Bitcoin is in a bear market, but there are many good reasons to keep investing
Let’s rewind the tape to late 2021 when Bitcoin (BTC) was trading near $47,000, which at the time was 32% below its all-time high. During that time, the technology-heavy Nasdaq stock market index held 15,650 points, just 3% below its all-time high.
Comparing Nasdaq’s 75% gain between 2021 and 2022 to Bitcoin’s positive move of 544%, one can assume that any correction caused by macroeconomic tensions or a major crisis will cause Bitcoin’s price to be disproportionately affected than stocks.
Eventually, these “macroeconomic tensions and crises” arose, and the Bitcoin price plunged another 57% to $20,250. This should not be a surprise given that the Nasdaq is down 24.4% as of September 2nd. Investors must also take into account that the index’s historical 120-day volatility is 40% annually, compared to Bitcoin’s 72%, which is about 80% higher .
That is the core reason why investors should reconsider investing in Bitcoin. The risk-to-reward potential following the risk asset downgrade possibly provides more upside for the cryptocurrency considering three factors: higher volatility during a moderate recovery, equity offerings, and resistance to regulatory sanctions.
The problem is that the market is now in an extended bear trend, and there are no signs of a quick recovery as double-digit inflation in many countries continues to pressure central banks to maintain a tighter stance. Notice how both Bitcoin and Nasdaq have struggled through 2022.
The consequence of raising interest rates and removing debt stabilization programs is a recession-like environment. Whether or not a soft landing will be achieved is irrelevant because no sane investor will choose credit-exposed and growth sectors when the cost of capital rises and consumption falls.
Bitcoin can crush tech stocks even during moderate recoveries
Volatility is usually interpreted as negative, considering that the movements in the price – either up or down – are accelerated. However, if the investor expects some kind of recovery in the next 12 to 36 months, there is no reason to believe that Bitcoin will remain under pressure for that long.
Let’s assume a neutral case, such that Bitcoin recovers 25% of its $48,700 fall since its all-time high, while the tech-heavy Nasdaq not only recovers its entire 24.4% loss so far in 2022, but adds another 40 % gains over the 1 to 3 year period.
That scenario would bring Bitcoin to $32,425, still 53% below the November 2021 record. Therefore, for those buying BTC on September 2nd at $20,250, this figure would represent a 60% profit.
On the other hand, during this neutral market, the Nasdaq would reverse its losses and add 40%, reaching 19,563 points for a total gain of 64.4%. To be clear: that would be 21.6% higher than the current record.
Bull markets can create price ceilings for stocks
The top 7 companies on the Nasdaq are Apple, Microsoft, Amazon, Tesla, Google, Meta and Nvidia, all well-known tech giants. In the stock markets, earnings numbers are the most critical metric that supports investor optimism, meaning that higher profits can either be redistributed to shareholders, used to buy back shares, or reinvested in the business itself.
The problem is when earnings go up, the companies have enormous incentives to issue more shares, also known as follow-up offers. Moreover, a technology company must constantly acquire new niche competitors to secure its leading position. Thus, bull markets create their own problems, as valuations become too rich and buybacks make little sense.
For Bitcoin, it does not mean having more miners, investors or infrastructure for a higher supply because the production schedule is set from day 1. The supply is fixed regardless of how the price fluctuates.
Bitcoin was designed to survive regulation and centralization
Nvidia, a major maker of computer chips and graphics cards, hit a 68-week low on September 2 after US officials imposed a new licensing requirement for the company’s artificial intelligence 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 by 50% in 2 months.
The main difference in both cases is Bitcoin’s automated difficulty adjustment, which reduces the pressure on miners when there is less activity. While the US regulation is likely to affect Nvidia’s exports, there is nothing to prevent Taiwanese chipmaker TSMC, South Korea’s Samsung or China’s Huawei from growing and exporting products.
Bitcoin is a digital peer-to-peer electronic cash system, so it does not need centralized exchanges to survive. If governments choose to ban crypto trading completely, it will only emphasize the importance and strength of this decentralized network. Several countries have attempted to suppress foreign currency from circulating, only to create a shadow market, with facilitators acting as illegal middlemen.
Under the 3 different scenarios, ranging from total lockout to a generalized bull market, the odds favor Bitcoin against tech stocks at current prices. Accordingly, adjusted for volatility, the risk reward strongly favors the cryptocurrency.
The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade involves risk. You should do your own research when making a decision.
