Let’s rewind the tape to late 2021, when bitcoin (BTC) was trading near $47,000, 32% below its all-time high. Meanwhile, the tech-heavy Nasdaq stock index was at 15,650 points, just 3% below its all-time high.
Comparing Nasdaq’s 75% gain between 2021 and 2022 with bitcoin’s 544% positive move, it can be assumed that a possible correction due to macroeconomic tension or a major crisis would have a disproportionate impact on the market on the price of bitcoin versus stocks.
Eventually, these “macroeconomic stresses and crises” occurred and the price of bitcoin fell another 57% to $20,250. This should come as no surprise, given that the Nasdaq is down 24.4% on September 2nd. Investors should also consider that the index’s 120-day historical volatility is 40% annualized, compared to 72% for bitcoin, or about 80% higher.
This is the main reason why investors should re-evaluate investing in bitcoin. The risk/reward potential after the downside adjustment for risky assets may leave more room for the cryptocurrency, due to three factors: higher volatility during moderate rallies, equity offers and resistance, regulatory penalties.
The problem is that the market is now in an extended downturn and there are no signs of a quick recovery as double-digit inflation in many countries continues to pressure central banks to tighten their stance keep Notice below how Bitcoin and Nasdaq have struggled during 2022.
The consequence of raising interest rates and removing debt asset stabilization programs is a recession-like environment. Whether a soft landing is achieved or not is irrelevant because no prudent investor will choose credit exposed and growth sectors when the cost of capital and consumption contracts will rise.
Bitcoin Could Kill Tech Stocks, Even in Moderate Recovery
Volatility is usually shown as negative, as price movements – up or down – are accelerated. However, if the investor is expecting some kind of recovery in the next 12-36 months, there is no reason to believe that bitcoin will remain under pressure for that long.
Assume a neutral scenario, so that bitcoin recovers 25% of the $48,700 decline from its all-time high, and the tech-heavy Nasdaq index not only recovers the total loss of 24.4% since the beginning of 2022, but it’s 40% more. gains over this 1-3 year period.
This scenario would take bitcoin to $32,425, 53% lower than the all-time high in November 2021. So, for those who bought bitcoin on September 2nd at $20,250, that figure represented a 60% profit.
On the other hand, in this neutral market, the Nasdaq would reverse its losses and add 40%, reaching 19,563 points and a total profit of 64.4%. To be clear: this figure would be 21.6% higher than the current full-time figure.
Bull markets can create price caps for stocks
The top seven Nasdaq companies are Apple, Microsoft, Amazon, Tesla, Google, Meta, and Nvidia, all well-known tech giants. In stock markets, earnings numbers are the most important metric to support investor optimism, meaning higher earnings can be returned to shareholders, used to buy back shares, or reinvest in the same business.
The problem is that when profits rise, companies have a strong incentive to issue more shares, known as takeover bids. In addition, a technology company must constantly acquire emerging niche competitors to secure its leadership position. So bull markets create their own problems as valuations get too high and buying back doesn’t make much sense.
For bitcoin, more miners, investors or infrastructure doesn’t translate to higher supply because the production schedule was set from day one. The offer is fixed, regardless of the price fluctuation.
Bitcoin was designed to survive regulation and centralization
Nvidia, a leading maker of computer chips and graphics cards, hit its lowest level in 68 weeks on September 2 after US authorities imposed a new license for the company’s artificial intelligence chip exports to China and Russia. Meanwhile, in mid-2021, China broke down mining facilities in the region, causing a 50% drop in bitcoin’s hash rate in two months.
The main difference between the two is bitcoin’s automated difficulty adjustment, which reduces pressure on miners when there is less activity. Nvidia’s exports are likely to be affected by US regulations, but nothing is stopping Taiwanese chipmaker TSMC, South Korea’s Samsung or China’s Huawei from expanding and exporting products.
Bitcoin is a peer-to-peer digital electronic money system, so there is no need for centralized exchanges to survive. If governments choose to ban cryptocurrency exchanges altogether, it will not emphasize the importance and strength of this decentralized network. Multiple countries have attempted to suppress the circulation of foreign currencies, ultimately creating a parallel market, with facilitators acting as illegal intermediaries.
Under three different scenarios, ranging from a complete shutdown to a broad-based bull market, the odds are likely to favor bitcoin over tech stocks at current prices. Therefore, given its volatility, the risk/reward ratio is strongly in favor of the cryptocurrency.
The views and opinions expressed here are solely those of theauthor and those do not necessarily represent Cointelegraph. All investment and trading involves risk. You should do your own research before making a decision.
