Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
Bitcoin has had an extraordinary year, to say the least. It has been at the receiving end of both good and bad new years. Ordinarily, this would be ho-hum for the cryptocurrency market. But the larger spotlight on the market and the oddness of 2020 economically has aggravated any news that has occurred.
Bitcoin Continues to Surge
Bitcoin experienced levels of volatility that it had only previously seen in 2014—not even 2017’s wild run compares to 2020. Naturally, volatility was the highest around the time of the financial market crash in March, and things have settled since then.
Despite all of this volatility surrounding Bitcoin, it has done extraordinarily well from a performance perspective. At the start of the year, Bitcoin was priced at roughly $7,200. It could be on the verge of a bull run into a new ATH, spurred by news of PayPal’s entry. But it’s not just Bitcoin’s performance independently that has raised eyebrows.
Bitcoin is the best performing asset class among all, beating JPMorgan Chase and Goldman Sachs stocks in 2020 (at the time of this writing). These are two companies that once derided Bitcoin, though they have now changed their tack.
This is a commonly stated argument that proponents use, but it is worth discussing in greater detail. The turbulent year that 2020 is seemingly contributing towards Bitcoin adoption. Examining Bitcoin against stocks gives us insight into why the cryptocurrency matters so much to investors.
Does Bitcoin Outperform Everything?
A favorite strategy among supporters of Bitcoin is to compare it with the S&P 500. On almost every occasion, it proves itself as a better investment than the popular index. A counterargument is that traditional markets cannot be compared to Bitcoin, because it is fundamentally different in nature. To which some respond that that is the whole point — it is totally distinct from other assets.
In any case, Bitcoin as an investment regularly outperforms other asset classes. And as we approach the end of 2020, it continues to do so. The climb from $7,200 to the current price of roughly $15,600 represents an increase of over 100%.
With respect to Q4, Bitcoin has increased by roughly 42%. Detractors will offer the same response — that it is too volatile. But that too has been reducing, with only incremental volatility expected, as evidenced by a volatility report released by Kraken. One must keep in mind that Bitcoin is just over ten years old — other market classes have had decades or even centuries to become established.
JPMorgan Chase and Goldman Sachs, now a lot more welcoming of Bitcoin, are two of the world’s biggest banks. The stocks of these once staunch critics of Bitcoin have also paled in comparison to Bitcoin.
Since the market crash in March, JPMorgan Chase and Goldman Sachs have respectively recorded a roughly 31% and 50% rally. In that same period, Bitcoin has climbed by nearly 250%.
What’s even better for market investors is that this trend is very likely to be just the beginning of an enormous price rally. It will be the kind of price rally that is typical of Bitcoin, where it finds new support levels every few years.
What Will Happen to Bitcoin Going Forward?
There are those who point to the fact that Bitcoin has gone from $4,600 to $15,500 in a single year as being a con, not a pro. This is just the nature of a new asset that can be easily accessed globally. A lot of the value comes from whether people perceive it to be a good investment.
Having said that, everything else seems to point towards much stronger growth going forward. For one thing, it seems to have found new support levels. Bitcoin has stayed above the $10,000 mark for its longest streak yet.
Additionally, general usage has gone up, including the number of unique wallets. The combination of this protracted holding at new price levels, more users, and institutional investment bodes really well for the asset.
At any rate, while the volatility might drop the asset down, it has found new support levels. Long-term investors know this, and those who have been with Bitcoin since the early days are reaping the benefits.
One thing is certain: Bitcoin has a lot more left in the tank. Many believe all signs point to touching the previous all-time high.
There is also some detachment from the market forces of other asset classes. What’s evident is that Bitcoin is consistently outperforming stocks, including many of those that are directly in competition with it.
The combination of Bitcoin’s potential as a hedge and its increasing usability puts it in a position for growth. Time will tell whether it will reach the previously prescribed highs of six figure valuations.
What do you think of Bitcoin’s worth going forward? Is there a definite lack of correlation with other asset classes? Let us know in the comments below.
Disclosure:Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.