What is Bitcoin? Just Another Tech Stock

Bitcoin is just another tech stock.

Financial markets were very volatile last week. Technology stocks in particular, saw movements as large as double-digit percentages in a single day.

Tech companies' stocks are prone to volatility because, unlike more traditional companies, they are more exposed to crises and fluctuating consumer sentiment.

How to edge against crises and fickle consumer sentiment?

Some say Bitcoin is the answer.

Data shows it’s not!

By analysing Bitcoin prices over the past 5 years, we see that it moves in the same direction as the tech-heavy Nasdaq Composite index. The two assets have a correlation coefficient of 0.9, indicating a strong positive correlation.

Not only do they move in the same direction (up or down), but every time the Nasdaq moves, Bitcoin moves faster!

Bitcoin amplifies tech stocks movement.

After being disregarded as a challenger to traditional fiat currencies (no real use cases), Bitcoin was eventually dubbed "digital gold." This definition implies that Bitcoin, as an asset, should be compared to gold: something durable, relatively liquid, in limited supply, and stable over time.

Gold has traditionally served as a hedge against economic uncertainty and inflation. While its value generally follows the stock markets, it shows significantly less volatility, making it the perfect "safe-haven” asset.

If Bitcoin was actually the digital gold, than it should show a similar behaviour. It doesn’t!

By analysing its rolling 30-day standard deviation for the past 5 years, we can see that it goes up to 3 times its mean, while Gold and the Nasdaq don’t even get to 0.1 the value of their respective mean. This shows that Bitcoin is extremely more volatile.

So, Bitcoin is definitely not stable. However, like gold, it is relatively liquid and in limited supply. The problem is, both liquidity and supply are guaranteed by a distributed system of servers, or “mining rigs,” that require enormous amounts of energy and space to operate. This makes Bitcoin “production” vulnerable to geopolitics, to the point of causing “migrations” of “miners” to countries with cheaper energy and looser regulations.

Also, the efficiency and reliability of the rigs is highly dependent on technology.

Reliance on technology and sensitivity to geopolitics and markets is the same recipe as tech stocks.

If you consider that Bitcoin demand is only based on an almost-religious belief in its algorithm, it becomes an extremely speculative and risky tech stock.

‍

PS.

All charts and analysis was done with Chat-GPT4o. Great use case for Ai!