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Binance CEO Changpeng Zhao said that Bitcoin’s volatility is “probably less volatile” than that of other securities, but evidence indicates that Bitcoin is the undisputed champion when the measure is adjusted dependent on returns.
During an interview with Bloomberg TV on May 3, Binance CEO Changpeng Zhao said that Bitcoin (BTC) is “is probably less volatile” than Apple (AAPL) and Tesla (TSLA) stock prices (TSLA).
Zhao contended that cryptocurrency’s uncertainty was similar to that of the financial market, adding that “volatility is everywhere” and “it is not unique to crypto.”
However, those involved in cryptocurrency trading probably know that cryptocurrency prices fluctuate a lot more than listed trillion-dollar companies. This begs one to question whether or not Zhao is detecting a trend that some may have missed?
The map above shows that Bitcoin and Tesla have varying volatility ratios as opposed to trillion-dollar stocks like Apple and Amazon.
Furthermore, markets seem to have reached a 60-day volatility high in November 2020, while Bitcoin remained surprisingly stable.
Tesla is an exception rather than the norm
Another thing to consider is that Tesla’s market capitalization is $633 billion, and it has yet to post a quarterly net income above $500 million. Meanwhile, every single top-20 global company is incredibly profitable. These include Microsoft (MSFT), Google (GOOG), Facebook (FB), Saudi Aramco (ARAMCO.AB), Alibaba (BABA), and TSM Semiconductor (TSM).
The list above shows the top-12 and bottom-12 most volatile stocks to show how Tesla’s (TSLA) price swings are far off the average of other $200 billion market cap companies. The volatility seen in cryptocurrencies has been the norm, given that there is a lack of earnings, a very early adoption-stage cycle, and a lack of an established valuation model.
One doesn’t need to be an expert in statistics to ascertain that the S&P 500 index performance has been pretty much stable over the past year, apart from a couple of weeks back in September and October 2020.
Zhao may be the founder of the leading crypto exchange, but he doesn’t personally trade. On the contrary, he actually recommends holding (HODL) instead of trading in every instance possible.
I am not buying this dip.
Because I don’t have any fiat.
— CZ 🔶 Binance (@cz_binance) January 11, 2021
If you feel stressed out during every dip, you probably should not trade much, or at least change your trading strategy. Maybe just #HODL?
Not the best advice for our business (trading fees), but probably good advice for many new “traders”.
Not financial advice.
— CZ 🔶 Binance (@cz_binance) April 22, 2021
Volatility does not measure returns
Another major issue arises when assessing uncertainty solely. The measure omits the most significant parameter for investors: return. It makes no difference if an asset is more or less unpredictable if, on average, one asset continuously outperforms others.
MicroStrategy has listed almost every currency, stock exchange, and S&P 500 index part, allowing interested analysts to equate returns and the Sharpe ratio to Bitcoin’s.
As explained in the footnotes:
“The Sharpe ratio is a measure of risk-adjusted (really volatility-adjusted) returns. It is a way to measure how much return an investment generated for the risk (volatility) endured over some time horizon.”
According to the results, Bitcoin has outperformed any major asset and index in terms of risk-return measures over the last 12 months. A comparable result occurs where a 5-year timeline is used.
As a result, Zhao might have actually claimed wrongly that Bitcoin’s volatility is comparable to the portfolio of trillion-dollar corporations. However, when the metric is adjusted depending on dividends, it is unquestionably the clear winner.