Most risk markets, including Bitcoin, have struggled in recent weeks. Concerns around Fed taper, China real estate and energy price shocks in Europe have dented investor risk appetite. However, looking at Bitcoin’s performance over the year, its challenges may run deeper.
Admittedly, a year-to-date gain of over 50% is not to be sniffed at (Chart 1). It has clearly outperformed the S&P 500 (+17%) and even stocks like Apple (+10%). But it does not top the table – that honour goes to Ethereum, up a whopping 325% (I ignore other cryptos in this report). It is not just other crypto that has outperformed. Nvidia (+68%) and Alphabet/Google (+60%) have also beaten Bitcoin.
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Most risk markets, including Bitcoin, have struggled in recent weeks. Concerns around Fed taper, China real estate and energy price shocks in Europe have dented investor risk appetite. However, looking at Bitcoin’s performance over the year, its challenges may run deeper.
Admittedly, a year-to-date gain of over 50% is not to be sniffed at (Chart 1). It has clearly outperformed the S&P 500 (+17%) and even stocks like Apple (+10%). But it does not top the table – that honour goes to Ethereum, up a whopping 325% (I ignore other cryptos in this report). It is not just other crypto that has outperformed. Nvidia (+68%) and Alphabet/Google (+60%) have also beaten Bitcoin.
The picture looks even starker when we adjust the asset’s returns with its volatility. Remember, we want high returns with low volatility – that is, high Sharpe ratios. On this metric, Bitcoin tumbles down the rankings. Its risk-adjusted return (Sharpe ratio) of 0.7 is now lower than the S&P 500 (Chart 2). Other markets like oil and copper have also outperformed. Ethereum remains top, though Alphabet/Google is not too far behind.
All this suggests Bitcoin could be converging to the returns seen in more conventional markets like the S&P 500 and commodities. Meanwhile, a crypto like Ethereum, which is younger and has more network features, offers better prospects.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.