Bitcoin: Investment Or Speculation

In this week’s edition of Chart Talk, Tony Ogorek and Jeff Viksjo discuss bitcoin and whether it is a viable investment or just speculation.  They use charts to show the value of bitcoin over the past year and compare the performance of bitcoin to other stocks in the market.

TRANSCRIPT

TONY:

Hi I’m Tony Ogorek and I’m here with Jeff Viksjo.  Today we are going to be talking about Bitcoin and whether it is a viable investment or a speculation.  So, we’ve got a few charts to look at Jeff, and this first one is a picture of a highly profitable movement over the past year.

JEFF:

Yeah, so this is the price of one bitcoin since 2017.  You can see just this year the meteoric rise has quadrupled in price, it started the year at about $7,000 and is now its well over $30,000.  It looks like a great chart, like you can make a lot of money here.  If you look since ’17 though, how many people stayed through the crash that happened in ’18?  My guess is not very many.  I think more people probably lost money here than made money.

TONY:

Right.  So really, what we are seeing is this is primarily a momentum play rather than an investment per say. 

Let’s take a look at the next chart, and this compares the performance of Bitcoin over the past year with Gold, as well as the S&P 500.

JEFF:

And you can see the rise in Bitcoin has well exceeded what’s happened in stocks, even though we’ve had a great year as it ended up in stocks.  And so the question is, what’s fueling this?  You know Tony, we’ve seen a couple companies accepting Bitcoin as currency, this would be Pay Pal and Square, so that’s part of it.  But I think that the most important part is the retail investors seeing the rise, and basically wanting to get in on it, not wanting to miss out.

TONY:

And it’s remarkable too Jeff, you know it’s the last quarter of the year and that’s where all the investment returns came from. Which is sort of interesting.  What would really drive that? And no one has really come out with an answer to that.

Take a look at our third chart, and this takes a look at the correlation of Bitcoin to the stock market, as well as gold.  And an interesting observation here, right?

JEFF:
If you could pick one other asset class that might be similar to Bitcoin, it would probably be gold. And usually gold you pile into as a downside protector, flight to safety type of thing, when you don’t want to be in stocks.  But that shows you Bitcoin doesn’t behave like that.  The correlation between Bitcoin and U.S. stocks is actually quite high, it’s between 70-80. Even foreign stocks can be less than that.

TONY:

So, if you thought that you were buying a digital version of gold for your portfolio, you’ve really got another thing coming because it really acts like the market and will give you no downside protection in the event the market backs off.

So these are just a couple of thoughts we’ve had on one of the most remarkable runs in 2020, Bitcoin, and hope you enjoyed this segment of Chart Talk.

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