- Bitcoin outperformed the five major stock indices by 170% in the first quarter of 2023.
- The banking crisis prompted investors to seek alternatives to traditional, centralized monetary systems.
- Bitcoin appears to be on track for a positive April despite legal challenges facing Binance, indicating that the future of the asset is not solely dependent on one exchange.
Bitcoin is bouncing back from a turbulent 2022, emerging as a lucrative investment option that outperforms traditional financial products. Despite Bitcoin and traditional investments showing similar movements in the last year, the cryptocurrency has continued to make progress, posting notable returns.
At the end of the first quarter of 2023, Bitcoin’s return on investment was 170.32% higher compared to the average of five major stock indices. During the quarter, Bitcoin’s return was 69.4%, while the average return for indices was 5.5%.
Among the indices, the NASDAQ Composite had the best return at 17.39%, followed by the S&P 500 at 6.36%, while the US Small Cap 2000 ranked third at 2.51%. The FTSE 100’s return on investment of 0.99% ranked it fourth, while the Dow Jones Industrial Average ranked fifth at 0.56%.
The banking crisis drives Bitcoin to outperform indices.
Amid the chaos in the banking space, investors saw the cryptocurrency sector as an attractive alternative to traditional centralized monetary systems. The market capitalization of major banks decreased while interest in Bitcoin increased significantly.
There was a shift to Bitcoin, as the collapse of Silvergate Bank, Silicon Valley Bank and Signature Bank reminded investors of potential weaknesses in the US banking system and the dollar that supports it. Therefore, structural deficiencies were the main motivating factors to seek refuge in Bitcoin.
Proponents of Bitcoin claimed that the impact of the banking crisis reiterated the asset’s fundamental principles of offering a means for investors to protect themselves from central bank actions, specifically quantitative easing and loose monetary policies, both of which decrease the fiat currency value. They stress that Bitcoin’s limited supply is also a crucial aspect of its function as a store of value.
A previous report highlighted that the purchasing power of the US dollar has been declining in recent years, while that of Bitcoin has been increasing since 2010. In 2022, both asset classes were affected by prevailing macroeconomic factors such as high inflation and the continued increase in interest rates. It is worth mentioning that Bitcoin and indices belong to different asset classes. Indices represent for-profit companies with tangible products and services, while Bitcoin is a virtual asset.
The case of Nasdaq
Although Bitcoin has been outperforming the indices, it is worth noting that the stock market showed surprising resilience during the first quarter of 2023, despite the banking crisis and economic uncertainty. The Nasdaq, with its significant weight in technology stocks, stood out in particular, making a notable comeback.
The performance of the Nasdaq is closely tied to interest rates, as growth stocks, especially in the technology sector, have an inverse relationship with the path of interest rates. This is in contrast to 2022, when investors turned to safer investments to protect themselves from rising rates, resulting in a difficult year for tech stocks.
What’s next for Bitcoin?
Bitcoin expects a positive April, which has historically been a favorable month for the cryptocurrency. There is a possibility that the asset will break above the resistance level of $30,000.
Additionally, investors are hopeful that the asset can maintain its gains despite legal challenges facing cryptocurrency exchange Binance from the Commodity Futures Trading Commission (CFTC). This resistance indicates that the future of the asset does not depend solely on an exchange, which is encouraging news for the entire industry. Overall, there is still some uncertainty, and celebrating the gains may be premature, considering that rising inflation remains a major headwind.
