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
Historical volatility 1995-2005
I downloaded the NASDAQ Composite data, and I included a screenshot of my data below:
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%!
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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