An illustrative piece on:

historical price data + a new volatility management app

The focus of this write up is going to be on bitcoin’s price in 2015, but for those less familiar with bitcoin’s history, here’s a

Quick Intro

Bitcoin was “invented”/”created”/first talked about in late 2008. Bitcoin was/is a brand new technology, and thus wasn’t initially heavily traded (and pretty much still isn’t) — and there weren’t even established exchanges to help facilitate transactions for some time. In 2011, to the surprise of many, the price of 1 bitcoin rose to over $1. It continued to climb to above $30 before a hectic plunge back into the single digits and into the beginning of what looked like an optimistic and sustained rise through 2012.

In 2013, again to the surprise of many, bitcoin soared past its previous heights around $30 and shot up over $200. The price then came back down into the double digits before a relatively calm 6 month-ish period. Then, we saw the infamous spike to over $1,000.

After the spike, in 2014, we saw a gradual fall back down to about $300. The descent has continued to about $230 in June 2015.

To put it all (minus ’08 — ’10) in perspective, the price history looks like this.

I don’t want to describe the various merits I think bitcoin or the blockchain (global ledger type tech behind bitcoin) has, or discuss what I think the fair price of bitcoin is, will be, or ever has been, but the following is some interesting analysis and illustration on the price in 2015 and my experience with Lawnmower.io.

Disclaimer:

In January 2015, I co-founded a company to help those who would like to dip their toes into buying, holding, and using (if you’d like) bitcoin while mitigating some of the fears of bitcoin’s previously crazy price volatility by using a DCA-esque structure connected to spending habits. The company is called Lawnmower — a mobile app available for iOS & Android — the links to each and more are available on our main page — www.lawnmower.io. I also own bitcoin as a result and separately from the use of the app. I hope everything is presented in an objective manner, but in the CYA spirit, nothing presented represents the viewpoints, opinions, etc. of Lawnmower, Inc. or any other corporation and all data/charts/analyses are for illustrative and discussion purposes only and should not be construed or interpreted as advice.

Bitcoin’s Price in 2015 and Lawnmower.io

Now, we’ll be focusing on just what’s happened since the start of the year (2015).

If you would have heard about bitcoin on January 1st, 2015, you might’ve checked the price and seen that the price of bitcoin was around $315 (we’re going with prices from api.coinbase.com (Coinbase) — the different rates you might’ve seen on various exchanges is a whole other story). Now let’s say maybe you didn’t realize that you can buy less than 1 bitcoin (you can buy .01, .001, etc.) and you forgot about bitcoin for a while. Fast forward to today (or when I pulled the data on Saturday (6/13/2015) afternoon)… that 1 bitcoin you thought about buying is now worth about $233, or about 26% less in a 6 month period. Sweet! — that is, if you didn’t buy back then and you’re still interested! If you did buy in back then, or maybe if you bought in near the top of that next exciting looking spike in late January, not so sweet.

Really, lots of markets are extremely volatile. Lots of exchange rates on currencies, commodities, interest rates, stocks, etc. fluctuate, sometimes dramatically, and bitcoin’s relatively dramatic spike may not be reason to immediately dismiss it. Over time, people have developed strategies to minimize the effects of extreme volatility, like the idealized “dollar cost averaging” (DCA) structure — buying fixed amounts ($) on a fixed basis (time) — or variations, involving passive links to spending habits like the “spare change” concept used by BoA’s “Keep the Change” program (for savings accounts), Acorns (for mutual funds), and now Lawnmower (for bitcoin), all which promote the easy and gradual accumulation of their saving instrument of choice. These types of strategies can help combat attempting to “time the market” or make buy/sell decisions, and instead relying on pre-set and automated rules.

Lawnmower converts your spare change into bitcoin by linking to a “spending” account (credit/debit card or checking/savings account) and a Coinbase account (a bitcoin exchange/wallet). Basically, if you buy a cup of coffee for $3.25, Lawnmower sees 75¢ of spare change. This spare change accumulates until it hits a minimum threshold that you can set and a bitcoin purchase is initiated for the total amount of spare change at that point. Rinse, repeat, save bitcoin over time.

Lawnmower officially launched on iOS on April 9, but we ran a “beta” (initially with just the 3 founders) starting with a primitive version in late February.

Here’s a visualization of all 45 trades I made through Lawnmower between 2/25/2015 and 6/4/2015 and the prices at each purchase.

Early on we began experimenting internally with 2 basic concepts we knew we wanted to add asap — customizable spare change multipliers and minimum purchase thresholds, both of which are hopefully self-descriptive. The spare change was shown on the dashboard with a small badge showing something like “0.2x” or “2.0x” (our initial boundaries) and the resultant spare change value (e.g. the cup of coffee for $3.25 with a 2.0x multiplier gave you $1.50). The aggregated spare change could now be set to make a bitcoin purchase when it accumulated to or over a set $ figure ($4 and $20 were our initial boundaries here). Both these features are now live and give our users some added flexibility when it comes to managing the rate at which they purchase bitcoin over time.

Here’s a cool visualization of all the same purple Lawnmower bitcoin purchase points and the $ price on the left y axis now with a secondary (right) y axis showing the different amount of bitcoin each purchase was initiated for.

My latest purchases you can see were for amounts around 0.10 bitcoin (>$20 worth at the time of each trade), due to my setting of the minimum threshold feature at $20. The speed (time — x-axis) between the points is influenced by the spare change multiplier (currently I’m at 2.6x but this is the highest I’ve had it) and the minimum threshold.

A bit more messy illustration, but for those who want to see the price of bitcoin overlaid in as well, check it out below.

I think it’s also pretty cool to note that the seeming complexity behind the purple and blue dots (purchase price and amount) were produced by just going about your normal spending habits and deciding how to move 2 slider bars in a mobile app.

So, with all these purchases, let’s see what actually happened with my overall cost basis (weighted average cost I bought all these bitcoin at). To simplify, I’m going to look at these figures before fees and then come back to a fee discussion afterwards.

My overall cost basis worked out to $247.83 (I’ll show a little more math on how later), as can be represented by the straight horizontal orange line below.

Visualizing this in another cool way, we can see the points in red where if you had purchased bitcoin once you would have done it at a worse price than my overall (pre-fee) cost basis. At all the points in green, you’d be better off.

We can see here how a passive and automated strategy smoothed out the effect of volatility on my cost basis over time. My cost basis initially rose as bitcoin’s price increased soon after I started Lawnmower. As the price decreased in April and May and I continued to purchase bitcoin at these lower prices, my overall cost basis continued to decrease as well. As you can see, if I would have stopped purchasing bitcoin in late March instead of purchasing all the way through May, my cost basis (and overall position now) would be worse off. As I continued to make purchases through the price drop, I was (sometimes seemingly counter-intuitively) helping out my overall position. All this of course was achieved without me really thinking about it.

As to fees, your minimum purchase threshold within Lawnmower is crucial. At Lawnmower’s start, the default was $4, and only recently was allowed to be set as high as $20 (which I recently set it to). As one of Lawnmower’s earliest users I have a large percentage of my trades initiated at relatively low (near $4) values which represent a relatively (%) large fee. Although Lawnmower is free, the fees at play here are Coinbase’s bitcoin purchase fees — a fixed 15¢ fee for trades under $15, and 1% for trades over $15. This fee represents a fee in the mid 3%’s for small Lawnmower purchases, and 1% for large Lawnmower purchases, all which can now be customized by the user.

An illustration of the % fee I paid per transaction can be shown for each purchase on the secondary (right) y axis, noting the decrease as I increased my minimum purchase threshold over time.

Over the course of my 45 trades (bitcoin purchases) for $337.23 (all spare change), I paid $6.95 in fees, or about 2%. With this spare change, I bought 1.33270455 bitcoins. Before fees, I paid $330.28 for these bitcoins, giving me an average cost basis before fees of $247.83. After fees, I paid $337.23 for these bitcoins, giving me an average cost basis after fees of $253.04. The spread between the before and after fee figures will drop over time as I initiate more trades above my $20 minimum threshold setting I plan to stay at.

Using that $233 price per bitcoin, I’m down around -6% (before fees) or -8% (after fees) on my 1.33270455 bitcoins.

The 26% decrease in price since the start of the year has been a bummer, but for those looking to get their first bitcoin or add to their existing stash with a customizable, passive option, check out Lawnmower.io — or good luck guessing what’s next :)

Alex Sunnarborg