One of the enduring criticisms against Bitcoin is that it is volatile. I’ve heard this for over a decade. Let’s take a quick look at Bitcoin’s volatility.
Volatility is a statistical measure that captures the variability of returns. There are many different such measures. One such measure is the standard deviation of weekly returns. As a simple benchmark, let’s look at Bitcoin’s weekly returns against the S&P 500:
Since 2020, Bitcoin has experienced at least one week of -40% declines and four weeks of declines of more than 20%. But it has noted a week of gains above 30% and a dozen weeks above 20%.
This is not unexpected since the S&P is an index of 500 stocks. How does Bitcoin compare to specific companies? Here is the weekly performance of Bitcoin compared to BRK-B, Berkshire Hathaway’s Class B shares from 2020 to present:
This is not much better than the S&P, which is impressive given Berkshire’s outperformance against the S&P. Warren Buffett should get some credit here, as Berkshire remains a less volatile stock but has returned 107% from 2020 until now. But Berkshire really is a holding company, so in some sense, it’s not that different from the S&P 500. Let’s take a look at Bitcoin against Apple, which was almost half of Berkshire’s portfolio anyway:
Here we see some of the maximum volatility in a single stock. Apple’s weekly return exceeded 10% 3 times. Apple’s decline since 2020 has been 192%, higher than the 76% of the S
BTC vs Nvidia Weekly Return Chart
Now we’re getting close. Nvidia’s weekly return exceeded 30% once, likely during an earnings announcement in 2023. But it also exceeded +10% or -10% over two dozen times, with more gains than losses. This likely explains its 1800%+ performance since 2020. As volatility grows, so do the returns.
Academic finance and the monetary press have historically treated volatility as a cost. What if it was an advantage? MicroStrategy is a stock that can rival (and even surpass) the volatility of Bitcoin. Take a look at the weekly returns of BTC compared to MSTR since 2020, when MicroStrategy followed its Bitcoin standard:
BTC vs MicroStrategy weekly performance chart
There was a single week in early 2021 when MicroStrategy stock rose from $69 to $127, a gain of more than 80% in a single week. It also exceeded 40% in 2024 in its recent increase. This is most likely due to MicroStrategy’s leveraged strategy of issuing debt to buy Bitcoin.
You can see that MicroStrategy’s weekly returns are an amplified version of Bitcoin’s. There are some other forces at play here. For example, MicroStrategy has historically acquired interest from investors who could not buy Bitcoin directly, but wanted Bitcoin exposure, like foreign sovereign wealth funds. The ETFs may have muted some of that incentive, but some is still likely in place, explaining the current premium over NAV.
It’s about achieving maximum expansion without a rocky path to get there. One of the big intellectual shifts needed to perceive Bitcoin is accepting this volatility, rather than running away from it. Bitcoin’s volatility has been minimized and will likely be minimized over time.
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