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The number of Bitcoin transactions has grown steadily in 2018, leading to the popular cryptocurrency’s value to rise well over $7,000. This growing popularity is one of the reasons investors are demanding more clarity around the cryptocurrency’s legality. That’s why Agora – a cryptocurrency exchange based in Malta – has launched a Bitcoin transaction tracker. The company has made all transaction data available to the public in their “Bitcoin Flow” tracking tool.
As Bitcoin became an increasingly popular form of currency, many have called into question the amount of electricity required to mine the digital coins. (The answer: a lot.) But as it turns out, the energy required by the Bitcoin network to power the currency may be precisely what keeps it from collapsing under its own weight—not to mention it’s also what could turn it into a viable currency for everyday use. Here’s a breakdown of just how much mining Bitcoin uses: Bitcoin (BTC) is a decentralized digital currency that relies on blockchain technology, which is a public ledger that keeps a record of all transactions. Users can buy and sell BTC through digital wallets and even use it to purchase goods and services.
In an interview with Bloomberg TV at 3. In May, Changpeng Zhao, CEO of Binance, suggested that bitcoin (BTC) is likely to be less volatile than the stock prices of Apple (AAPL) and Tesla (TSLA).
Zhao argued that the volatility of cryptocurrencies is no different from that of the stock market: Volatility is everywhere, and it’s not unique to cryptocurrencies.
However, those involved in cryptocurrency trading are probably aware that cryptocurrency prices fluctuate much more than trillion-dollar corporate prices. The question that arises is this: Does Zhao see a trend that others have missed?
60-day historical volatility, BTC vs. stocks. Source: Cointelegraph
The first obvious conclusion from the chart above is that bitcoin and Tesla have different volatility levels than billion dollar stocks like Apple and Amazon.
Moreover, it seems that equities experienced a 60-day volatility spike in November 2020, while bitcoin was relatively quiet.
Tesla is more the exception than the rule
Also, don’t forget that Tesla has a market capitalization of $633 billion and has yet to report a quarterly profit of more than $500 million. Meanwhile, all the top 20 companies in the world are incredibly profitable. These include Microsoft (MSFT), Google (GOOG), Facebook (FB), Saudi Aramco (ARAMCO.AB), Alibaba (BABA) and TSM Semiconductor (TSM).
The 12 most volatile stocks with a market value of $200 billion. Source: Invest.com.
The list above shows the 12 most volatile stocks and the 12 most volatile stocks to show that Tesla’s (TSLA) price volatility is far from the average of other companies with a market capitalization of $200 billion. Volatility in cryptocurrencies is the norm given the lack of revenue, the very early adoption cycle and the lack of an established valuation model.
You don’t have to be a statistician to see that the S&P 500 has been essentially flat for the past year, with the exception of a few weeks in September and October 2020.
S&P 500 12-month performance, 5-day chart Source: TradingView
Although Zhao is the founder of a leading cryptocurrency exchange, he is not personally involved in the exchanges. On the contrary, he recommends holding (HODL) rather than negotiating where possible.
Lol, I don’t do loans or credit. I don’t even do business. I just switched to #bnb.
– CZ Binance (@cz_binance) 12. January 2021
If you are stressed every time you fall, you probably shouldn’t be trading much or at least changing your trading strategy. Maybe just #HODL?
This is not the best advice for our trade (trade commissions), but probably good advice for many new traders.
No financial advice.
– CZ Binance (@cz_binance) April 22, 2021
Volatility is not a measure of performance
Volatility analysis alone creates another major problem. This measure does not take into account the most important measure for investors – returns. It does not matter whether an asset is more or less volatile if, on average, an asset consistently produces higher profits than others.
MicroStrategy has tracked nearly every currency, every stock index, and every component of the S&P 500 Index. Curious analysts can compare yield and Sharpe ratio side by side with bitcoin.
As explained in the footnotes:
The Sharpe ratio is a measure of risk-adjusted (in fact, volatility-adjusted) return. It is a way of measuring the return of an investment for the risk associated with it (volatility) over a given time horizon.Bitcoin returns and Sharpe ratio compared to major assets and indices. Source: Microstrategy
As the data clearly shows, bitcoin has been a winner in terms of risk and return compared to all major assets and indices over the past 12 months. A similar result occurs when the time horizon of 5 years is used.
So it could be that Zhao was simply mistaken when he said that bitcoin’s volatility is comparable to that of billion-dollar stocks. But if you adjust the measure based on returns, it’s a clear winner.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
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