November 27, 2022

Comparison of Bitcoin with traditional investment assets

Comparison of Bitcoin with traditional investment assets

Cryptocurrencies are a class of investment assets that over a long distance, from a year to ten years, overtake in profitability almost all key alternative investment options.

Digital experts came to these conclusionsAssets Data, reporting that this year the return on investment in Bitcoin (BTC) was higher than in any traditional assets. How did this happen and what does crypto investors expect in 2020?

Cryptocurrency in 2019

2019 is coming to an end, and it is once againbecomes the year of the triumph of cryptocurrencies. This year, US President Donald Trump spoke about cryptocurrencies for the first time, and a number of crypto skeptics - from the head of the Bank for International Settlements Augustine Carstens to the head of the Bank of England Mark Carney - changed their negative attitude to cryptocurrencies to neutral-positive. Cryptocurrencies continue to be studied in the largest US bank, JPMorgan, and in the European Central Bank (ECB) under the leadership of Christine Lagarde, and even in the US Federal Reserve System (FRS), which is headed by Jerome Powell.

It all really looks like recognitionthe fact that cryptocurrencies are not “rat poison squared”, as previously billionaire Warren Buffett spoke about bitcoin. When the head of Berkshire Hathaway predicted the “death” of bitcoin, then it cost $ 200, but in the end the asset was able to rise in price a hundred times, reaching a historic high in December 2017.

But what now? On December 17, 2019, a memorable date came: exactly two years ago, bitcoin reached its absolute peak - $ 20,085, but today the oldest cryptocurrency costs $ 7,100. Nevertheless, to consider that this defeat would be wrong: Bitcoin retreated 65% from its peak, however, the shares of many global corporations lost more than 90% of their value from their historical highs, but in the end they still went up in price. In addition, if we talk about December 17, 2018, then a year ago, bitcoin cost only $ 3200.

A very important metric for investors isYield-to-Date (YTD), that is, the return on investment by the current moment, if they were made at the beginning of the year. This figure is traditional and understandable for Wall Street. By this measure, bitcoin, and not only it, bypasses all key areas of investment: Wall Street stock indices, emerging economies stock indices, bonds, oil, gold, silver and palladium.

Bitcoin “took” YTD

Bitcoin and cryptocurrencies in general remain very mobile assets in terms of price, however, this volatility does not change fundamentally superior profitability indicators.

So, according to YTD, bitcoin shows a yield of about90% This is significantly more than the return on investments in the Nasdaq 100 (+ 35%) and S&P 500 (+ 29%) stock index as of mid-December. Moreover, on December 17, the annual growth of the S&P 500 decreased to 27.31%, thereby showing that this index is volatile.

According to the consensus forecast, the indicatorreflecting the dynamics of stock prices of the 500 largest US corporations, may rise to 30.7% by the end of the year, but all the same, the return on these investments is almost three times less than on bitcoin.

And what’s very important: stocks are considered in the US as actually one of the only areas for investments when an investor wants to “reasonably take risks” instead of receiving very insignificant income from opening deposits in American banks (on average about 4% per year), from government bonds (in less than 2% per annum) or corporate bonds.

Stocks run out without cash inflow

The option to keep money in the currency basket is notIt’s already popular because of greater risk, as well as low income, which is not comparable with possible losses. At the same time, US President Donald Trump credits himself to the fact that the Nasdaq, S&P 500 and Dow Jones stock indices update historical highs, here three important points must be taken into account:

At first, under previous US President Barack Obama, historical highs were also observed.

Secondly, in the current situation, the growth of indices is largely unnatural, because:

  • US Federal Reserve Holds Record Cash Issuefunds, thereby “flooding” Wall Street with liquidity, which is inexpensive, given the three-fold reduction in the base interest rate this year (in July, September, and November), to 1.5–1.75%. So, about $ 30 billion comes to the American financial market in a week.
  • A number of American corporations are providingsupport of their shares through buy-back programs. It looks like this: the managers of some corporations prefer not to invest in the current account and cash register not to invest in expansion of capacities, but instead send them to the stock market to purchase freely traded shares of the company. As a result, their course begins to grow, that is, the capitalization of the business increases, which is an important trump card in the communication of company managers with shareholders about the effectiveness of their work. Strategically, this could hit the general prospects of American business, given, among other things, that China, one of the main buyers of American goods and services, intends to prohibit government agencies from buying hardware and software from the United States.

Thirdly, about half of Americans in the USA are indifferentrelate to the stock market, as they simply do not have investments in such assets. Moreover, the number of non-stockholders increased after the global financial crisis of 2008-2009, even despite the resumption of growth in stock market indicators. This, obviously, is due to the fact that millennials are mostly disappointed in banks and in the main players of Wall Street, as they saw their inability to prevent a fall in property prices during the crisis.

A similar situation with unnatural growth of indicesstocks are observed in the European Union (EU). In the key economy of the region, Germany, the Frankfurt DAX stock index shows YTD at almost 27%, but this is against the backdrop of an unprecedented euro emission, reflecting a record ECB balance sheet that exceeded € 4.7 trillion.

More risky stocks of corporations in countries withemerging economies, although they traditionally show incomes higher than Wall Street indices, even they are significantly behind what Bitcoin provides. Thus, the Russian RTS index grew by almost 42% in YTD, being for the first time since 2013 near the mark of 1,500 points, and some analysts expect to rise to 1,800 points by the end of the year. But this, again, is very far from what Bitcoin gave.

What should keep London?

At the same time investing in a troy ounce of goldprovided a very modest income - only about 15% in YTD, for silver - even less, 10.28%. Metals traded by the London Metal Exchange (LME) (which also provides storage services) also showed that there are no competitors to bitcoin among them.

The biggest growth on YTD is nickel,which rose by 33.7%. In a slight plus, copper is 4.8%. But a number of other metals showed losses if they remained in stocks since the beginning of the year: tin (-11.74%), zinc (-6.89%), lead (-6.32%) and aluminum (-4.16%). Perhaps it is better for LME to start storing more interesting investment assets - cryptocurrencies?

Palladium stands apart: by the end of the year, it shows YTD at 60%. But this, firstly, is again less than that of bitcoin. And secondly, a longer analysis time period proves that this metal can sometimes become much cheaper.

Not Only Bitcoin Leading

Bitcoin, on the one hand, is one of thosethe crypto coin, which least departed from its historical maximum. On the other hand, the internal token of the Binance crypto exchange, Binance Coin, showed a higher income than Bitcoin on YTD, amounting to 210.8% (an increase from $ 6.39 to $ 13.47). But this is a record.

In total, the top 10 cryptocurrencies in relation toBitcoin showed an increase in half the value of YTD than Bitcoin itself. This is not surprising: Ethereum began the year with a level of $ 132 and is currently trading at the same level. Thus, it resembles the stablecoin Tether, which, however, did not make strong fluctuations during the year, like ETH. XRP slid from $ 0.3559 to $ 0.2057 US cents, while Stellar (Lumens) fell from $ 0.11 to $ 0.47 American cents. EOS dipped a bit - from $ 2.62 to $ 2.37.

But there were cryptocurrencies in the top 10 ranking bycapitalization, which grew by YTD. Bitcoin Cash started the year with $ 148.02, and now costs $ 196.11 (+ 32.4%). Litecoin also went up from $ 30.17 to $ 40 (+ 32.5%). In a small plus Bitcoin SV, which rose from $ 86.07 to $ 89.18 (+ 3.6%).

This once again suggests that if in generalaltcoins as a class do not show a significant rise, then among them there are still "stars" that show excellent growth. The fact that the local altcoin season is already in full swing is also manifested in the Bitcoin dominance index - in early September this index broke the level of 73%, but now it is at 66%, which means that cryptocurrency No. 1 is “sharing” its fame with other cryptocurrencies on the market.

Features of the formation of the cryptocurrency portfolio

It turns out that if the investor at the beginning of the yearIf it invested equally in the ten largest cryptocurrencies by capitalization, it could receive an income of about 40%, which is also higher than that offered by traditional financial markets. At the same time, expanding the cryptocurrency portfolio to the 20 or 70 largest cryptocurrencies by capitalization would bring losses in 2019. And although it seems that this is due to an increase in the share of risky cryptocurrencies, this logic has no confirmation, since an increase in the names of cryptocurrencies in the investor's portfolio to 100 would again bring such a structure of investments in plus (above 30% per annum).

All this only says that path dependence,that is, building an investment model based on the behavior of cryptocurrencies in past periods cannot be the right strategy. This applies to all crypto assets, with the exception of bitcoin, which, due to its maturity, shows that it has a long-term and unshakable growth trend, even despite the “cryptozyme” of 2018 and a local decrease in its price after July of this year.

Bitcoin also shows not only reluctancemove far from its historical maximum, but also the desire to push off from local lows compared to traditional investment assets in the market.

There are no equal Bitcoins on the market.

In annual terms, bitcoin has no competition -exactly the same situation is observed at a longer distance of ten years. At the same time, even in assessing the real profitability of bitcoin, one can make a correction: Bitcoin started from a price of only $ 0.08, and therefore $ 100 invested at that time could now turn into $ 8.6 million, rather than $ 9.4 million, as was seen in early December. However, even such a correction does not change the essence: the shares of the closest Bitcoin competitors in terms of rate growth, Amazon and Apple, for the same period were able to give an income of 3,000 times lower than that of bitcoin, which went up by more than 9,000,000% in a decade.

The story with gold is also not impressive. 10 years ago, a troy ounce of precious metal cost $ 819, two years later it peaked at $ 1917 for a very short time. And then for five years the asset was in a weak dynamics, and only this year we see that it has grown to $ 1480.

Oil over a decade has generally become a disappointment. Now a barrel of WTI costs almost $ 61, and this is after the average price reached $ 109.4 in 2012, and in 2016 it dropped to $ 30 - the minimum that was last seen in 1985. Shares in the largest US oil companies in 2019 showed either a loss or growth, worse than in most other sectors of the economy (and this is in a situation where the United States began to lead the world in oil production). At the same time, the Nasdaq, S&P 500 and Dow Jones grew over the decade by 295%, 183% and 167%, respectively, which, of course, can not be compared with the growth of bitcoin.

Government bonds are becoming more and moreinstruments with zero profitability: in 2010 there were none, and now such securities - already worth $ 17 trillion. Even US government bonds are going to bring investors negative income. So far, over 10 years, 30-year US Treasury debt securities have yielded an income of 208%. The worst result was shown by Turkish government obligations: in dollar terms from 2009 to the present moment, they recorded a negative income of 39%.

With corporate bonds in the world of coursea different story: income on average, although less than for stocks, is almost always positive. Nevertheless, it is easy to come across the fact that in the pursuit of high income you can stumble on junk bonds, that is, on such debt instruments of companies for which you can not wait for payments.

What else to keep funds, if not in bitcoins?

The diamond market is balancing on the brink of pricecollapse: due to the development of technology, supply is growing faster than demand, and world demand itself, both for rough diamonds and diamond products, is stagnating.

Even if a person decides to choose between bitcoin,gold and silver in case of really extraordinary situations (war, world cataclysm, natural disaster), the first cryptocurrency outperforms the other two competitors almost completely, as analyst Clem Chambers draws attention to.

Bitcoin with its “weakness” in the form of an asset assessmentas a means of saving, and not of transactions, in the end gave an impetus to the emergence of other crypto coins, which are designed to give the world crypto coins without these "shortcomings". However, one can only thank for such “shortcomings” of bitcoin (real or exaggerated), since they have become a powerful factor in the emergence of new crypto projects.

Cryptocurrency volatility, includingBitcoin is another “drawback” that, on the one hand, has given impetus to the development of derivatives for cryptocurrencies. On the other hand, it showed that even being “unpredictable” over a short distance, over long periods of time, bitcoin bypasses key investment alternatives, putting a check and a mate on the global financial system.