During an interview with Bloomberg TV on May 3, Binance CEO Changpeng Zhao suggested that Bitcoin (BTC) "is probably less volatile" than the stock prices of Apple and Tesla.
Zhao argued that crypto's volatility was not unlike the stock market, adding that "Volatility is everywhere" and that "It is not unique to crypto."
However, those involved in cryptocurrency trading probably know that cryptocurrency prices fluctuate a lot more than exchange-listed trillion-dollar companies. This begs one to question whether or not Zhao is detecting a trend that some may have missed.
The first obvious reading from the chart above is that both Bitcoin and Tesla share different volatility levels when compared with trillion-dollar stocks like Apple and Amazon.
Moreover, stocks seem to have experienced a 60-day volatility peak in November 2020, while Bitcoin was relatively calm.
Tesla is an exception rather than the norm
Another thing to consider is that Tesla's market capitalization is $633 billion, and it has yet to post a quarterly net income above $500 million. Meanwhile, every single top 20 global company is incredibly profitable. These include Microsoft, Google, Facebook, Saudi Aramco, Alibaba and TSM Semiconductor.
The list above shows the top 12 and bottom 12 most volatile stocks to show how Tesla's price swings are far from the average of other companies with a $200 billion market cap. The volatility seen in cryptocurrencies has been the norm, given that there is a lack of earnings, a very early adoption-stage cycle and a lack of an established valuation model.
One doesn't need to be an expert in statistics to ascertain that the performance of the S&P 500 index has been pretty much stable over the past year, apart from a couple of weeks back in September and October 2020.
Zhao may be the founder of the leading crypto exchange, but he doesn't personally trade. On the contrary, he actually recommends hodling instead of trading in every instance possible.
Lol, I don’t do leverage or loans. I don’t even trade. I just hodl #bnb.
— CZ Binance (@cz_binance) January 12, 2021
If you feel stressed out during every dip, you probably should not trade much, or at least change your trading strategy. Maybe just #HODL?
— CZ Binance (@cz_binance) April 22, 2021
Not the best advice for our business (trading fees), but probably good advice for many new "traders".
Not financial advice.
Volatility does not measure returns
Exclusively analyzing volatility presents another big problem. The indicator leaves out the most important metric for investors: the return. Whether an asset is more or less volatile doesn't matter if, on average, one asset consistently posts higher gains than others.
MicroStrategy has listed almost every currency, stock index and S&P 500 index component, and curious analysts can compare returns and Sharpe ratios side-by-side with Bitcoin.
As explained in the footnotes:
"The Sharpe ratio is a measure of risk-adjusted (really volatility-adjusted) returns. It is a way to measure how much return an investment generated for the risk (volatility) endured over some time horizon."
As the data clearly shows, Bitcoin is the winner in risk-return metrics against every major asset and index over the past 12 months. A similar outcome also takes place when using a five-year time frame.
Therefore, Zhao may have simply incorrectly stated that Bitcoin's volatility is similar to the stock of trillion-dollar companies. However, when adjusting the metric based on returns, it is the incontestable winner.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.