December 10, 2023

Comparison of Bitcoin with traditional investment assets

Comparison of Bitcoin with traditional investment assets

Cryptocurrencies are a class of investment assets that, over the long term, from one 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 once againbecomes the year of triumph for cryptocurrencies. US President Donald Trump spoke about cryptocurrencies for the first time this year, and a number of cryptoskeptics - from the head of the Bank for International Settlements Augustin Carstens to the head of the Bank of England Mark Carney - changed their negative attitude towards cryptocurrencies to a neutral-positive one. The largest US bank, JPMorgan, and the European Central Bank (ECB) under the leadership of Christine Lagarde, and even the US Federal Reserve System (FRS), headed by Jerome Powell, continue to study cryptocurrencies.

This all really looks like a confession.that cryptocurrencies are not “rat poison squared,” as billionaire Warren Buffett previously said about Bitcoin. When the head of Berkshire Hathaway predicted the “death” of Bitcoin, it was worth $200, but in the end the asset was able to rise in price a hundred times, reaching an all-time 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 profitability of about90%. This is significantly greater than the return on investments in the Nasdaq 100 stock index (+35%) and S&P 500 (+29%) as of mid-December. Moreover, as of December 17, the annual gain 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 still the income 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 a currency basket is notpopular already because of the greater risk, as well as low income, which is incomparable with possible losses. At the same time, US President Donald Trump takes credit for the fact that the Nasdaq, S&P 500, and Dow Jones stock indices are updating 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:

  • The US Federal Reserve carries out a record issue of monetary fundsfunds, thereby “flooding” Wall Street with liquidity, and inexpensively, given the threefold decrease in the base interest rate this year (in July, September and November), to 1.5–1.75%. Thus, about $30 billion comes into the American financial market per 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 US are indifferentbelong to the stock market, since they simply do not have investments in such assets. Moreover, the number of non-shareholders has increased since the global financial crisis of 2008–2009, even as stock market performance has returned to growth. This is apparently due to the fact that millennials have largely become disillusioned with banks and major Wall Street players after seeing their inability to prevent real estate prices from falling during the crisis.

A similar situation with unnatural growth of indicesshares are also observed in the European Union (EU). In the region's key economy, Germany, the Frankfurt DAX share index shows a YTD of almost 27%, but this comes against the backdrop of unprecedented euro issuance, reflecting the ECB's record balance sheet, which topped €4.7 trillion.

Riskier corporate stocks from countries withAlthough developing economies show income traditionally higher than Wall Street indices, even they lag significantly behind what Bitcoin provides. Thus, the Russian RTS index grew by YTD by almost 42%, being close to the 1,500 point mark for the first time since 2013, and some analysts even expect a rise to 1,800 points by the end of the year. But this is again 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 a YTD of 60%. But, firstly, this is again less than Bitcoin. And secondly, the longer time period of the analysis proves that this metal can become much cheaper at times.

Not Only Bitcoin Leading

Bitcoin, on the one hand, is one of thosecryptocoin, which has moved the least away from its all-time high. On the other hand, the internal token of the Binance crypto exchange, Binance Coin, showed a higher return than Bitcoin on YTD, amounting to 210.8% (up from $6.39 to $13.47). But this is a record.

In total, the top 10 cryptocurrencies in relation toto Bitcoin showed an increase in YTD that was two times smaller than Bitcoin itself. This is not surprising: Ethereum started the year at $132 and is currently trading at the same level. In this way, it resembles the stablecoin Tether, which, however, did not fluctuate strongly throughout the year, like ETH. XRP fell from $0.3559 to $0.2057 US cents, and Stellar (Lumens) fell from $0.11 to $0.47 US cents. EOS dipped slightly - 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, there are still “stars” among them that show excellent growth. The fact that the local altcoin season is already in full swing is also evident in the Bitcoin dominance index - at the beginning of September this index broke through the 73% level, but now it is at around 66%, which means that the No. 1 cryptocurrency is “sharing” its glory with other crypto coins 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 more than just a reluctancestrongly moving away from its historical maximum, but also the desire to push off from local minimums in comparison with traditional investment assets on the market.

There are no equal Bitcoins on the market.

On an annual basis, Bitcoin has no competition -Exactly the same situation is observed over a longer distance of ten years. At the same time, even in assessing the real profitability of Bitcoin, a correction can be made: Bitcoin started with a price of only $0.08, and therefore $100 invested at that time could now turn into $8.6 million, and not $9.4 million, as was seen in early December. However, even such a correction does not change the essence: the shares of Bitcoin’s closest competitors in terms of rate growth, Amazon and Apple, over the same period were able to generate income 3,000 times less than that of Bitcoin, which rose in price by more than 9,000,000% over the 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.

Over the past ten years, oil has generally become a disappointment.A barrel of WTI now costs nearly $61, after averaging $109.4 in 2012 and falling to $30 in 2016, a low last seen in 1985. Shares in the largest American companies in the oil industry showed either a loss or growth in 2019, worse than in most other sectors of the economy (and this in a situation where the United States began to lead the world in oil production). At the same time, Nasdaq, S&P 500 and Dow Jones grew over the decade by 295%, 183% and 167%, respectively, which, of course, cannot 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 demand itself in the world, both for rough diamonds and diamond products, is stagnating.

Even if a person decides to choose between Bitcoin,gold and silver in case of truly extraordinary situations (war, global cataclysm, natural disaster), the first cryptocurrency beats the other two competitors almost completely, which 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.

Overall volatility in the cryptocurrency space, includingBitcoin is another “disadvantage”, which, on the one hand, gave impetus to the development of cryptocurrency derivatives. 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 checkmate to the global financial system.