Is bitcoin a stock market

Investors are in the game to make money. They chase yield around the world, looking for ways to generate higher returns than everyone else. And it turns out, even with the stock market rising to all-time highs and Bitcoin suffering another pullback, investing in cryptocurrency very early on was still a brilliant strategy. We plotted the stock prices according to Yahoo Finance for the 10 largest companies measured by market capitalization. We compared these numbers to the market price on December 3, , excluding stock splits and dividends.

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Content:

• Bitcoin’s big day on Wall Street
• Thanks, bitcoin! Traders say goodbye to quiet weekends
• Bitcoin plunges in weekend trading, with markets facing renewed volatility.
• Crypto Crashing, Pandemic Stocks Plunging: The Story Behind January’s Wild Stock Market
• Is Bitcoin Price Correlated to the Stock Market?
• Bitcoin vs. Stocks: Comparing Price Movements and Traits
• The Bitcoin Market Isn’t Irrational
• Stocks erase losses in wild ride, Dow cuts 1,000+ point loss

WATCH RELATED VIDEO: STOCKS VS CRYPTOCURRENCY: Which is BETTER?

Bitcoin’s big day on Wall Street

This website uses cookies to ensure the best user experience. Manage My Cookies. Confirm My Selections. Monetary Policy. Health Care. Climate Change. Remote Work. But the price is volatile. The first concept of asset pricing is that price equals the expected present value of dividends. Bitcoin has no cash dividends and never will. So right off the bat we have a problem—and a case that suggests how other assets might have value above and beyond their cash dividends.

If the price is greater than zero, either people see something that acts like a dividend, some value in holding the asset beyond its cash payments, or they are willing to hold the asset despite a lower expected return going forward, or they think the price will keep going up forever, so that price appreciation alone provides a competitive return. Rational bubbles are intriguing but fundamentally flawed. If a price goes up forever, eventually the value of Bitcoin must exceed all of US wealth, then all of world wealth, then all of interplanetary wealth, then all of the atoms in the universe.

This greater-fool theory, or Ponzi scheme theory, must break down at some point, or rely on an irrational belief in the next fool. The rational-bubbles theory also does not account for the association of price surges with high volatility and high trading volume. Why might someone be willing to hold bitcoins even though their price is above their fundamental value—even though their expected return over a decently long horizon is lower than that of stocks and bonds, or even though we know pretty much for sure that within our lifetimes Bitcoin will become worthless?

The point here is that there is a perfectly rational demand for Bitcoin, as it is an excellent way to avoid both the beneficial and destructive attempts of governments to control economic activity and to grab wealth.

Well, dollar bills have the same feature. By holding dollar bills, you hold an asset with a fundamental value of zero, and with an expected return lower than that of, say, one-year Treasuries. One-year Treasuries are completely risk-free, and over a year they will give you about 1.

They are more convenient when you want to buy things. Dollar bills have an obvious convenience yield that makes up for the 1. That convenience acts as a dividend flow, or equivalently justifies the subnormal return. If you do not measure the dividends of stocks or the coupon payments of bonds, they look overpriced too. Moreover, nobody holds dollar bills for a whole year.

You minimize the use of dollar bills by going to fill up at the ATM occasionally. And the higher that interest rates are, the less cash you hold and the more frequently you go to the ATM. So, already we have an overpricing—dollars are 1. And just like tech stocks. And s tulip bulbs. Where is the convenience yield for Bitcoin? Some of the convenience yield of cash is that it facilitates tax evasion, and allows for illegal voluntary transactions such as drugs, bribes, and hiring undocumented workers.

It certainly facilitates ransomware. One can have a fun argument whether these uses of cash for anonymous transactions are good or bad. But that is beside the point here. We can think of Bitcoin as an electronic version of gold. On top of this fundamental demand, we can add a speculative demand. Suppose you know or you think you know that Bitcoin will go up some more before its inevitable crash.

In order to speculate on Bitcoin, you have to buy some bitcoins. So as we also see in high-priced stocks, houses, and tulips, high prices come with volatile prices and large trading volumes.

Someone speculating on Bitcoin over a week cares little about its fundamental value: even if you told her that Bitcoin would crash to zero for sure in three years, it would make essentially no dent in her trading profits, since you can make a lot of money in a volatile market over the course of a week if you get on the right side of the volatility. Moreover, there is good reason to suspect a lot of the asymmetric information that motivates trading.

There are no earnings reports or analysts to tell you just how many drug lords or ransomware hackers are likely to want to buy Bitcoin next week. To support a high price, you need restricted supply as well as demand.

There are only so many bitcoins, as there are only so many gold bars, at least for now. That will change. Moreover, there is nothing to stop people from creating private claims to Bitcoin Bitcoin futures to satisfy speculative demand. But all that takes time. Ice cream is also a fast-depreciating asset, but people are willing to hold it for a little while.

In this view, however, Bitcoin remains a terrible buy-and-hold asset, especially for an investor who plans to pay taxes. Intersect a convenience yield and speculative demand with a temporarily limited supply, plus a temporarily limited supply of substitutes, and you get a price surge and great price volatility.

The bubble and irrational views neither require nor explain the latter connections. Bitcoin is not a very good currency. As such, it has the huge price fluctuations we see. In fact, we can think of Bitcoin as an electronic version of gold. My bet is that alternative cyrptocurrencies with stable values—always worth a dollar—and very low transaction costs will prosper in the role of money, at least until there is a big inflation or sovereign-debt crisis, at which point a stable-value cryptocurrency not linked to government debt will become awfully attractive.

John H. Cochrane is a senior fellow of the Hoover Institution at Stanford University and distinguished senior fellow at Chicago Booth. This essay is adapted from a post on his blog, The Grumpy Economist. Works Cited. William C. Hunter, George G. Your Privacy We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice , which provides information explaining how and why we collect particular information when you visit our website.

All information these cookies collect is aggregated and therefore anonymous. They may be set by third-party providers whose services we have added to our pages or by us. The cookies will remember the website you have visited, and this information is shared with other parties such as advertising technology service providers and advertisers. The social network will record that you have done this. Is it a bubble? A mania of irrational crowds? More from Chicago Booth Review.

More from Chicago Booth.

Thanks, bitcoin! Traders say goodbye to quiet weekends

The purpose of this article is to find a better technique for estimating the volatility of the price of bitcoin on the one hand and to check if this special kind of asset called cryptocurrency behaves like other stock market indices. Using daily data over the period — We examine two asymmetric stochastic volatility models used to describe the volatility dependencies found in most financial returns. To estimate these models, our analysis is based on the Markov Chain Monte-Carlo method. Model comparisons illustrate that the ARSV-t model performs better performances. This result concerns bitcoin as well as the other stock market indices.

Bitcoin plunges in weekend trading, with markets facing renewed volatility.

T he financial markets climbed a wall of worry through , as investors drove up asset prices in the face of persistently high inflation, a global supply chain crisis and one of the most frenzied speculative booms in decades. Shares rallied to record levels as money poured into stocks, deal-making soared and the gamification of investing hit new heights. Here are some of the biggest moments from a rollercoaster year. In a frenzy that gripped Wall Street, the WSB army used two weapons to cut down the hedgies: call options — derivatives that gave the right to buy shares at a certain price — and memes, to fuel their orchestrated buying, as they tapped into public distaste for predatory speculators. But this squeeze was dramatically, and controversially, punctured after trading app Robinhood curbed share buying. These rallies ended in tears for some retail traders , who were left holding the bag as the meme stocks dropped back. Special purpose acquisition companies Spacs — created to buy other, as yet unknown companies — also boomed early in the year, before fizzling out as some performed badly. This speculative fever was fuelled by a lot of money sloshing around the system, thanks to record low interest rates and pandemic stimulus programmes. Central bankers continued their ultra-loose monetary policy through , repeatedly soothing the markets that rising prices would be temporary. Crypto did hit some key milestones — El Salvador became the first country to make bitcoin legal tender, in a launch marred by technical glitches — but there were also several jolting crashes, including a Chinese crackdown on bitcoin mining.

Crypto Crashing, Pandemic Stocks Plunging: The Story Behind January’s Wild Stock Market

Most investment managers tend to give their clients upbeat messages that play up opportunities to make money in the markets. Jeremy Grantham, the eighty-three-year-old co-founder of G. After Grantham issued this warning, the S. Was Grantham mistaken, then, in issuing his dire warning?

Is Bitcoin Price Correlated to the Stock Market?

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Bitcoin vs. Stocks: Comparing Price Movements and Traits

But months later bitcoin has suddenly halved after a rapid correction in US equities triggered by concerns about central banks lifting interest rates off their zero lower bound. With untapped cash piles and a lot of time on their hands, many consumers started experimenting by buying cryptocurrencies. This inflicted nontrivial losses on the droves of investors who rushed into the crypto craze over the last 12 to 18 months — including levered retail households and sophisticated institutional investors such as pension and sovereign wealth funds. Even nations such as El Salvador have suffered: It installed bitcoin as legal tender but has since had to answer questions around its creditworthiness and ability to service its debts as crypto plummets in value. The history of financial crises teaches us several lessons that call into question the prospective durability of both crypto and decentralised finance. Second, scalable and trusted mediums of exchange normally require regulation and government guarantees sovereign backing and need to be intermediated by the government-backed banking system. Third, non-bank entities outside the banking system frequently fail during large shocks and recessions when they cannot rely on central bank liquidity and government guarantees to bail them out, as banks can.

The Bitcoin Market Isn’t Irrational

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Stocks erase losses in wild ride, Dow cuts 1,000+ point loss

We use cookies for a number of reasons, such as keeping FT Sites reliable and secure, personalising content and ads, providing social media features and to analyse how our Sites are used. Make the most of Lead your own way in business and beyond with our unrivalled journalism. George Steer. Bitcoin sank to a new six-month low on Monday, leaving the digital token 50 per cent below its November peak and pulling down the shares in companies whose fortunes are tied to the cryptocurrency market. The broader digital asset market has also come under intense selling pressure, with an FT Wilshire index tracking the top five digital coins excluding Bitcoin down 27 per cent in The sharp falls across crypto markets have ricocheted into the US stock market.

Many companies featured on Money advertise with us. Opinions are our own, but compensation and in-depth research determine where and how companies may appear. Learn more about how we make money. Conventional wisdom says that even if the Bitcoin bubble pops, as it's been threatening to lately, the damage won't spill over into the broad stock market. That's because in dollar terms, the cryptocurrency craze remains tiny compared to, say, the dotcom boom, which led the broader market to a painful crash in

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