Cryptocurrencies are fast gaining traction in the world of finance. In today's digital world, people are increasingly buying into the concept of cryptocurrency as a new mode for monetary transactions as well as for investments.
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April 14, 2022
ACCORDING TO ECONOMISTS, BITCOIN WILL OUTPERFORM EQUITIES IN THE LONG RUN.
According to some industry insiders, the recent stock and cryptocurrency market crashes have presented yet another opportunity to notice greater return potential for crypto over equities.
The crypto market had one of its worst sell-offs in history last week, with total market value dropping more than 30% from $1.8 trillion on May 4 to $1.2 trillion on May 12. Bitcoin (BTC), the most valuable digital currency by market cap, fell below $27,000 for the first time since late 2020, shedding 30% of its value in the process.
However, crypto has not been immune to market volatility. The stock market has also had one of its worst periods since 2020, with the tech-heavy Nasdaq Composite losing more than 12% and plummeting below 12,000 points during that time.
Apple and Microsoft both had their market capitalizations drop by around 13%, while Tesla’s market capitalization dropped by 23% from $986 billion to $754 billion.
Cryptocurrency markets are more unpredictable than stock markets, posing more dangers while also providing greater possibilities, according to ANB Investments CEO Jaime Baeza.
“Over the long run, and without going into too much detail,” Baeza added, “I believe crypto as a whole offers higher risk-return prospects.”
Similar sentiments were shared by Lily Zhang, the chief financial officer of Huobi Group, who stated that bitcoin’s volatility means there is “more potential to generate large gains with cryptocurrencies.”
“It’s crucial to remember that we’re at the beginning of a new Fed rate rise cycle, and both cryptocurrencies and tech stocks might be prone to rapid capital outflows, leaving them vulnerable to significant declines,” Zhang said.
Cryptocurrency has a larger beta to market sentiment than stock markets, according to Ryan Shea, a crypto economist at fintech company Trakx.io. When investors grow more hesitant to take risks, the market sees higher price drops, but when risk appetite improves, the market experiences larger price gains, according to Shea.
The association between the crypto market and the US stock market has been high since the end of 2020, according to Huobi’s CFO. She said that bitcoin’s correlation with the S& P 500 reached 0.7 in January and has stayed high since then.
“With this linkage, it’s impossible to protect against overall portfolio price volatility when assets are spread between stocks and crypto assets.” “However, investors may reduce volatility by limiting their risky asset holdings and modifying their asset allocation techniques as well as the diversity of assets they invest in within these two asset classes,” Zhang said.
Bitcoin has gained approximately 9% in the last 24 hours, trading around $30,610, according to statistics from CoinGecko. In the last 30 days, the cryptocurrency has lost 23% of its value.