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Stopped buying Bitcoin at 99 cents
Chad Cascarilla came across Bitcoin in April 2010, when it traded around three cents, and he assumed it would go to zero. He and his partner, Emil Woods, ran the hedge fund Cedar Hill, which had profited by being short the problem of money printing until that stopped paying. He wanted to be long the solution, and Bitcoin and blockchain looked like it.
The price kept climbing past that line anyway, which showed him how much wilder the opportunity was than he had imagined.
He believed Bitcoin could reach $100,000, but put the odds at less than 1 percent. A really big number times even a small probability can still be a big number, which is why they kept holding it. Holding it did not mean that was what he expected to happen.
Why was early Bitcoin worth only cents?
Bitcoin launched in January 2009 with no market at all. The first known exchange rate, published in October 2009 by a site called New Liberty Standard, was set from the electricity cost of mining and came to about 1,309 coins per dollar. In May 2010, a programmer named Laszlo Hanyecz paid 10,000 bitcoins for two pizzas, the first widely cited purchase of a real good. Bitcoin reached parity with the dollar in February 2011.
How can a tiny probability justify a bet?
Expected value multiplies each possible payoff by its probability, so a very large payoff can outweigh a small chance of getting it. Venture capital runs on this logic, where a small number of outsized winners account for most of a portfolio's returns. When the most that can be lost is the amount put in, the downside stays fixed while the upside has no ceiling. Payoffs shaped like that are called asymmetric or convex.
What happened after Bitcoin passed one dollar?
Bitcoin climbed to about 31 dollars in June 2011, then fell below 3 dollars by that November. It passed 1,000 dollars for the first time in late 2013. The Mt. Gox exchange, which handled most early trading, filed for bankruptcy protection in Japan in February 2014.
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