A lot has been said about the past decade as the new one begins. Many investors and media outlets have been eager to demonstrate how strong returns have been for Equities over the past decade. Calls for Stock of the Decade have highlighted surely impressive returns by historical standards. The fact that we continue to be in the longest bull market in history is impressive but as many advisors must always remind us, past results do not indicate future returns.
Screenshot from Yahoo! Finance
In fact, individual stocks rarely have the capability to continue growing and delivering returns in excess of the market due to how growth is always a constraint as time passes. The pace of economic growth will always limit the growth of an individual company in the long term so while the stars of the last decade continue to be highly regarding today, it will be unlikely that they will lead the next ten years. However, I believe that an asset class has been missed in these comparisons as the bellweather of it, Bitcoin, has demonstrated why it is the King of returns last decade.
Screenshot from Yahoo! Finance
The history of Cryptocurrencies does not even have the time series to compare given how young the asset class is. However, as we see the details, it becomes clear where the most potential exists as we head into the new decade. While Netflix was the best performing stock of the decade with over 3,000% returns, bitcoin outperformed with over 13,000% percent! When we look at the two, we can also see how the prospects are so much different as we look into the future. The other great performers of the decade have been many of the big technology companies we have seen grow to very large behemoths. The likes of an Apple now command a $1.3 trillion market cap. However, this leads to seeing the potential of these assets in the future. Netflix has a market cap of $148 billion but has the limitation that it is only in the media industry. That industry has become more competitive given the likes of Amazon and Disney as well as other traditional players which have made their prospects for growth not only limiting but also at the risk of margin compression. Therefore, it will be unlikely for them to grow on par with an Apple that attributes it over trillion dollar market cap due to its expanded exposure across multiple industries and having a strong brand. However, even Apple is approaching limits as it is now a worldwide product that despite leading in many areas, is finding itself challenged to what has achieved their success in the past, innovation. When was the last iPhone groundbreaking or innovative, right?
However, if we see the market cap of Cryptocurrencies which have struggled to remain above $200 billion as a whole, we see that the potential is enormous. Considering the fact that it once reached $800 billion during the bubble of 2018, the potential is there although picking the winners will likely be the challenge. Like stocks, there are now over 3,000 tokens and/or coins to chose from. While bitcoin is King with over 65% of the market capitalization, others have continued to deliver on their roadmaps and demonstrate growth and adoption which are key for their success.
It is still uncertain how Cryptocurrencies will compare to other asset class over time but the potential to become more valuable is clear as more traditional industries look toward Blockchain technology for the future. Gold is over $7 trillion in market capitalization and is often used as a comparable asset in the hard money class. Taking the few like bitcoin that have advanced their network effects towards a working currency could shine the light of how much market cap they can gain if they are widely adopted.
While it was undeniably a great decade for stocks, the returns provided by bitcoin and other cryptocurrencies shine the light on where the most likely outperformer will be in this decade. The arguments against crypto assets like bitcoin seem to have subsided much like those against the Internet stocks like Amazon and Netflix once upon time. The opportunity over the coming years will be surely a ride that will likely be interesting to watch and participate in.
P.S. - Here is another fun visual to watch on the past decade and returns:https://twitter.com/jamestodaromd/status/1209523537217806341?s=21
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