Bitcoin’s (BTC) volatility continues to stand out in 2022, with the cryptocurrency recording significant sell-offs while attempting to navigate the high inflation macro environment that has also impacted other traditional asset classes such as stocks. Despite Bitcoin’s volatility, the asset has recorded astronomical return rates in the long term, dwarfing other asset classes.
Data retrieved from the Finbold ROI tool indicates that Bitcoin’s five-year return on investment has outperformed the stocks of five leading banks at an average of 549.35%. In particular, the crypto has the highest returns against Citi (NYSE: C) at 839.17% and Wells Fargo (NYSE: WFC), which stands at 728.34%.
Elsewhere, Bitcoin returns against Goldman Sach (NYSE: GS) stand at 407.46% followed by JPMorgan (NYSE: JPM) at 402.06%. Bank of America (NYSE: BAC) lies in the fifth spot among the top five major five banks’ stocks, with Bitcoin returns standing at 369.75% higher. Notably, the percentage values indicate how much a five-year Bitcoin investment outperforms traditional banks’ stocks’ ROI.
Bitcoin dwarfs bank stock returns
It is important to note that Bitcoin and the highlighted stocks belong to different asset classes. The stocks have an underlying company with assets, and their success largely depends on the bank’s performance. However, Bitcoin is not backed by any hard assets, and the price is influenced by speculation driven by market sentiment.
Bitcoin’s performance can also be considered a surprise since the flagship cryptocurrency is taking on financial institutions that have existed for decades while the asset is a little over a decade old. Not only has it outperformed banks in returns, but Bitcoin has also not faltered in its market capitalization.
However, due to the extreme volatility, Bitcoin has seen its capitalization plunge from over $1 trillion at its peak as well as previously earning a rank among the top ten most valuable assets in the world.
Following the unprecedented growth of Bitcoin, some of the highlighted banks have been forced to embrace cryptocurrencies as a growth strategy alongside tapping into the digital asset market. Major banks like Citi are building teams dedicated to cryptocurrencies and the underlying blockchain technology.
Based on how the regulatory aspect evolves, some banks are projected to allow customers to invest in Bitcoin directly. In such scenarios, both parties are likely to emerge as winners since the value of their stock will rise, and Bitcoin will benefit from the institutional input. Part of the development has resulted in some banks tapping the services of crypto custodians.
Bitcoin and stock correlation
Additionally, despite belonging to different asset classes, Bitcoin and stocks have, in recent months, exhibited a strong correlation. Both assets have correlated due to the prevailing market conditions characterized by high inflation and the Federal Reserve tightening measures led by interest rate hikes.
As Bitcoin matures, the correlation is setting up a perfect scenario for monitoring how the two asset classes will perform in the future. At the same time, the correlation might be a result of Bitcoin’s growing narrative as a store of value asset classes alongside ongoing adoption in different jurisdictions.
At the same time, even though Bitcoin is a volatile asset, many stock investors are incorporating both assets into the same portfolio. Bitcoin’s performance has driven exponential adoption of cryptocurrencies as a new asset class gaining an allocation in investor’s portfolios. Generally, the inclusion into the same portfolio is partly due to cryptocurrencies’ ability to offer exponential profitability in a short period.
Based on the current market conditions, the stocks mentioned above have the upper hand in rising higher compared to Bitcoin by factoring in elements like regulations. Notably, the stock market is better regulated, while Bitcoin is still facing battles from the regulatory side in addition to the volatility aspect.