10/18/2021: Weekly Newsletter
“I’m sort of curious a) how much those [Bitcoin & Ethereum] actually fluctuate—like, are Bitcoin markets a ton more tumultuous than the stock market? How do they compare…are they moved by the dark forces or do like…stupid internet things move them? (Ie, all that Twitter stuff with doge ).”
-Wallet Street reader
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Per Investopedia’s Nathan Reiff, “Many factors drive price fluctuations in the Bitcoin spot rate on cryptocurrency exchanges. Volatility is measured in traditional markets by a volatility index known as the Cboe Volatility Index (VIX). More recently, tools for measuring the volatility of Bitcoin and other cryptocurrencies have also become available. Among the most popular of these is the Bitcoin Volatility Index, known as BitVol, which aims to track the expected 30-day implied volatility of the world's leading digital currency by market cap.”
Let’s look at the volatility of the stock market vs bitcoin since bitcoin’s inception in 2009:
Stock market: The CBOE Volatility (VIX) index below shows the expected market volatility of the S&P500 over the last 20 years. We can see that in periods of economic uncertainty—the 2008 recession and 2020 COVID—the volatility goes up. Things that can affect stock market volatility are things like macroeconomic trends, recessions, cut backs in consumer spending, bubbles, etc.
Bitcoin has several different characteristics that I believe make it slightly different and more volatile.
Bitcoin is a single asset; the SP500 or the stock market in general, are an aggregation of assets. In the case of the SP500, it’s an aggregation of 500 companies; the US stock market has thousands of companies, and there are even more globally. Bitcoin, on the other hands, is one asset. In a sense it’s like 1 currency or 1 stock; therefore, if you invest in just that 1 currency or 1 stock, you are at the behest of how that 1 currency or stock performs. However, if you invest in aggregation in the SP500 or in the stock market broadly, your exposure is spread across many many companies. Thereofre, if 1 company does poorly in the SP500, then you still have 499 others that might compensate and so you might actually come out ok. In Bitcoin, you don’t have that diversification.
Bitcoin is still new. It was started in 2009. The stock market has been around for hundreds of years. There is a more established approach and ‘market thinking’ when it comes to stocks because it’s more mature and stock market analysts and algorithims have been around longer. Bitcoin is newer, and therefore peopel are still understanding how the market prices are affected.
Because Bitcoin is new and has still not been fully adopted by the financial industry yet, any news that comes out about how adoption might go heavily affects it. For example, when China says that it will crack down on bitcoin mining, that affects the price. When Tesla announces it will accept Bitcoin as payment, that also affects the price.
This analysis by Sacha Ghebali tracked Bitcoin vs SP500’s volatility.
In summary, there are a wider range of factors that can affect Bitcoin pricing as the crypto industry matures and crypto is adopted more and more. I don’t think that it’s necessarily that there are more factors out there that affect Bitcoin; all assets are affected by similar factors. However, because Bitcoin is so much newer and less established than other assets, I believe that there is more pricing moving events at smaller intervals of time than for other more established assets.
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Money & Crypto
Bitcoin ETF futures to start trading (CoinDesk)
Black investors in crypto One interviewee says“Even if they don’t realize it, what [investors] are doing if they are keeping their bitcoin long term, they are moving money out of the current system into another one. And that is basically the best form of peaceful protest.” (Time)
Tether and Bitfinex fined for misleading claims (CoinDesk)
Bakkt goes public via SPAC (The Block Crypto)
How credit card firms have to become the internet’s regulator (The Economist)
Apps that track where you work remotely to make it easier to calculate taxes (NY Times)
🎧 What’s in the Pandora Papers? (NPR)
Tech & Science
What’s in a smartphone? (Visual Capitalist)
Facebook power outage (NY Times)
Etc.
🎧Najibullah Quraishi, Afghan British journalist, talks about his recent documentary, reporting in Afghanistan, and what it has been like since the Taliban takeover
🎧 #metoo founder Tarana Burke talks about R Kelly, #metoo, and race
🎥 In light of the recent sentencing of RKelly, I highly recommend watching Surviving R Kelly. (I recently watched and it is jaw dropping.)
📖 The Spy and the Traitor is a gripping page turner about the true story of escape by a KGB spy during the Cold War.
Disclaimer: All opinions are my own. The content on this site and on the podcast does not constitute financial, legal, accounting, tax, or investment advice.
