
Why is this important?
Let’s rewind the clock. Imagine it is 2013, and you are considering to buy bitcoin and look at a price chart using a linear scale (see below chart for a zoomed in view of price during 2013).
Guess what? It still leaves you with the exact same feeling that you missed the boat already.
But keep in mind that back in 2013, the price was between $100 – $1,000. If you did buy $1,000 back then (even though the linear chart makes it feel like the price is so high), that investment would now be worth $50,000 – $100,000. This is what I mean when I say life-changing!
The same could be said during the bull run of 2017. And the same thing is unfolding right now with the current bull run in late 2021.
This is the trap my Dad has fallen for…he is looking at the price of bitcoin incorrectly.
Why does it always feel like “it’s too late”
For something that is growing linearly (like stocks), a linear scale works just fine and you can quickly glance at it to get a high level overview how it is performing.
But bitcoin is not growing linearly. It is growing exponentially!
If you look at something growing exponentially on a linear chart, you’ll be left with one conclusion. You are looking at a bubble that is ready to pop at any moment!
Now, let’s contrast and take a look at bitcoin price using a log scale.
Looking at bitcoin price through a log scale
The main difference on a log scale is that instead of the y-axis going from 1 → 2 → 3 → 4, it goes from 1 → 10 → 100 → 1,000 (and so on). Put another way, each increment on the y-axis is an order of magnitude bigger than the previous.
By doing this, instead of seeing what looks like a violent and sudden price move up (that again, just makes it feel like you are too late and / or “it’s about to crash anytime now”), you see a very different (and clear) pattern.
All of a sudden, you can see that every 4 years (near end of 2013, end of 2017, and the current 2021 bull cycle that we’re currently in), the price of bitcoin seems to consistently move up to the next order of magnitude.
During the 2013 cycle, it was ~$1,000.
During the 2017 cycle, it was ~$10,000.
And if all goes well, in the 2021 cycle, it looks like we’re headed to $100,000.
The beauty of a log chart is that it doesn’t flatten out the previous all time high prices. And that is important because it allows you to see a pattern unfold.
When I first switched over from a linear scale to a log scale, I had one of many “ah ha moments” about where bitcoin price was headed.
Of course, that led me further down the rabbit hole to understand why the pattern exists and how long it could continue for. That is really the topic for another post, but at a high level, I now understand it’s due to the 4-year halvening cycle that is built into the Bitcoin protocol, and for the foreseeable future, it should keep repeating that similar pattern.
Conclusion
Even now, when I see the price of bitcoin on a linear scale, it throws me off. I can’t help think, “oh no, anything that has gone up that fast will surely come crashing back down soon”. But each time I do, I remind myself to use the right tool for the job (ie. switch the chart setting to a log scale).
And as soon as I do, I feel a sense of calm.
We’re in the middle of another bull run right now. Even though it looks like the price of bitcoin is too high at $65k, by switching over to a log scale, it gives me confidence where we’re headed.
$100k, here we come!