In an interview with Bloomberg TV on May 3, Cryptocurrency CEO Changpeng Zhao suggested that Bitcoin (BTC) is “probably less volatile than the stock prices of Apple (AAPL) and Tesla (TSLA). Changpeng Zhao argued that the volatility of cryptocurrencies is in line with the stock market, adding that “volatility is everywhere” and “it’s not unique to cryptocurrencies.”
Yet those involved in cryptocurrency trading may know that cryptocurrency prices are much more volatile than publicly traded trillion dollar companies. This begs the question of whether Cho has spotted a trend that some may have missed.
60-day historical volatility, BTC vs. stocks. Source: Cointelegraph
The first obvious reading from the charts above is that both Bitcoin and Tesla have different levels of volatility compared to trillion-dollar stocks like Apple and Amazon. Furthermore, stocks appear to have experienced a 60-day volatility spike in November 2020, while Bitcoin has been relatively quiet. Tesla is the exception rather than the norm.
Another thing to consider is that Tesla’s market cap is $633 billion and it has yet to report quarterly net income of more than $500 million. Meanwhile, every one of the top 20 global companies has incredible profitability. These companies include Microsoft (MSFT), Google (GOOG), Facebook (FB), Saudi Aramco (ARAMCO.AB), Alibaba (BABA) and TSM Semiconductor (TSM).
The 12 most volatile $200 billion market cap stocks. Sourced from here. investing.com
The list above shows the top 12 and bottom 12 most volatile stocks to show that Tesla’s (TSLA) price volatility is far off the average for other $200 billion market cap companies. The volatility seen in cryptocurrencies has been the norm given the lack of earnings, the early cycle of the adoption phase, and the lack of established valuation models. One does not need to be an expert in statistics to determine that, with the exception of a few weeks in September and October 2020, the performance of the S&P 500 has been largely stable over the past year.
12-month S&P 500 Index performance, 5-day chart. Source: TradingView
Zhao may be the founder of a leading cryptocurrency exchange, but he doesn’t trade himself. Instead he recommends holding in all probability (HODL) rather than trading.
Volatility does not measure returns
Analyzing volatility alone presents another big problem – the indicator ignores the most important metric for investors, which is return. It doesn’t matter if an asset is more or less volatile if, on average, it consistently returns more than other assets.
MicroStrategy has listed almost every currency, stock index and S&P 500 component that a curious analyst could compare returns and Sharpe ratios to Bitcoin’s returns side-by-side.
As explained in the footnote: “The Sharpe ratio is a measure of risk-adjusted (actually volatility-adjusted) returns. It is a measure of how much return an investment generates for the risk (volatility) it is exposed to over some time horizon
Bitcoin returns and Sharpe ratios versus major assets and indices. Source: MicroStrategy
As the data clearly points out, Bitcoin has been the winner of all the major assets and indices in terms of risk-return metrics over the past 12 months. A similar result occurs when a 5-year time frame is used.
As a result, Jo may simply be wrong in stating that Bitcoin’s volatility is similar to the stocks of trillion dollar companies. Yet when adjusting the index for returns, it is the undisputed winner.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/cryptocurrency-ceo-says-volatility-not-unique-to-cryptocurrency-data-shows-its-aviation-fuel-for-bitcoin/
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