What’s Up With Bitcoin? The Data

With all the talk about Bitcoin, at Cornell Capital Group we thought it is time to delve into the data. The data sample employed in the analysis consists of the daily returns on Bitcoin, the Nasdaq Composite Index, GLD (an ETF that tracks the price of gold), Tesla, and Amazon from January 1, 2015, through January 8, 2021. I also consider a more recent subperiod that runs from March 10, 2020, through January 8, 2021, to determine whether things were different during the recent stock market and Bitcoin booms (other than the fact of the runups themselves). Here I summarize the results of the analysis.

To get started, the first two graphs below use the returns to compute the path of wealth for $1 invested in each of the five assets. The first graph starts on January 1, 2015, the second on March 12, 2020. The first graph appears compressed because of the remarkable performance of Bitcoin. One dollar invested in Bitcoin on January 1, 2015, would have grown to $125 in six years, a compound annual return of 125.5% percent! This dwarfs even Tesla’s 65.0% annual return and makes the return on the Nasdaq of 20.4% appear downright anemic. Gold does not even appear to leave the x-axis, but the annual return is 7.2%.

The main difference that emerges in the more recent period is that Tesla joins Bitcoin in the stratosphere with an annualized return of an astonishing 899%, exceeding even Bitcoin’s 604% return.

(Click on image to enlarge)

Bitcoin Data

Bitcoin Data

Volatility

The annualized standard deviation of return for an asset, or its volatility, is a common measure of risk. The long-run volatility for an average stock is about 20%. During the full period, the volatilities for the five assets in the sample were as follows: GLD 14%, Nasdaq 21%, AMZN 31%, TSLA 55%, and BTC 73%. Not surprisingly, the volatilities of TSLA and BTC are exceptionally high. An investor in these assets might well say, “Who cares?” given average returns of 65% and 125%. However, decades of research in finance find that exceptional returns in the past do not forecast exceptional returns in the future, whereas high risk does forecast future high risk.

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For those who would like the further details, email info@cornell-capital.com.

Disclaimer: Cornell Capital Group LLC is a registered investment adviser. Information presented is for ...

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