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Throwback Thursday #TBT - Comparison of historical volatility: Bitcoin vs. Dot-com bubble stocks


I have previously posted about various topics to this platform, including about current events, but I feel that my best-received posts are ones that are original and feature my own perspective. Although this analysis of mine was nested within one of my previous posts, I would like to revisit it today because it's something that I feel many articles out there have not addressed. 

Bitcoin's historical volatility

Goldman Sachs pointed out in a presentation that Bitcoin's historical volatility was extremely high. They reasoned that stocks are a better investment because they are less volatile. Although they didn't disclose the details of their calculation, a footnote in their presentation claims they looked at Bitcoin's data between December 31, 2014 and May 23, 2020.

Goldman highlighted that Bitcoin's historical volatility was 76%.

 

NASDAQ's historical volatility

So how does Bitcoin's historical volatility compare with that for stocks? I decided to compare it to stocks from the Dot-com Bubble, and thought the performance of the NASDAQ Composite from 1995 to 2005 would mirror the 11-year life of Bitcoin

Here are the formulas that I used:

 

Standard Deviation 1995-2005 

=STDEVA(H3:H2773)

 

Historical volatility 1995-2005

=STDEVA(H3:H2773)*(SQRT(COUNT(H3:H2773)))

 

I downloaded the NASDAQ Composite data, and I included a screenshot of my data below: 

NASDAQ Historical Volatility - Dot Com Bubble (1995-2006)

Screenshot: NASDAQ Composite from 1995 to 2005

 

Based on my analysis, the NASDAQ Composite's historical volatility from January 3, 1995 to December 30, 2005 works out to 93%!

 

The verdict

Based on Goldman's logic, investors of the NASDAQ Composite during the Dot-com Bubble were actually exposed to more volatility than individuals who bought Bitcoin!

Lastly, is high volatility a good or bad trait for an investment? More importantly, how does NASDAQ's Associate Vice President (AVP) feel about the NASDAQ's volatility? I mentioned in a previous post that risk tolerance varies among different individuals. Nevertheless, he thinks that it's something positive.

 

When it comes to the Nasdaq-100 volatility being higher than the S&P 500 or other large cap benchmarks, remember that it probably should [be]....It might actually be a great thing, - Efram Slen, NASDAQ AVP, Head of Index Research, April 3, 2018

 

 

 

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Cover art (Cropped) by Mediamodifier from Pixabay


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CryptoWordsmith
CryptoWordsmith

Author ⌨ • Host of Blockchain Chat podcast 🎧📻⛓ • Early beta tester for NBA Top Shot & for NFL All Day 🏈 • Nine Lives Lounge member 🏀 • If I commented on your P0x post then you got a "like" and 100% of the tip! Twitter: @CryptoWordsmith


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