Let’s rewind the tape to the end of 2021 when Bitcoin (BTC) was trading near $47,000, which at the time was 32% lower than the all-time high. During that time, the tech-heavy Nasdaq stock market index held 15,650 points, just 3% below its highest-ever mark.
Comparing the Nasdaq’s 75% gain between 2021 and 2022 to Bitcoin’s 544% positive move, one could assume that an eventual correction caused by macroeconomic tensions or a major crisis, would lead to Bitcoin’s price being disproportionately impacted than stocks.
Eventually, these “macroeconomic tensions and crises” did occur and Bitcoin price plunging another 57% to $20,250. This shouldn’t be a surprise given that the Nasdaq is down 24.4% as of Sept. 2. Investors also must factor in that the index’s historical 120-day volatility is 40% annualized, versus Bitcoin’s 72%, which is roughly 80% higher.
That’s the core reason why investors should re-evaluate investing in Bitcoin. The risk-to-reward potential after the downward adjustment in risk assets possibly leaves more upside for the cryptocurrency considering three factors: higher volatility during a moderate recovery, equity offerings and resistance to regulatory sanctions.
The problem is the market is now in a drawn-out bear trend and there are no signs that point to a quick recovery because double-digit inflation in many countries continues to pressure the central banks to sustain a tighter stance. Notice below how both Bitcoin and the Nasdaq have struggled throughout 2022.
Bitcoin can crush tech stocks even during moderate recoveries
Bull markets can create price ceilings for stocks
Bitcoin was designed to survive regulation and centralization
Nvidia, a major computer chip and graphics card manufacturer, reached a 68-week low on Sept. 2 after U.S. officials imposed a new license requirement for the company’s artificial intelligence chip exports to China and Russia. Meanwhile, in mid-2021, China cracked down on mining facilities in the region, causing 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’s less activity. While the U.S. regulation will likely impact Nvidia’s exports, nothing is stopping Taiwanese TSMC chipmaker, South Korean Samsung or Chinese Huawei from growing and exporting products.
Bitcoin is a digital peer-to-peer electronic cash system, so it doesn’t need centralized exchanges to survive. If governments opt to ban crypto trading completely, that would only emphasize the importance and strength of this decentralized network. Multiple countries have tried to suppress foreign currency from circulating, only to create a shadow market, with facilitators acting as illegal intermediaries.
Under the 3 different scenarios, varying from total blockage to a generalized bull market, odds favor Bitcoin against tech stocks at the current prices. Consequently, adjusted for its volatility, the risk reward strongly favors the cryptocurrency.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Source: https://cointelegraph.com/news/bitcoin-s-in-a-bear-market-but-there-are-plenty-of-good-reasons-to-keep-investing