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Cryptos Are Crushing the Stock Market by 15-to-1

Cryptos Are Crushing the Stock Market by 15-to-1

Cryptos have been on an amazing run in 2021.

The Bitwise 100 Index, which tracks the top 100 cryptos, is up over 150% since January 1.

Meanwhile, the Russell 3000 Index, which is a benchmark of the 3,000 largest U.S. stocks, has only gained 10% in the same amount of time.

That means the top 100 cryptos are outperforming the top 3,000 U.S. stocks by a factor of 15-to-1!

In today’s Market Insights video, I take a close look at why cryptos are crushing the stock market.

(If you’d prefer to read a transcript instead, click here.)

2021 Will be the Year of Crypto

If you’ve been paying attention, 2021 in the stock market has really been characterized by a shift from investment in growth stocks to value stocks. What we’re seeing is, investors are more interested in companies that pay dividends or have more certainty in the cash flows that they’re going to generate in the future.

Ironically, cryptos have done great during this time frame, and they actually fit more of the description of growth stocks, per se. There’s less certainty as to what the crypto markets are going to look like in the future. And most of them don’t generate any sort of income.

So, the fact that cryptos have done so well in this environment is a testament to where the crypto market is heading in the stage that it’s at in its cycle. You can see in this chart that the Bitwise 100 Index is drastically outperforming the Russell 3000 Index.

russell 3000 index 2021

(Source: Bloomberg.)

So, basically, the top 100 cryptos are outperforming the top 3,000 U.S. stocks by a factor of 15-to-1. I even included gold so you could see that gold really has done nothing, and even lost value during this year.

Now, why is this happening? The obvious and cliché answer is adoption. The reason why I say that is because it explains demand. But it’s important to understand that this adoption is more widespread than it was in, say, the last bull market in 2017. In this case, the adoption is three tiered. Institutional investors, corporations and retail investors are all interested in buying cryptocurrencies.

Now, with institutional investors, they’ve really come around full circle. You had those Wall Street banks and major figures talking about how cryptocurrencies would go to zero. Or, you know, to avoid them at all costs. And now you have some of those same institutional investors trying to buy into cryptocurrencies. It’s pretty ironic, but I guess that’s how it’s working out now.

Custodial solutions, or the ability for institutional investors to hold cryptocurrencies on a large scale, have increased dramatically. And that’s enabling institutional investment on a larger level. Also, risk-management protocols — so, derivatives like futures contracts or other more complex derivatives —exist now, where institutional investors can better manage their risk, which allows them to invest more money in the crypto space.

And even more visibility in the public markets is helping drive institutional investment. We saw Coinbase go public last week, and at one point it reached over $100 billion in terms of its valuation. That just shows you where we’re at in terms of institutional investment.

And this isn’t slowing down at corporations either. We’re now seeing corporations allocate some of their corporate treasury, or the money that they keep on the side, into bitcoin and other cryptocurrencies. Tesla, for example, invested $1.5 billion into bitcoin, and it made more money off of that bitcoin in just a matter of weeks than it did in 2020 all year selling cars. It’s pretty dramatic when you think about it.

You also may have heard of MicroStrategy. It has been steadily investing in bitcoin, and that’s really been its business strategy for growth. It even issued $1 billion in debt to buy bitcoin. What does that tell you about corporate acceptance for bitcoin? PayPal and Visa are also enabling their customers to pay with cryptos now. So, it seems like corporations are really jumping on board here.

As for retail investors, which was really what drove the 2017 bull market, there’s actually more of a broad spread interest in crypto in general as opposed to bitcoin. You can see in this chart there was a spike in 2017 in terms of bitcoin search volume on Google. There was a slight increase in the word “cryptocurrency.”

bitcoin google trends result

“bitcoin” (blue), “cryptocurrency” (red)

(Source: Google Trends.)

In the recent, you know, six months or so, you can see that bitcoin has really risen again. But it’s more of a sustainable rise. It’s not just a spike and a fall in terms of search interest. And we’re also seeing more of a steady and more dramatic surge in cryptocurrency-related searches. That tells you investors are more interested in the crypto markets and not just bitcoin.

To me, this suggests that the crypto bull market that we’re seeing now will likely be more sustainable and potentially more prolonged than what we saw in, say, 2017 and early 2018. At that point, investors seemed to mainly be interested in bitcoin because it appeared to be a “get rich quick” trade. And now this time around, investors are more interested in other cryptos. And in general, it appears that they’re more interested in crypto as a long-term investment.

Now, I’m not saying there’s not going to be volatility along the way. There are definitely going to be pullbacks. And you should expect that in the crypto market — in any market, for that matter.

But at the end of the day, when you look back at the first few months of 2021 and the strength of the crypto markets and what they did in relation to other markets around the world, I think it’s going to go down as the year of crypto.

Regards,

Steve Fernandez

Research Analyst, Automatic Fortunes

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