Investment is risky: who is more at risk from Bitcoin and Apple stocks?

According to Cointelegraph, Bitcoin and other cryptocurrencies are compared to FAANG (Facebook, Apple, Amazon, Netflix, and Google) companies because of their network effects. The basic principle of exponential growth in value due to the increase in the number of people using Facebook or the App Store platform is also applicable to cryptocurrencies: the more people holding crypto assets, the greater the market value growth.

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Further reports indicate that these companies also intend to issue their own virtual currencies after Facebook's Libra goes public. Some of these companies have been the darlings of the stock market, but recent changes in consumer preferences indicate that some people (ie, a few) have been more willing to invest in Bitcoin than FAANG stocks such as Netflix. Although this is interesting, the question is: Is it better to invest in Bitcoin and other cryptocurrencies than invest in FAANG stock?

Earnings of Bitcoin, Ethereum and Ripple since 2017

Ripple (XRP) is one of the most mature currencies on the market and has been on par with Bitcoin (BTC) since August 2013. Although Ethereum (ETH) is a newer currency, it has occupied the top spot in the market since August 2015 due to its unique applicable characteristics. However, if investors buy these three currencies separately in January 2017, Ripple will get the highest return-440% at the end of 2019.

During the same period, Ethereum's return was 379%, while Bitcoin's worst performance was 301%. This strategy simply relies on a direct investment strategy, which is to buy on January 1, 2017 and sell on December 31, 2019. It can't include the price surge that occurred during this period, which may bring additional profits to investors, which may change the order of profit performance.

Analyze these three currencies according to risk-adjusted performance. Ethereum is the best choice for investors to take advantage of their high price returns (annual average return) while considering their volatility (annual standard deviation). Average return-risk-free return] / standard deviation). This performance was also poor, with Sharpe Index below 1.

In this case, Bitcoin's Sharp index is 0.81, and Ripple is the worst performer, with a Sharp index of 0.75. All of these indicators are below 1, which means that investors may be taking too much risk on the returns they get from investing in either of these two cryptocurrencies.

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How did FAANG stocks perform over the same period?

If the same investors choose to buy FAANG stocks instead of cryptocurrencies in January 2017, no matter which technology company they choose, their cumulative returns at the end of 2019 will be lower.

If you choose Apple, the best return for investors will be 197%, followed by Netflix at 196%. Amazon (Amazon) is also a good choice, with a return of 190%, and Facebook and Google have 158% and 155% respectively.

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The price performance of FAANG stocks is lower than cryptocurrencies, but their risk-adjusted performance is indeed better than any of the top three cryptocurrencies-Facebook is the exception. When researching the Sharp index of each FAANG stock, Apple's Sharp index is 1.59, which is almost twice that of Bitcoin or Ripple. This is the best choice for lower risk and higher returns.

Amazon's Sharp Index is 1.33, the second choice for investors, and Netflix is ​​1.04. All three stocks have Sharp Indexes above 1. This means that they provide fair and good returns for investors who are vulnerable to risk.

However, investors who study Google or Facebook will be more prone to risk and may not be able to get the return they expected at the level of risk, as their Sharp Indexes are all below 1. Still, Google is a better risk-adjusted investment option than Bitcoin, Ethereum, or Ripple, with a Sharp index of 0.95.

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Final conclusion: FAANG stock or Bitcoin?

Previous reports have shown that Bitcoin is a better risk adjustment option than investing in U.S. stocks or gold after Bitcoin halved. However, when we studied FAANG stocks in more detail (2017 to 2020), we found opposite results. Nonetheless, compared to FAANG stock, Bitcoin, Ethereum, and Ripple offered better overall returns during this period, but lower risk-adjusted returns.

Strangely, Facebook is the second lowest cumulative return and the worst risk-adjusted performer among all FAANG stocks, but it is the only technology company with detailed plans to launch its own cryptocurrency, Libra.

For younger audiences, the popularity of technology companies such as Facebook or Apple and their heavy use of their products make them an attractive investment option. In this linear analysis, they appear to be in direct competition with Bitcoin and other cryptocurrencies, and have shown better risk-adjusted performance in recent periods.

From a traditional financial point of view, investors are more inclined to invest in FAANG stocks due to risk-return returns. However, the higher cumulative returns offered by the two analyzed cryptocurrencies (twice in some cases) may attract enthusiasts and young viewers to remain focused on Bitcoin and other cryptocurrencies.