Let’s go back to 2021, when Bitcoin ( TC ) was trading at $47,000. This was 32% less than its all-time high. The tech-heavy Nasdaq stock index had 15,650 points at that point, 3% less than its highest ever mark.
If you compare the 75% increase in Nasdaq between 2021-2022 and Bitcoin’s 544% positive movement, it is possible to conclude that a correction due to macroeconomic tensions, or a major crises, will eventually lead to Bitcoin’s prices being more affected than stocks.
These “macroeconomic tensions, crises” eventually occurred, with the Bitcoin price plummeting an additional 57% to $20,000. It shouldn’t surprise that the Nasdaq has fallen 24.4% since Sept. 2. Investors should also consider that the historical 120-day volatility of the Nasdaq is 40% annually, compared to Bitcoin’s 72% annualized which is approximately 80%.
This is why Bitcoin investors need to reevaluate their investment. The upside potential of cryptocurrency may be greater after a downward adjustment in risk assets. This is due to three factors: higher volatility in a moderate recovery, equity offers and resistance to regulatory sanction.
The problem is that the market is currently in a long-term bear trend. There are no signs of a quick recovery as double-digit inflation continues to push central banks to maintain a tighter stance. You can see how Bitcoin and the Nasdaq struggled through 2022.
Nasdaq Composite Index (blue) vs Bitcoin (orange). Source: TradingView
A recession-like atmosphere is the result of raising interest rates and eliminating debt asset stabilization programs. It doesn’t matter if a soft landing is achieved. Credit-exposed growth sectors are not attractive when capital costs are rising and consumption is shrinking.
Even in moderate recovery, Bitcoin can still crush tech stocks
Volatility can be interpreted as negative because the price movements — up or down – are often accelerated. If the investor is optimistic about a recovery in the next 12 to 36 month, then there’s no reason to think that Bitcoin will be under pressure for too long.
Let’s say that Bitcoin recovers 25% of the $48,700 loss since the all time high. However, the tech-heavy Nasdaq index not only recovers all 24.4% losses in 2022, but also gains another 40% over the 1 to 3 years.
This scenario would take Bitcoin to $32,425, 53% less than its November 2021 record high. This would result in a 60% profit for those who bought Bitcoin on Sept. 2 for $20,250.
Under this neutral market, however, the Nasdaq would recoup its losses and add 40 percent, reaching 19,563 point and a total 64.4% profit. This would be 21.6% more than the current record.
Stocks can be priced at their maximum in bull markets
Apple, Microsoft and Tesla are the top seven companies on Nasdaq. These tech giants include Meta, Nvidia, Meta, Google, Meta, Meta, Meta, Amazon, Google, Meta, Meta, and Tesla. Earnings figures are the key metric that backs investors’ optimism in stock markets. This means that higher profits can be used to redistribute to shareholders, buy back stock, or reinvested into the business.
Problem is that when earnings rise, companies have huge incentives to issue more stock. This is also known as follow-on deals. To maintain its leadership position, tech companies must continue to acquire niche competitors. Bull markets can also create problems because of the excessive valuations and ineffective buybacks.
Bitcoin’s production schedule was established from Day 1. Therefore, the fact that there are more miners, investors, or infrastructure doesn’t translate into a better offering. No matter how volatile the price is, the supply will remain constant.
Bitcoin was created to be able to withstand regulation and centralization
Nvidia, a major manufacturer of computer chips and graphics cards, fell to 68 weeks on Sept. 2, when U.S. officials placed a new license requirement for Nvidia’s artificial intelligence chip exports from China and Russia. In mid-2021, China tightened its grip on mining facilities within the region. This caused Bitcoin’s hashrate to plummet 50% within 2 months.
There is one major difference between the two cases: Bitcoin’s automatic difficulty adjustment. This reduces the load on miners when there is less activity. The U.S. regulation may have an impact on Nvidia’s exports but it won’t stop the South Korean Samsung, Taiwanese TSMC, or Chinese Huawei from exporting their products.
Bitcoin is a peer-to-peer digital cash system that doesn’t require centralized exchanges in order to survive. Governments could ban crypto trading entirely, which would only highlight the strength and importance of this decentralized network. Numerous countries have attempted to stop foreign currency from being circulated, but this only created a shadow economy with illegal intermediaries.
The odds of Bitcoin outperforming tech stocks are at their current prices in each of the three scenarios. The cryptocurrency is a strong candidate for risk-reward, adjusted for volatility.
These views and opinions are the author’s and do not necessarily reflect those of Cointelegraph. Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.
