How Bitcoin went from offering 122% YTD return to being an underperformer

Bitcoin, Ethereum and Ripple coins - largest cryptocurrencies by market capitalisation

In April 2021, when the world’s largest cryptocurrencyBitcoin – touched the US$64,000 mark, it enthralled its investors with a whopping year-to-date return of 122% in less than four months.

Back then, along with a gamut of peer cryptocurrencies, Bitcoin seemed to be the best bet for investors. New investors started flocking in as greed magnified. But this joy was short-lived.

In that melee, investors lost sight of a golden principle of investing – be fearful when everyone around you is greedy and be greedy when everyone around you is fearful.

However much golden the principle may be, investors often fail to remember its significance. At the peak of bear run in stocks last year, everyone seemed to be selling shares. And when stimulus packages were announced, everyone started buying in greed of better returns. What else would explain a massive bull run in stock markets at a time when uncertainty still rules the roost – thanks to the global pandemic.

But this time, when it came to Bitcoin, excess buying bit hard – and hardest for the people who bought it at its peak. Since then, the cryptocurrency is now neck deep into bear zone – having crashed by 53%. A bear zone is when the price of an asset class falls 20% below its life high levels.

There were multiple and sustained reasons for this crash. There were environmental concerns over bitcoin mining, which led to a certain degree of criticism of the digital currency from Tesla Inc (NASDAQ:TSLA) CEO Elon Musk. Then China decided to crack down on Bitcoin. If these two events were any less, the crackdown on Binance – one of largest cryptocurrency exchanges in world – also contributed massively to this bear run. And here we stand now: Bitcoin has now tanked below the US$30,000 mark – a level which was seen as a huge resistance point by many Bitcoin enthusiasts.

Well, the spooked investors might be selling, and sectoral experts might think that there is yet some time before this bear run for cryptocurrency bottoms out, but then the pinch is being felt by investors who bought the digital currency at peak level, and potential investors at this level may be missing out.

Till then, Bitcoin has now underperformed the equity markets. Morgan Stanley Capital International’s World Index has given a return of 12% till now in 2021 in contrast to Bitcoin’s meagre 2%.

Three months back, Bitcoin was giving 10 times higher returns compared with the year-to-date return of equities.