In the world of cryptocurrency investments, ROI (Return on Investment) is a crucial metric that investors use to assess the profitability of their ventures. Understanding ROI is vital for making informed decisions in the crypto market and maximizing potential returns. In this article, we will delve into the basics of ROI in crypto investments, explore its significance, discuss various approaches to calculating ROI, and analyze the factors that impact ROI in the cryptocurrency industry.
- How to Calculate ROI in the Cryptocurrency Industry
- How ROI Applies to the Crypto Market
- Cryptocurrencies with the highest ROI
- The Importance of ROI for Crypto Investors
- Key Factors Affecting ROI in Cryptocurrency Investments
- Different Approaches to Measuring ROI in the Crypto Space
- Maximizing ROI: Strategies for Successful Crypto Investing
- Long-term vs Short-term Investments: Which Offers Higher Crypto ROIs?
- What Does ROI Have to Do with Tax Reports
- Up Next
How to Calculate ROI in the Cryptocurrency Industry
ROI, or Return on Investment, is a financial indicator that measures the profitability of an investment relative to its initial cost. It is expressed as a percentage and is calculated by dividing the net profit generated by the investment by its initial cost and multiplying the result by 100.
ROI Formula
ROI = ((Value of your cryptos today – how much it cost to buy them) / how much it cost to buy them)*100
In the context of cryptocurrencies, ROI represents the returns earned from investing in digital assets such as Bitcoin, Ethereum, or other altcoins.
Cryptocurrencies are known for their volatility, and calculating ROI in this market requires considering factors such as buying and selling prices, transaction fees, and market fluctuations.
Crypto ROI Simple Example 1
Say I bought 2 bitcoins for $5,000 each in 2016.
My total cost to acquire them is $10,000. Today the price of Bitcoin is $30,000. Hence, my profit is 2*$30,000-$10,000=$50,000
To calculate my ROI I need to divide $50,000 / $10,000= 5 or otherwise 500%
the % sign just means divide by 100. So 5 is 5*100 divided by 100 i.e. 500%
Crypto ROI Simple Example 1: how to calculate crypto portfolio return
Say you invested $1,000 in Dogecoin and $1,000 in Bitcoin in 2018. Your cost to acquire Bitcoin and assets was $2,000. YOU bought 1,000/0.0035 = 285,714 DOGE and 1000/6755=0.148 BTC.
If you sold them in July 2023 your revenue would be 285,714 * current price of DOGE which is $0.07 = $20,000 plus 0.148*$29,877.13=$4,422.
So your ROI is (24,422-2000)/2000 * 100 = 1100%
How to get an intuitive feel for ROI in crypto
ROI is just a metric to give you a sense of how much you have increased your original investment. In my example, I increased my profit by 500% or, otherwise, 5 times my investment.
I used $10K to make an extra $50K. Similarly if my crypto investment lead to a 20% ROI then I made $20 for every $100 Invested.
You can think of it as a measure of impact. As in how impactful was my investment.
Personally, I don’t find ROI at all intuitive. I’d much rather look at my investment return in terms of a multiple.
Alternatives measures to ROI
The best alternative to ROI is to use RoS (Return on Spend) or RoC Return on Capital.
This is a much simpler formula where you divide the value by cost. So in my previous example, I just divide $60,000 by $10,000 which is 6 or 600%. This tells me I multiplied my money by 6.
Two similar concepts to ROI are APR and APY
APR represents the amount of interest charged on a loan over the course of a year, while APY represents the total amount of interest earned on an investment over the course of a year.
You can read more about the distinction between the two in my article where I compare APY vs APR.
How ROI Applies to the Crypto Market
ROI is a fundamental concept that applies to any investment, including those in the crypto market. Cryptocurrencies have gained popularity due to their potential for high returns, attracting investors seeking to capitalize on this emerging asset class. Calculating and analyzing ROI is essential for measuring the success of these investments.
Moreover, ROI serves as a benchmark for comparing different investment opportunities within the crypto market. By assessing the ROI of various digital assets, investors can identify those with higher potential returns and make informed investment decisions.
Cryptocurrencies with the highest ROI
Check out how much you could have made had you invested at the lowest point and exited at the highest point for different cryptos.
Crypto ROI
| ROI 1 year | ROI 2 years | ROI 5 years | |
| Bitcoin (BTC) | 32% | -15% | 342% |
| Ethereum (ETH) | 23% | -19% | 309% |
| Dogecoin (DOGE) | 9% | -72% | 1948% |
| XRP (XRP) | 121% | 25% | 76% |
| Cardano (ADA) | -30% | -75% | 289% |
| Solana (SOL) | -41% | -90% | 3408% |
| TRON (TRX) | 43% | 72% | 146% |
| Polygon (MATIC) | 56% | -24% | 7533% |
| VeChain (VET) | -15% | -72% | 389% |
| Hex (HEX) | -74% | -92% | 1864% |
*For Solana and HEX I have used 2020 as the starting year because they weren’t around in 2018. Similarly for Polygon MATIC, the 5-year ROI is calculated from 2019 instead of 2018 because that was its first year of circulation.
How much profit a $1,000 investment would return
ROI in absolute terms
| 1 year | 2 years | 5 years | |
| Bitcoin (BTC) | $316 | -$153 | $3,423 |
| Ethereum (ETH) | $229 | -$187 | $3,086 |
| Dogecoin (DOGE) | $86 | -$718 | $19,480 |
| XRP (XRP) | $1,207 | $246 | $755 |
| Cardano (ADA) | -$305 | -$745 | $2,888 |
| Solana (SOL) | -$407 | -$901 | $34,082 |
| TRON (TRX) | $432 | $719 | $1,455 |
| Polygon (MATIC) | $558 | -$244 | $75,330 |
| VeChain (VET) | -$150 | -$721 | $3,888 |
| Hex (HEX) | -$742 | -$924 | $18,640 |
The Importance of ROI for Crypto Investors
ROI is crucial for crypto investors as it enables them to assess the profitability of their investments and make informed decisions.
By tracking and analyzing ROI, investors can evaluate the success of their investment strategies, identify trends, and adjust their portfolios accordingly.
Additionally, ROI serves as a tool for risk assessment.
Investments that demonstrate consistently high ROIs may indicate potential opportunities, while those with volatile or negative ROIs may signal risks that need to be re-evaluated.
Key Factors Affecting ROI in Cryptocurrency Investments
Several factors influence ROI in cryptocurrency investments.
The most significant factor is the price volatility of digital assets. The value of cryptocurrencies can fluctuate dramatically within short periods, impacting the profitability of investments. According to a study published in the Journal of Risk and Financial Management Bitcoin has a daily median volatility of 0.23% and Ethereum sees a daily median volatility of 0.3%. This daily volatility can lead to wider deviations in ROI performance compared to less volatile financial assets like stocks.
Market trends and investor sentiment also play a crucial role.
Positive market trends and bullish sentiment can drive prices up, resulting in higher ROIs. Conversely, negative trends and bearish sentiment may lead to lower or even negative ROIs.
Other factors include regulatory developments, technological advancements, competition among cryptocurrencies, and macroeconomic factors like inflation or geopolitical events.
Evaluating and understanding these factors is essential for forecasting and maximizing ROI in the crypto market.
Different Approaches to Measuring ROI in the Crypto Space
In the crypto space, there are different approaches to measuring ROI, each with its advantages and limitations. S
ome investors focus on short-term ROI, aiming to take advantage of rapid price movements. They engage in active trading, constantly buying and selling cryptocurrencies to profit from short-term fluctuations.
On the other hand, long-term investors prioritize the potential for substantial returns over extended periods.
They hold onto their digital assets, expecting them to appreciate in value significantly over time.
Long-term ROI calculations take into account price appreciation and potential dividends or rewards from staking or participating in decentralized finance projects.
Additionally, some investors consider risk-adjusted ROI, which factors in the level of risk taken to achieve the returns. This approach is valuable in comparing investments with varying degrees of risk and establishing a balanced portfolio.
Maximizing ROI: Strategies for Successful Crypto Investing
To maximize ROI in the crypto market, investors employ various strategies and techniques. Diversification is one such strategy, which involves spreading investments across multiple digital assets or different sectors within the crypto industry. Diversification can help mitigate the impact of negative ROI in any single investment and potentially increase overall returns.
The benefit of diversification is that you don’t put all your money into one asset. Yes, if that asset was Dogecoin in 2019 you could have been a billionaire had you invested $1,000 at the time. The problem is that you couldn’t have known that. What if you had invested $1,000 into one of the myriads of other coins that plummeted to zero? You would have lost all your investment. If instead, you had invested $10 across various crypto you would have made a decent ROI on your $1,000. Yes, you wouldn’t be a billionaire but you would still be better off than when you started.
Long-term vs Short-term Investments: Which Offers Higher Crypto ROIs?
Long-term and short-term investments in the crypto market offer different potential ROIs. Short-term investments can yield high returns in a short span of time, as traders take advantage of price volatility.
On the other hand, long-term investments have the potential for significant ROI over an extended period. By holding onto assets and benefiting from their price appreciation or participating in staking or governance rewards, investors can potentially achieve higher overall returns.
Choosing between long-term and short-term investments depends on individual investment goals, risk tolerance, and trading strategies. Some investors may opt for a balanced approach, combining both short-term and long-term positions to optimize their overall ROI.
What Does ROI Have to Do with Tax Reports
Investors must navigate tax implications and reporting requirements associated with ROI from crypto investments. Tax regulations regarding cryptocurrencies vary across jurisdictions, and it is crucial to consult with tax professionals or accountants familiar with cryptocurrency taxation. Generally, tax authorities consider cryptocurrencies as taxable assets, and profits generated from their sale or exchange are subject to capital gains tax.
Investors may need to maintain detailed records of their transactions, including acquisition costs and selling prices, to accurately calculate tax liabilities.
Complying with tax regulations ensures legal and ethical practices while safeguarding investors from potential penalties or audits.
FAQs
How is crypto ROI calculated?
To calculate your ROI on a crypto investment divide the current value of your holdings - minus their acquisition cost by their acquisition cost and multiply by 100
What does 90% ROI mean?
90% ROI means you made 90 in profit for every 100 you invested. For example if invested 100 and, as a result of your investment, ended up with 190 in your bank account, your ROI would be (190-90/100) *100 =90%. Similarly had you inveted 1000 and now have 1900 you ROI is again (1900-1000)/1000*100=90%
What does ROI of 1.5 mean?
An ROI of 1.5 means that for every dollar you invested you made 1.5 dollars in profit. So you now have 1 plus 1.5 =2.5 in your bank account. For example if you buy a cryptocurrency $100 and sell it for $250 then your ROI if (250-100)/ 100 = 1.5. Usually ROI is expressed in percentage terms so you would say 150% ROI rather than 1.5.
Is a high ROI good?
Yes, in general the higher the ROI to more money you make. However you need to take into account how long it takes to make that ROI. A daily ROI of 2% is much better than a monthly ROI of 5.
Is a 13% ROI good?
Yes a 13% ROI in invested assets is considered exceptionally good. Some crypto investors make more due to chance but an experience crypto investor would be very happy with a 13% annual ROI across their portfolio of investments. To give you a sense if you invest $5,000 today after 30 years you will have $27,000 with a 6% annual ROI but $173,000 with a 13% ROI.
Is a 5% ROI good?
An ROI of 5% if considered slightly better than average. To decide if its a good return you need to consider inflation. In the US long term inflations is around 3% which means your real return is closer to 2%. In the EU where inflation is 5.5% you return in real terms is actually negative. Real estate, gold and commodities are considered good hedges against inflation. Crypto enthusiasts say that Bitcoin can also play this role.
Is 20% ROI good?
If you are able to consistently achieve a 20% ROI you are guaranteed to become rich. A 20% ROI is exceptional though not impossible. Warren Buffet achieves around 13% annual return with his Berkshire Hathaway fund. In crypto it is possible to achieve higher returns but the challenge is to sustain such returns.
Is 200% ROI good?
200% ROI is an extremely high return. It is highly unusual to achieve and sustain such as high ROI. If you do you should, at the very minimum, consider cashing out your original investment.
Other crypto terminology
- What does 100x mean in crypto?
- What does FOMO mean in crypto?
- What is AMA crypto?
- What does “bearish” mean in Crypto
- APR vs APY in Crypto
- What is a crypto address?
- What is ATH crypto?
- How to pronounce Dogecoin
- What is Doxxing in Crypto?
- What is KYC in crypto??
Up Next
How to Calculate Crypto Gains for Taxes in 9 Easy Steps
Cryptocurrency investors must carefully track their crypto gains and losses in order to accurately report them on their tax returns. This can be a complex process, as the tax treatment and tax rates of cryptocurrency gains vary depending on the country of residence and the individual’s tax situation. In some countries, it is not yet clear if gains on crypto are a taxable event. In this article, I will provide a detailed guide on how to calculate your crypto gains and losses, and how to determine your tax obligations. Read more.
Why Is Cryptocurrency Worth Anything? Unknown Secrets
So why is cryptocurrency worth anything? Really now. I can’t meet any of my everyday needs with it. Can’t buy coffee. Can’t buy groceries. Can’t buy shoes or clothes. I can’t pay my utility bills or Netflix subscription. I can’t pay my mortgage installments with it, medical expenses or private school fees for my kids. I can’t use it on vacation or for transportation. The whole damn thing sounds pretty useless to me. They should remove the word “currency” from the term and stick with “crypto”. Or even better christen it “Cryptic” because no one really understands what this thing is about in the first place. Read more.
–