Bitcoin is a Regret Machine
Introducing the Bitcoin Regret Index
Between late 2013 and early 2014, I bought 19 Bitcoin for about $7,000. They appreciated an average of 100% per year, and by early 2017 I was thrilled with the returns so I sold all but three. After riding another boom-bust cycle, I fully cashed out in 2020 for a total exit of around $80,000. You’d think an 11x return that helped fund the down payment on our first home would be a blessing. Instead, my wife Blair jokingly calls Bitcoin, “the worst thing that’s happened to our relationship.”
My wife hates Bitcoin because every time the price goes up, she has to hear me talk about what could have been. I am not alone. Whenever Bitcoin surges, social media floods with stories of fortunes almost made. Bitcoin regret is tragic because it is inevitable. Unlike other assets, Bitcoin’s value depends on circulation. This means regret over selling too soon is built into its very nature.
In this post I quantify the total amount of Bitcoin regret by calculating the value of all hypothetical Bitcoin fortunes. At the March 24th closing price of $88,283.29, the forgone profits of all Bitcoin sold since 2014 was over 272 trillion dollars (yes trillion with a “t”.) I also introduce a new metric, the Bitcoin Regret Index, defined as the ratio of the hypothetical profit of past sales to the current value of all Bitcoin. Currently this index sits at 172. In other words, for every dollar of wealth today, there are 172 dollars worth of regret.
The Rise and Fall and Rise of Bitcoin
Bitcoin’s volatility is legendary. Every few years it skyrockets, for example jumping from $13 to $1,000 in 2013, from $4,000 to $19,000 in 2017, and from $17,000 to over $100,000 between 2022 and 2024. But crashes are just as brutal, with drops of 83% in April 2013, 84% in 2017-2018, and 53% in May 2021.
To make this more concrete, let’s look at how my investment did (or would have done.) 19 BTC were worth $23,522 at the end of 2023, $950 in the middle of 2014, $367,555 in December 2017, just $126,065 a year later in December 2018, $1.31M in November 2020, $342,000 in December 2021, over $2M at the peak last year, and a bit over $1.6M today. That’s quite the emotional roller coaster.
Volatility is part of Bitcoin’s draw. There are true believers who are all-in on the vision of an alternative reserve currency outside the control of any government, in fact that’s what got me interested in 2013. But many people buying are simply looking to get rich quickly. The extreme appreciation of Bitcoin drives headlines, attention, and speculation in a cycle that amplifies both the highs and lows.
Every time Bitcoin reaches a new high, there’s a particular genre of story that begins to circulate on social media wherein someone would have made a fortune if only they had held their Bitcoin. Perhaps the most famous is of Laszlo Hanyecz, who on May 22, 2010 performed the first ever transaction with Bitcoin, paying someone 10,000 BTC for a pizza. Today the value of the coins used to buy that pizza is close to one billion dollars. Laszlo is the most extreme of an entire genre of post, and it’s likely that for every story shared there are hundreds kept private.
Bitcoin Regret is Unavoidable
The fundamental case for Bitcoin is that it’s a new decentralized reserve currency. Proponents like that Bitcoin operates without any one group or individual in control (subject to a few key assumptions) and that the number of possible BTC is fixed, making it inflation proof.
Currencies serve two main roles: storing value and enabling exchange. As a potential new currency, Bitcoin’s worth depends on circulation. If liquidity dries up, so does its value. If Laszlo never used his coins to buy that pizza, perhaps someone else would have been in his shoes. But if no one had ever spent their BTC, it wouldn’t be worth anything today.
This makes Bitcoin fundamentally different from other types of investments. When you buy stock in a company, you’re buying an ownership claim on a business that has underlying value because it produces something useful at a profit (or will some day in the future.) That value can increase without shares changing hands, for example the way startup stock grows between funding rounds or the way a family business increases in value while remaining closely held. But BTC must trade hands to be valuable, and each transaction has a buyer and a seller.
Quantifying Bitcoin Regret: The Bitcoin Regret Index
While the supply of BTC is fixed, the dreams of everyone who has owned or thought about buying Bitcoin have no theoretical limit. But the most clear case of Bitcoin regret is selling and then watching the value climb. For example, selling at $2,000 and watching the price climb to $100,000 generates $98,000 in regret: “if only I had held, I’d be that much richer.” A concrete way to quantify the total amount of Bitcoin regret is to calculate the forgone increase in value of all BTC ever sold. Normalizing this by Bitcoin’s current market cap gives us the Bitcoin Regret Index.
A full treatment probably involves looking at the Bitcoin ledger. But we can get a first pass by looking at the price data from Yahoo Finance and the Bitcoin supply data from BiTBO. Starting with the earliest available date - September 17, 2014 - I estimate the current value of all BTC ever sold to be roughly $346T. Subtracting out the proceeds of the sales yields $272T in forgone gains. For reference, the total value of all S&P 500 companies is currently around $51T. In other words, hypothetical Bitcoin gains are over five times the value of the 500 most important American businesses. This explains the prevalence of Bitcoin regret stories.
How does Bitcoin regret compare to actual Bitcoin wealth? Roughly 19.9M BTC have been mined, but nearly 3.8M have been lost. With a current supply of around 16M and a price of $88k, the ratio of hypothetical to actual Bitcoin wealth, stands at 172. In other words, for every dollar of BTC value today, there are $172 dollars of regret. For every person who made a million dollars with Bitcoin there are well over a hundred who could have, but didn’t.
Using the same data, I calculated the value of the Bitcoin Regret Index over time. Much like the price of Bitcoin, regret is highly volatile. Surprisingly, Bitcoin regret is not bound by zero and has even been negative at times. What does that mean? When the Bitcoin Regret Index is zero it means the volume-weighted average profit of all transactions since the start of my data is zero. Deep drops and negative values of the index probably equate to times when social media is quiet about Bitcoin regret. It might not be a surprise that bottoms in the index tend to correspond to great times to have bought BTC (but some of that is mechanical.)
A deeper analysis would likely find a higher value of the Bitcoin Regret Index. First of all, my data begin in late 2014, when the price was already north of $450. Second, Yahoo Finance’s volume data are pulled from the exchanges, but many Bitcoins change hands directly. Finally, I am sticking to situations where people actually owned and sold BTC, but I’m certain the fantasizing around Bitcoin wealth extends to “what ifs” that involve hypothetical purchases.
It pains me to see the stories of Bitcoin regret on social media because I know the feeling. My wife is joking about Bitcoin being the worst thing that happened to our relationship, but for some selling Bitcoin might actually be their biggest regret in life. If you’re feeling Bitcoin regret, I hope it helps to know that not only are you not alone, but that’s simply the way it has to be. Bitcoin’s value exists because people sold. If everyone had diamond hands, Bitcoin wouldn’t be what it is today and there would be nothing to regret. This aspect of Bitcoin is reminiscent of a Greek tragedy, which is why I think Bitcoin is a regret machine.