Analyst Compares Bitcoin’s Risk-Return to Amazon, Says Bitcoin Is A “Different Beast”

Analyst Compares Bitcoin’s Risk-Return to Amazon, Says Bitcoin Is A “Different Beast”

Amazon is often brought up as an example of how traditional investors can be mistaken regarding new ventures. As such, some analysts tend to draw comparisons between Amazon stock and Bitcoin, suggesting that traditional analysts don’t understand Bitcoin. Now, however, one analyst argues that Bitcoin and Amazon do not compare.

Bitcoin “is a different beast” than Amazon

The analyst in question is PlanB, who follows the cryptocurrency market closely. PlanB is a quantitative cryptocurrency analyst, perhaps best known for first applying the stock-to-flow (S2F) ratio to Bitcoin

A stock-to-flow model plots the total amount of a commodity on the market and divides it by the total annual production of the commodity. This model has previously been accurate when it comes to plotting Bitcoin’s overall price performance. Consequently, PlanB’s analyses hold some credence in cryptocurrency circles.

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Nevertheless, in his comparison between Bitcoin and Amazon, PlanB compares the risk and return of the assets. According to the following chart, from PlanB’s Twitter, Bitcoin and Amazon’s return potential are vastly different.

Image Source: @100trillionUSD

It shows that the geometric return of Amazon stock is higher than US bonds, gold and the S&P 500. With that said, however, it falls far below the annual geometric return of Bitcoin. What’s more, the risk profile of Amazon stock is also higher than that of Bitcoin.

Amazon stock has higher risk than Bitcoin, Bitcoin’s return dwarfs Amazon’s

PlanB calculates the risk as the maximum annual loss by the asset class. This means that Amazon has a risk profile of roughly 80%, while Bitcoin has a risk profile of around 74%. Moreover, Amazon’s return profile is roughly 30%, while Bitcoin dwarfs it at over 200%.

As such, PlanB said that “Bitcoin… is a different beast” than Amazon. Instead, Amazon stock holds a position on the chart that’s “much closer to normal”. One should keep in mind, however, that Amazon stock still outperforms traditional investments by a significant percentage.

Although it is healthy to keep an eye on the cryptocurrency markets and not get swept away in blind bullish sentiment, this nonetheless puts Bitcoin’s historical rise in perspective. Moreover, the fact that Bitcoin is, according to PlanB’s model, not riskier than Amazon stock may surprise casual observers.

PlanB has also historically said that he expects Bitcoin’s price to surge following the upcoming Bitcoin halving. Put simply, this relates to the reduction in annual supply (production), which effectively doubles the S2F ratio.