Common Myths: “Bitcoin is too Volatile”
Yes Bitcoin is volatile, but this should not be an objection not to invest.
Over the next few posts, I’m going to be addressing a series of objections that I get from long term investors when it comes to allocating Bitcoin to their portfolio. My hope is to provide context and perspective around these perceived objections.
First myth up, Bitcoin is too volatile…
As an investor, you need to be able to weather the downturns if you want to enjoy the upside. Charlie Bilello, one of the greatest market researchers out there, tracked all of the major Apple drawdowns since 1984. There have been some precarious falls over the years, but the stock has climbed 56,000% since its IPO in 1980.
As you can see Apple’s stock had 7 drawdowns over 50% in the last few decades with 3 of those happening in the first decade of existence. A drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund. Drawdowns are important for measuring the historical risk of different investments, comparing fund performance, or monitoring personal trading performance. Could you have profited from 56,000% gain in APPL yet withstood these drawdowns? Nobody, not even the great oracle himself, Warren Buffett, is that good. (Note: Warren just started investing in Apple the last couple of years, so yes he missed the big run in Apple also)
Apple’s stock is just one example, but a very telling one. Apple’s stock has also been volatile and also very investable. Then is Bitcoin is too volatile? I could bring up chart after chart for examples including a local favorite Amazon. Volatility is actually healthy in the long run of any asset or stock. Pullbacks create support and weed out short term speculators or greed. Bitcoin is not immune nor will it escape the realities of drawdowns as market participants engage. As a long term investor, you should instead focus on the long term trend.
This chart is Bitcoin’s trend over the last 7 years. As of today, your return on investment (ROI) is very profitable even if you decided to start purchasing Bitcoin six months ago. There is a reason traders have the phrase “the trend is your friend”. It’s a myth that Bitcoin is too volatile for investing.
In summary, ignore the daily volatility and focus on the trend instead. Also, a simple, easy way to beat volatility is to dollar cost average your portfolio into the asset; make smaller weekly or monthly purchases instead of one lump sum focusing on the long term performance.
Onwards & upwards!
📊Charts of the Day📊
Trace Mayer created this indicator and here is a great representation.