Let’s rewind the tape to the end of 2021 when Bitcoin (BTC) was trading around $47,000, 32% below its all-time high at the time. At the time, the tech-heavy Nasdaq stock market index was at 15,650 points, down 3 percent from an all-time high.
Comparing the Nasdaq’s 75% gain between 2021 and 2022 to Bitcoin’s 544% positive move, one can imagine that an eventual correction due to macroeconomic tensions or a major crisis will have a disproportionate impact on Bitcoin’s price than stocks.
Eventually, these “macroeconomic stresses and crises” occurred and Bitcoin’s price dropped another 57% to $20,250. It should come as no surprise that the Nasdaq is down 24.4% since September 2nd. Investors should also note that the index’s historical 120-day volatility is 40% annualized, compared to Bitcoin’s 72%, which is roughly 80% higher. .
This is the main reason why investors should re-evaluate investing in Bitcoin. After the downward adjustment in risk assets, the risk-to-reward potential leaves perhaps three things to consider cryptocurrency upside down: high volatility during medium recovery, fair sacrifice and resistance to regulatory sanctions.
The problem is that the market is now out of a bearish trend and there are no signs of a quick recovery as double-digit inflation in many countries continues to pressure central banks to take a tighter stance. Both Bitcoin and Nasdaq Find out how they fared in 2022 below.
The consequences of raising interest rates and eliminating debt assets are stabilization programs in a recession-like environment. A soft landing is irrelevant because no sane investor chooses sectors that are exposed to credit and growth and rising consumer prices.
Even during a modest recovery, Bitcoin can crush tech stocks.
Volatility is often interpreted as negative, movements in price – up or down – are accelerated. However, if the investor expects some recovery in the next 12 to 36 months, there is no reason to believe that Bitcoin will remain under pressure for a long time.
Take, as an isolated case, Bitcoin’s 25% recovery from its all-time high of $48,700, while the tech-heavy Nasdaq index not only salvaged 24.4% year-to-date losses in 2022, but added another 40%. Profit in 1 to 3 years.
That scenario brings Bitcoin to $32,425, still 53% below its November 2021 all-time high. So, for those who buy BTC at $20,250 on September 2nd, this number represents a 60% profit.
On the other hand, in this neutral market, the Nasdaq reversed its losses and increased by 40%, reaching 19,563 points and a total gain of 64.4%. To be clear, that would be 21.6% higher than the current all-time high.
Bull markets can create price ceilings for stocks.
The top 7 companies on the Nasdaq are Apple, Microsoft, Amazon, Tesla, Google, Meta, and Nvidia, all well-known tech giants. In stock markets, earnings numbers are a critical indicator of investor optimism, meaning that excess profits can be redistributed to shareholders, bought back shares or reinvested in the business.
The problem is that when earnings increase, companies have a greater incentive to issue more stock, otherwise known as trailing offers. In addition, a technology company must constantly find new competitive competitors to ensure its leadership position. So bull markets create their own issues, as valuations become so rich that buybacks make little sense.
Having more miners, investors or infrastructure for Bitcoin does not translate into a higher supply because the production schedule is set from day 1. No matter how much the price changes, the supply is fixed.
Bitcoin was designed to survive regulation and centralization.
Nvidia, a major computer chip and graphics card maker, hit a 68-week low on September 2 as US authorities imposed new licensing requirements for the company’s artificial intelligence chip exports to China and Russia. Meanwhile, in mid-2021, China A crackdown on miners in the region caused Bitcoin’s hash rate to drop 50% in 2 months.
The main difference in both cases is Bitcoin’s automated difficulty adjustment, which reduces the pressure on miners when there is less activity. While the US regulation could affect Nvidia’s exports, there is nothing to prevent Taiwanese chipmaker TSMC, South Korean Samsung or China’s Huawei from manufacturing and exporting products.
Bitcoin is a digital peer-to-peer electronic money system, so it doesn’t need a centralized exchange to survive. If governments choose to ban crypto trading entirely, that will only emphasize the importance and strength of the decentralized network. Many countries have tried to prevent the circulation of foreign exchange, thereby creating a shadow market, with facilitators acting as illegal middlemen.
In all 3 different scenarios, from a total ban to a total bull market, odds are Bitcoin will compete with tech stocks at current prices. Consequently, adjusted for volatility, the risk reward strongly favors cryptocurrency.
The views and opinions expressed here are those of Author And do not necessarily reflect the views of Cointelegraph. Every investment and business activity involves risk. You should do your own research when making a decision.