The data shows that it is Bitcoin’s jet fuel


During an interview with Bloomberg TV on May 3, Binance CEO Changpeng Zhao suggested that Bitcoin (BTC) is “likely less volatile” than Apple (AAPL) and Tesla (TSLA) stock prices.

Zhao argued that the volatility of crypto is no different from that of the stock market, adding, “Volatility is everywhere” and that “it doesn’t just apply to crypto”.

However, those involved in cryptocurrency trading probably know that cryptocurrency prices fluctuate much more than trillion-dollar publicly traded companies. This begs the question of whether or not Zhao is spotting a trend that some may have overlooked.

60-day historical volatility, BTC vs. stocks. Source: Cointelegraph

The first obvious lesson from the graph above is that both Bitcoin and Tesla have different levels of volatility when compared to trillion dollar stocks like Apple and Amazon.

Additionally, stocks appear to have experienced a 60-day volatility peak in November 2020 while Bitcoin was relatively calm.

Tesla is more of an exception than the norm

Another thing to consider is that Tesla’s market cap is $ 633 billion and is not yet in need of a quarterly net income of over $ 500 million. Now every single top 20 company worldwide is incredibly profitable. These include Microsoft (MSFT), Google (toget), Facebook (FB), Saudi Aramco (ARAMCO.AB), Alibaba (BABA) and TSM Semiconductor (TSM).

The 12 most volatile stocks with a market cap of $ 200 billion. Source: Investing.com

The above list shows the top 12 and bottom 12 most volatile stocks to show how far Tesla’s (TSLA) price volatility differs from the average of other companies with a market cap of $ 200 billion. Volatility in cryptocurrencies has been the norm due to a lack of returns, a very early cycle in the adoption phase, and no established valuation model.

You don’t have to be a statistics expert to determine that the S&P 500 index’s performance has been fairly stable over the past year, save for a few weeks in September and October 2020.

12-month S&P 500 performance, 5-day chart. Source: TradingView

Zhao may be the founder of the leading crypto exchange, but he doesn’t act personally. On the contrary, he actually recommends holding (HODL) rather than acting in every possible case.

Volatility does not measure return

Analyzing volatility only is another major problem. The indicator leaves out the most important key figure for investors, the return. Whether an asset is more or less volatile does not matter if one asset consistently achieves higher profits than others on average.

MicroStrategy has almost all of the currency, stock index, and S&P 500 index components listed, and curious analysts can compare the returns and Sharpe ratio alongside Bitcoin’s.

As explained in the footnotes:

“The Sharpe ratio is a measure of risk-adjusted (truly volatility-adjusted) returns. It is a way of measuring how much return an investment has made for risk (volatility) over a given time horizon.”

Bitcoin yield and Sharpe ratio compared to major assets and indices. Source: micro-strategy

As the data clearly shows, Bitcoin has been the winner in risk-return metrics for all major assets and indices for the past 12 months. A similar result occurs using a 5 year period.

As a result, Zhao may have simply falsely stated that Bitcoin’s volatility is similar to the stock of trillion-dollar companies. However, if you adjust the metric based on the returns, this is the undeniable winner.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.