Bitcoin, Ethereum Perform Better than Top Blue Chip Stocks But Your Portfolio Needs Both

Key Takeaways

• Bitcoin and Ethereum have substantially outperformed major equity indices in one year.
• A study using VaR analysis suggests that including cryptocurrencies can optimize portfolio risk.
• During periods of conflict like the Russian-Ukrainian war, the use of crypto becomes even more strategic. 

It has been a matter of debate if cryptocurrency performance is superior to traditional equity indices. We looked at the performance of blue chip crypto and stock indices in the last year until April 2024

BTC, ETH Outperform Equity

The performance of Bitcoin (BTC) and Ethereum (ETH) against major stock indices: the NASDAQ (NDX), the S&P 500 (SP500), and the Dow Jones Industrial (DJI) is settling the debate.

Bitcoin shows a rise of close to 130%, dwarfing the returns from the traditional stock market indices. Ethereum, though slightly less than Bitcoin, still impresses with under 90% increase. These cryptos have outperformed the traditional markets, despite being a high-reward, high-risk, asset class.

The NASDAQ index, associated with tech-heavy and growth-oriented stocks, saw a more modest increase of 20%. While the BTC performance is often correlated with tech stocks, NDX pales in comparison to the explosive growth of cryptocurrencies.

The S&P 500, a broader representation of the US stock market, reported a 16% gain. As a basket of the 500 largest US publicly traded companies, its performance indicates a healthy but comparatively moderate growth trajectory across different sectors.

Lastly, the Dow Jones Industrial Average, which is often seen as a gauge of industrial and economic activity, shows the least growth among the indices at 10%. This can be reflective of a more traditional economic sector performance.

However, the potential correlation between the growth of the tech sector and cryptocurrencies, which possibly indicate investor sentiment leaning towards innovative and technologically driven assets, cannot be separated.

Crypto Reduces Overall Portfolio Risk

The disparity in performance does say that cryptocurrencies are a better asset than equity. However, analysts would agree that it is still an alternative investment.

A recent research finds  that incorporating cryptocurrencies into an investment portfolio affects its overall risk, using the Value at Risk (VaR) measurement. This means that BTC and ETH can optimize the balance between traditional assets and alternative investments. The idea is that by spreading investments across various asset classes, including newer ones like cryptocurrencies, the risk of the portfolio can be managed more effectively through diversification.

The research was done between September 1, 2020, to August 31, 2021, and from September 1, 2021, to August 31, 2022. The choice of these time frames is strategic, as they enable the researchers to examine the portfolios in varying macroeconomic environments, including the market conditions affected by the Russian-Ukrainian war.

The study found that during the second period of conflict, Bitcoin’s role as a diversifying asset became more significant.

Hence, as tech giants intensify layoffs during low economic activity and high-interest rate periods, traditional markets suffer. However, cryptocurrencies can offer a different risk profile and potentially serve as a hedge against such instabilities.

But in the short run, it’s important to note that the volatility in cryptocurrencies like BTC and ETH can be significantly higher than that of the stock market, representing both an opportunity for high returns and a risk of substantial losses.

Crypto Not a Replacement to Equity But Companion

The evidence suggests that the debate of cryptocurrency versus traditional blue-chip stocks can be settled. Digital assets like Bitcoin and Ethereum have not only shown impressive performance in the past year but also promise potential advantages in risk management for investment portfolios. 

BTC and ETH have outperformed relative to major equity indices but they are not a replacement but a companion. Crypto is a high-risk, high-reward asset and diversifier, particularly in times of geopolitical unrest. 

Research using VaR analysis supports this role, indicating that cryptocurrencies can effectively optimize and potentially reduce portfolio risk. 

About the Author

Shraddha Sharma

Shraddha has around five years of experience as a financial journalist, focusing largely on the Asian markets. Starting her career in Mumbai, India, as a news trainee and producer, she quickly found her niche in crypto. She is keen on learning how emerging technologies affect the broader markets and enjoys explaining complex financial ideas in a way that's easy to understand.

See more

[email protected]