A quick comparison of the risk of Bitcoin, Ether, and BNB against some well-known technology stocks.
ShivX Research is a company that conducts market research (Maharshi)
Jan 15, 2022
What do you reply to someone who believes cryptocurrencies are “too risky”?
- We compare Bitcoin, Ether, and BNB to a number of notable technology stocks that have been popular investments in recent years to see how “risky” they are.
- When compared to “SMART” stocks and Tesla, Inc., we see proof of Bitcoin, Ether, and BNB’s superior safety in 2.5 percent drawdowns.
- For Bitcoin, Ether, and BNB, drawdowns below 5% indicate less favorable data, however, these have swiftly recovered in the recent time frame and are improving;
- Bitcoin, Ether, and BNB, in particular, dominate the group in daily closing of 2.5 percent or more, with Ether topping the chart during the time periods we’re looking at;
- In terms of absolute drawdowns, Bitcoin, Ether, and BNB are significantly less risky than the “SMART” group and China Concepts Stocks; data for Bitcoin is particularly positive, indicating that it has a smaller loss potential than both Netflix, Inc. and Meta Platforms, Inc.
- In 2022, Bitcoin’s best open was just under $47.5k, while the worst open was $36.3k, suggesting a maximum unrealized loss of 23.6 percent this year.
- Compare this to NVIDIA Corp (30.6 percent maximum unrealized loss), Meta Platforms, Inc. (45.0 percent), and Roku, Inc. (57.2 percent) to see what is truly “risky”!
We should brace ourselves for the eventual appearance of the infamous crypto skeptic as cryptocurrency continues to spread into the mainstream and we increasingly see casual coffee shop chit-conversation turning to discussions on the next important coin. While popularity is increasing and basic knowledge is improving, we still hear skeptics exclaim “Oh, crypto?” all too frequently. That’s too dangerous for me!” We’ve written this brief paper to contradict this assumption by comparing Bitcoin, Ether, and BNB to other popular technology stocks. You’ll have something to say the next time a skeptic dismisses crypto but notes their recent Tesla purchase. We’ll compare the perceived risk of Bitcoin, Ether, and BNB to a basket of popular technology companies to see which is genuinely the “risky” option.
How do Bitcoin, Ether, and BNB stack up against well-known technology stocks?
We examine the frequency with which Bitcoin, Ether, BNB, and other popular technology stocks (and an ETF) drop by 2.5 percent and 5.0 percent at the daily close to disproving notions that crypto is a “riskier” asset class. We also look at the amount of times the asset has seen a 2.5 percent or higher rally. Since April 2020, the frequency of the moves has been tracked and divided into four categories:
- Bitcoin travels more steadily than Ether, with the second-largest cryptocurrency experiencing more rallies and troughs. This would be consistent with the prevalent narrative portraying Bitcoin as a store of value and Ether as a slightly more speculative asset, and would, on a fundamental level, indicate that Bitcoin is better suited to a “HODL” approach, whilst Ether may favor traders.
- Our crypto coins have had the most sub-5% drawdowns since April 2020, when overall frequencies are included. All of the businesses in the “SMART” group, Tesla, Inc., Tencent Music, and the Ark Innovation ETF, on the other hand, had a higher total of sub 2.5 percent drawdowns.
- The “FAANG” group of companies has far lower volatility, with Apple Inc. and Alphabet Inc. showing an especially low risk. Amazon, Meta, and Netflix have a small number of sub-5% closes, but a significant number of those below 2.5 percent, especially in recent years.
- With more recent data for drawdowns showing comparatively higher amounts of volatility in the “SMART” and China Concepts groupings, as well as other equities such as NVIDIA Corp. and Baidu, Inc., the time has been good for Bitcoin, Ether, and BNB.
- The most striking finding is that Bitcoin, Ether, and BNB unquestionably lead the group in terms of closures above 2.5 percent, with Ether dominating in nearly every category. Clearly, the potential for recurring earnings in only the top two cryptocurrencies is worth highlighting, assuming players do not sell at local bottoms.
Absolute drawdowns are the next topic we’ll look at. These are the maximum unrealized losses if you acquired an asset at its highest price and held it until it reached its lowest point, i.e. the largest drop in the asset’s value from its peak.
- By our measure, Bitcoin, Ether, and BNB have far lower levels of risk than the “SMART” group and China Concepts group. Notably, Bitcoin has a smaller risk of losing money than Meta Platforms, Inc. and Netflix, Inc.
- Despite having the top 20 businesses by market cap 1, the China Concepts group, including the average, has a considerable downside risk, which remains elevated.
- In a similar vein to Figure 1, the time has aided Bitcoin, Ether, and BNB, which have shown decreased volatility in recent months when compared to a huge number of competing stocks.
- For instance, Bitcoin’s best open this year was just under $47.5k, while the lowest open was $36.3k, implying a maximum unrealized loss of 23.6 percent. When you compare this to NVIDIA Corp (30.6 percent maximum unrealized loss), Meta Platforms, Inc. (45.0 percent), Roku, Inc. (57.2 percent), Netflix, Inc. (44.7 percent), and DiDi Global Inc. (66.2 percent), you can see what I mean.
The final analysis we did was focused on investment. Simply put, how much is $100 worth now for individuals who invested $100 at the start of the year?
- Bitcoin and Ether are among the best-performing assets so far this year, with Bitcoin ranking in the top ten (excluding any one of Amazon.com, Inc., Intel Corp, or Alphabet Inc., Bitcoin ranks in the top 5)
- Only one of the stocks in the group (Alteryx, Inc.) has risen in value this year.
- investing in Bitcoin and Ether instead of the rest of the group would have put you in a better financial position.
- This comparison from January 2021 demonstrates the current difference between Bitcoin, Ether, and BNB performance and those of tech stocks, with crypto seeming significantly more appealing.
- BNB is the best-performing asset in our bucket, with a return of 833 percent during the same time period. This is a 20x improvement over the “SMART” and China Concepts averages, as well as a 10x improvement over the “FAANG” and Big Tech averages. Bitcoin, like Ether, has outperformed all other benchmarks.
- Tesla, Microsoft, NVIDIA, Alphabet, and Apple are the only featured stocks that would make a $100 investment at the start of 2021 profitable today. The “SMART” group and the China Concepts group have both underperformed significantly.
When Bitcoin, Ether, and BNB are compared to some of the most prominent technology equities included in many traditional financial portfolios, two major messages emerge. First and foremost, presuming one has invested in some of the most well-known technology stocks, labeling crypto as “too hazardous” is at the very least an oversimplification that warrants additional investigation and, as our data demonstrates, may not stand up to scrutiny. Next, and perhaps more crucially for some, the possibility for steady gains in crypto, especially when considering the comparatively low level of maximum drawdowns, is noticeable and indisputably vital to keep in mind when putting together an investment portfolio. Let’s not forget that the “FAANG” group has a market capitalization that is more than 5 times that of Bitcoin, Ether, and BNB combined, with Apple alone valued 2.2 times higher at present prices. The question isn’t whether we’ll see some of that money move into crypto markets; it’s when. To be sure, a large quantity of 2.5 percent Plus positive price swings in Bitcoin, Ether, and BNB, as well as the broader crypto markets, might be expected in the future.