“Why you should be terrified of owning bitcoin”, or “Why you should be afraid of owning bitcoin” is a somewhat pessimistic article on cryptocurrencies published a few days ago by Fortune.
During 2021, the price of bitcoin was very volatile: it increased and decreased daily at a rate six times that of gold.
This is what reveals an analysis by Scott DeCarlo published a few days ago by Shawn Tully in Fortune , in which it is revealed that during the year gold showed average and median daily variances of just 1.4% and the 1.3%, while for bitcoin these variations are 9.1% and 7.6% respectively.
Tully defines bitcoin :
“The most erratic, dangerous and totally unpredictable among the main investment categories on the planet”.
However, while he claims that investors traditionally avoid excessive volatility, he points out that even after its value plummeted by 50% from its three-month high, bitcoin is still largely rewarding its long-term holders.
This means that, since bitcoin tends to give its best in the long term, its holders must accept significant changes, as well as very fast, and a greater tolerance to risk.
Why (not) be afraid of bitcoin: analysis
Scott DeCarlo’s analysis was made on the trend in BTC prices from the beginning of 2021 until July 8, using the percentage fluctuation between the daily lows and highs as a reference parameter. De Carlo then calculated the same parameter also for the S&P 500 and gold .
From the calculations it emerged that, during the 146 trading days taken into consideration, the lowest difference between the daily maximum and minimum price of bitcoin was 2.5%, on April 1, and in only four days it was less than 3, 1%.
Instead, for 131 days, or 89% of the time, the price of BTC fluctuated by at least 5% during the day, exceeding the 10% threshold on 39 occasions, or more than one in four. In 17 days, it even exceeded 15%.
The overall mean variance was 9.1%, while the median was 7.6%. From this it can be deduced that it is legitimate to expect a price change of between about 8% and 9% every day.
As for the S&P 500, on the other hand, the single largest daily variation was 3.3%, on March 5, and only six times exceeded 2%. Instead for two thirds of the time it was less than 1%.
The arithmetic mean variance for the S&P was 1%, while the median was 0.9%, so the daily mean variance in the price of bitcoin is about 8 times more volatile than that of large-cap stocks.
Gold turned out to be more volatile than the S&P 500, but far less than bitcoin.
The largest daily variance was 4.9% on January 8, while the second-ranked was 3.3%. However, only on 3 occasions was it higher than 3%.
Overall, the average daily variance in the price of gold was 1.4%, while the median was 1.3%, which is six times lower than that of gold.
In light of these data, it is evident that BTC investors need to arm themselves with much more patience and coolness than those who invest in shares of large companies or gold. On the other hand, however, it should be added that not all investors escape volatility, and indeed there are also those who seek it voluntarily.