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  2. Bitcoin

Here's How Rich You Would Be If You Bought $1000 Worth of Bitcoin a Year Ago

By:
Lucinda Shen
3 min read
A souvenir coin of the bitcoin cryptocurrency at MaRSe Bitcoin Center in Moscow. - Vladimir Astapkovich—Sputnik via AP
A souvenir coin of the bitcoin cryptocurrency at MaRSe Bitcoin Center in Moscow. Vladimir Astapkovich—Sputnik via AP

For an asset often named in tandem with drug trafficking and the dark web just a few years ago, it's hard to imagine that optimism surrounding Bitcoin's potential legitimacy could take the asset to more than $11,000 in value as of Wednesday.

And yet, here we are, with the price of Bitcoin up more than 900% in the past 12 months. Bitcoin's early use as a way to buy and sell illegal goods via the now defunct online black market Silk Road was once a defining feature of the cryptocurrency. Now it's just a rebellious phase of the Bitcoin's growth story.

Recent interest in Bitcoin from institutional investors has certainly given its narrative a different tinge. Earlier this year, the world's largest futures exchange, the Chicago Mercantile Exchange, said it would offer Bitcoin futures due to demand from its clients. Bitcoin investors took it as a good sign. The introduction of futures would in theory increase the number of institutional investors in the Bitcoin world — thereby increasing the market's liquidity and stability. Meanwhile, the Nasdaq and Cantor Fitzgerald are also reportedly planning their own Bitcoin futures exchanges.

So what if an investor had gotten in on the Bitcoin bet before the CME decided to offer Bitcoin futures? Well, if you had decided to go onto a Bitcoin exchange and buy some $100 worth of Bitcoin a year ago, it would be worth about $1,382 today, with Bitcoin prices resting at about $10,255 (Bitcoin exchanges such as Coinbase allow users to buy a fraction of a Bitcoin).

With $1,000, that stake would have grown to $13,820 in the course of 12 months. Invest the cost of a luxury vehicle, about $75,000, and that stake would be worth about $1 million today.

Don't get too excited though. Bitcoin's emerging popularity has also been brought to the attention of the Internal Revenue Service. So if investors cashed out their Bitcoins after holding it for a year, they'd be subject to a capital gains tax, which is typically around 15%. So if investors cashed out a Bitcoin investment that was initially worth $100 but appreciated to $13,820 in a year, their tax could be around $1,923. But a short-term Bitcoin investor, who spent or sold their Bitcoin within a year of first buying it, they'd be taxed at the ordinary income tax rate, which can be as high as 39.6%. Capital gains taxes max out at a lower 20%.

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