Bitcoin (BTC) continues to be a controversial topic in the traditional finance world as many prominent investors such as Charlie Munger dismiss digital assets for being too volatile.
As rising inflation and interest rate hikes rock US stocks, Bankless Times decided to take a closer look at this claim by comparing recent performance in the stock market to that of Bitcoin.
Why Are Markets Selling Off?
The COVID-19 pandemic dealt a huge blow to the global economy as lockdowns caused consumer spending to grind to a halt and saw businesses having to cut staff in an effort to stay afloat.
The Federal Reserve, which is in charge of the US national monetary policy, reacted quickly by reducing interest rates to encourage spending and investment. The Fed also printed billions of dollars to prop up the economy as part of several stimulus programs.
This move spurred huge rallies in the stock market and saw speculative assets such as Bitcoin hitting new all-time highs in the months that followed.
Now that the worst of the pandemic is over, the Federal Reserve has slowed down its money-printing endeavors and started hiking interest rates to tackle the inflation problem that has arisen.
The current conditions are almost exactly the opposite of what caused the markets to rally from March 2020 onwards.
This, coupled with the outbreak of war in Ukraine and persisting supply chain issues around the world create a less than optimal environment for these assets to flourish, hence the widespread sell-offs in recent months.
Both Bitcoin and Stocks Down Double-Digit Percentage Points
Most of the largest stocks in the US are down double-digit percentage points from their recent peaks in what is a rare occurrence in the stock market world.
The S&P500, which is an index that tracks the US’s 500 largest companies, is down more than 20% at the time of writing — its largest decline since the beginning of COVID.
Many stocks are down even more, including Etsy, Netflix, and Shopify which have declined over 70% since their all-time highs.
In comparison, Bitcoin is down 57% from its peak, showing greater strength than many stocks in the market.
Bitcoin Less Volatile Than Amazon Stock
Volatility is a measure of how large an asset’s price swings from the mean asset price. This metric is commonly used to criticize Bitcoin and other cryptocurrencies which are considered to be far more volatile than stocks.
Many institutional investors such as Warren Buffett and Charlie Munger have long dismissed Bitcoin for this very reason, however, these claims may not be as true now as they were before.
Data suggests that Bitcoin was much more volatile during its early years and has gradually seen a decline in its volatility as it has grown in market capitalization.
This notion holds true in the stock market as well as larger companies have less volatile stocks since they are less sensitive to economic headwinds.
At the time of writing, Bitcoin’s 30-day Volatility Index is at 4.18%, which is lower than 93 stocks in the S&P500 or around 19% of the index.
On average, Bitcoin is less volatile than the stocks of Amazon, Goldman Sachs, and Tesla among many others.
Closing Remarks
Bitcoin is the figurehead of an emerging asset class of cryptocurrencies and has captured the attention of millions of people around the world.
Some traditional finance players have dived right into the digital asset world and made huge investments in the ecosystem, while others have shied away citing various reasons.
In this report, we investigated the claims made against Bitcoin regarding its volatility and price action and found that its performance is not that much different from many companies in the stock market.
In fact, Bitcoin has performed better than many well-known names such as Netflix and Spotify in the recent downturn, and on average is less volatile than Amazon, Tesla, and Goldman Sachs stocks.
It remains to be seen whether Bitcoin skeptics will change their minds as Bitcoin increasingly starts trading like other stock market assets as time goes on.
