The Bitcoin cryptocurrency with its strong performance has taken the world by storm for over a decade. With significant increases and decreases, Bitcoin has proven to be a profitable investment that many people worldwide are interested in. Does this mean that investors should shift their investment to Bitcoin, then other assets? To get the answer to this question, please follow the article below by Optimal FB Agency to learn about Bitcoin fluctuations compared to other assets.
Introduction to Bitcoin volatility
Since its appearance 15 years ago, Bitcoin has become a globally recognized asset. It is considered the first widely adopted global digital payment method. Bitcoin is a global monetary instrument that is transferred directly between 2 people anywhere in the world in real-time.
From 2014 to 2023, bitcoin was the best-performing asset and held the top spot for 7 out of 10 years. However, bitcoin was the worst-performing asset for the remaining 3 years. During that time, bitcoin achieved an average annual return of 50% after many fluctuations. Bitcoin’s volatility compared to other assets is particularly high.
Cryptocurrency Bitcoin’s large fluctuations both up and down as well as its frequent and prolonged price drops pose risks and challenges for many investors. Since 2014, bitcoin has experienced 4 price drops exceeding 50%. While one of these was quickly recovered within 6 months, the 3 largest price drops averaged a drop of around 80%.
Bitcoin’s volatility is because the number of new coins created each day is decreasing due to its limited supply. To maintain a stable price, demand must match the rate of inflation. Compared to other industries, the Bitcoin market is still quite small, and news in the media alone can cause prices to rise or fall.
Bitcoin’s volatility has decreased in 2023, reaching levels comparable to traditional assets. With Bitcoin’s stability in 2023 comes a price increase as multiple market cycles collide. Not only does the Bitcoin miner halving cycle take place in March and April 2024, but it also coincides with the US presidential elections and stock market cycles.
As of April 21, 2024, the price of Bitcoin was hovering around $64,000. This is down from its all-time high of around $73,750 last month, but it is still double the asset’s price from a year ago. Such high volatility makes Bitcoin a high-risk investment but also has the potential for high returns. Factors that influence Bitcoin volatility include market acceptance, regulation, technology, and security, among others.
Bitcoin volatility vs other assets
There is no denying that Bitcoin is a volatile investment when compared to traditional assets. Based on a study of the 17 highest-performing assets from 2011 to 2021, Bitcoin’s cumulative gain exceeds 20,000,000%. The powerful cryptocurrency has returned 230% on an annualized basis. This is 10 times more than the NASDAQ 100, which was the second-best performing asset over the past decade. Bitcoin is indeed very volatile, but it is an asset worth holding for many investors. To better understand Bitcoin’s volatility, let’s compare it to other asset classes:
Bitcoin vs. Stocks
From 2020 to 2024, bitcoin has been three to nearly four times more volatile than various stock indexes. It’s worth noting that stock indexes are typically the riskiest in a modern traditional investment portfolio due to their historical volatility. However, bitcoin is currently less volatile than some individual stocks, many of which are widely held by traditional investors.
Since the advent of the stock exchange, stock ownership has been a source of wealth for many people. However, the rapid rise in the price of Bitcoin has caused many investors to reconsider their stock allocation in their portfolios. While stocks are backed by the assets and cash flows of a company, Bitcoin is not backed by any haven asset like money, gold, etc.
The price of Bitcoin fluctuates due to speculation driven by market sentiment. When sentiment changes, the price of Bitcoin changes dramatically. In other words, Bitcoin is driven by the hope that someone will buy it at a higher price in the future. If you want Bitcoin to be a successful investment, you need to get someone to buy it at a higher price. Unlike Bitcoin, stocks have a long history of solid returns with intrinsic value, are more accessible, and are more regulated.
Although Bitcoin is more volatile than Bitcoin, its potential value is huge. According to the Finbold report from February 2022, Bitcoin outperformed the top six tech stocks over 30 days, with an average ROI of 12.24%. Moreover, Bitcoin is likely to increase significantly in the future as many countries have accepted the virtual currency as a payment option. Investors may consider allocating some of their money to high-risk and high-return assets like Bitcoin.
Bitcoin vs. Gold
Bitcoin’s volatility compared to other assets is not only shown when compared to stocks but also compared to gold. During the financial crisis from 2008 to 2023, Bitcoin outperformed both bonds and gold. While bonds provide stable returns, gold is a haven asset. In times of economic volatility, Bitcoin is less sensitive to market fluctuations and has a high return on investment, outperforming traditional assets.
Gold is a long-term asset and many investors use it to hedge against economic downturns. However, Bitcoin is a super-profitable investment used by investors to hedge against recessions and corrections. Both Bitcoin and gold have specific similarities, namely their rarity, but Bitcoin is undeniably superior to gold in terms of ROI. Specifically, at the end of 2021, Bitcoin increased by 70% while gold decreased by 7%.
Bitcoin vs. Real Estate
While real estate does not have the same high historical returns as stocks, it is a tangible asset with intrinsic value. Despite the high initial costs and maintenance requirements, real estate still has many investment opportunities and managed assets will bring long-term profits. However, the cost of investing in Bitcoin is lower than real estate and does not come with constant maintenance requirements. In 2022, investing in Bitcoin will bring higher returns than investing in real estate.
What is the future of Bitcoin?
With the above analysis of Bitcoin volatility compared to other assets, you can see that Bitcoin is a volatile asset but it has a huge profit rate. Bitcoin is growing and becoming a strong competitor among many different assets from gold to stocks. As Bitcoin begins to separate from traditional assets in terms of price volatility, the correlation between Bitcoin price and the US stock market is currently at a record low. At that time, the performance of digital assets will be comparable to traditional assets.
From 2023, Bitcoin will become popular as a transaction currency and many businesses in countries have accepted this currency as a payment method. With the development of user-friendly wallets, exchanges, and marketplaces, the technical barriers to entry in Bitcoin’s early years have been removed.
More and more hedge funds, asset managers, and endowments are recognizing Bitcoin’s potential as a store of value and an effective portfolio diversifier. About $50 billion of Bitcoin is held by EETs, countries, and businesses, and the acceptance of Bitcoin ETFs adds to Bitcoin’s appeal. Some people who are willing to hold their Bitcoin and wait for market fluctuations can see much larger returns than real estate, stocks, and gold combined.
Through this article, you have a better understanding of Bitcoin’s volatility compared to other assets. Although Bitcoin is a highly volatile asset, the returns are very high. This is the factor that investors should pay attention to when allocating financial resources to their portfolios.
Frequently asked questions
If you want to use Bitcoin as a store of value to preserve capital, this is not a suitable choice. Because the price of Bitcoin is very volatile because it is affected by market rules, investor and user psychology, etc. There is no guarantee that you will get a huge profit from investing in Bitcoin. However, the profit that Bitcoin brings to investors is much larger than other assets.
Over the past 10 years, Bitcoin has shown strong performance, but its long-term uptrend has been accompanied by large fluctuations and large declines throughout the process. Bitcoin’s volatility remains high at 3.9 and 4.6 times that of gold and global stocks, respectively. However, Bitcoin’s volatility has continuously decreased along with the growth of the industry in recent times. Investors should consider allocating investment resources to Bitcoin carefully, not only considering the potential for price appreciation but also taking into account volatility and risk.
