The recent crashes in stock and cryptocurrency markets have provided yet another chance to observe the better return opportunities of crypto versus stocks, according to several industry executives.
This week, the crypto market saw one of its biggest sell-offs ever, with the total market capitalization plummeting more than 30% from $1.8 trillion on May 4 to as low as $1.2 trillion on Thursday. Bitcoin (BTC), the biggest digital asset by market capitalization, tumbled below $27,000 for the first time since late 2020, losing 30% of value over the same period.
But the market instability has not been exclusive to crypto. The stock market has also seen one of its worst moments since 2020, with the tech-focused Nasdaq Composite dropping more than 12% over the period, dipping below 12,000 points.
Cryptocurrency markets are more volatile than stocks and thus are associated with higher risks, but they also offer bigger opportunities, ANB Investments CEO Jaime Baeza told Gist Vile.
“Over the long term and without getting too much into detail, I believe crypto as a whole provides better risk-return opportunities,” Baeza said.
Huobi Group chief financial officer Lily Zhang expressed similar remarks, stating that the volatility of crypto means that there are “more opportunities to make substantial gains with cryptocurrency.”
“It is important to note that we are in the midst of a new Fed rate hike cycle and both cryptocurrencies and tech stocks may be subject to sudden capital outflows, leaving them susceptible to deep corrections,” Zhang noted.
According to Ryan Shea, a crypto economist at fintech startup Trakx.io, crypto has a higher beta to market sentiment than stock markets. When investors become more reluctant to take risks, the market experiences relatively larger price declines, but it also means relatively larger price gains when risk appetite improves, Shea said, adding:
“Our long-term view is that certain crypto-assets — fixed or limited supply cryptocurrencies like Bitcoin — will experience superior price gains as they offer a better store of value relative to fiat money.”
According to Huobi’s chief financial officer, the correlation between the crypto market and the U.S. stock market has been strong since the end of 2020. Bitcoin’s correlation with the S&P 500 was as high as 0.7 in January, and has remained high since then, she added.
Related: Bitcoin’s rocky road to becoming a risk-off asset: Analysts investigate
“Given this correlation, it is difficult to hedge against overall portfolio price volatility when assets are allocated amongst both equities and crypto assets. However, investors can still smooth out volatility by controlling their risky asset positions, and adjusting both their asset allocation strategies and the variety of assets they invest in within these two asset classes,” Zhang stated.
At the time of writing, crypto markets are seeing a significant recovery, with Bitcoin edging up about 9% over the past 24 hours, trading at $30,610, according to data from CoinGecko. The cryptocurrency is down 23% over the past 30 days.