Stocks and Funds Related to Bitcoin Fluctuate More Than Bitcoin Itself?..."They Have Derivative Characteristics"

MicroStrategy Falls 11.74% While Bitcoin Drops About 8.5%
Stock and Fund Investments Related to Bitcoin Driven More by Expectations Than Company Fundamentals

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] It has been revealed that stocks and funds related to the representative virtual currency (cryptocurrency) Bitcoin actually exhibit greater volatility. The common belief that stocks and funds are less volatile than Bitcoin is therefore incorrect. This has led to criticism that Bitcoin-related financial products are being invested in based on expectations rather than solid fundamentals.

According to Upbit, the largest virtual currency exchange in Korea, Bitcoin fell below the 55 million KRW mark to 54.5 million KRW at 10:29 a.m. on the 5th. This represents a drop of about 8.5% from the previous day's high of 59.159 million KRW. The decline is interpreted as a reaction to fears of reduced liquidity after the U.S. 10-year Treasury yield exceeded 1.5% on the 4th (local time).

Experts have long recommended indirect investment methods such as stocks and funds due to Bitcoin's large price fluctuations. This is because these indirect investments are believed to have less volatility than Bitcoin, whose intrinsic value is uncertain. However, it has been found that the volatility of Bitcoin-related indirect investments is actually greater, with declines exceeding 10%, falling more sharply than Bitcoin itself.

MicroStrategy, the private company holding the largest amount of Bitcoin, closed at $645.66 (approximately 730,000 KRW) on the 4th after dropping 11.74% ($85.91). When the U.S. 10-year Treasury yield surpassed 1.5% on the 25th of last month, Bitcoin fell 4.15% compared to the previous day, but MicroStrategy dropped 10.53% ($86.08).

The rise in MicroStrategy's stock was also greater than Bitcoin's. When Tesla announced on the 8th of last month that it had purchased about $1.5 billion worth of Bitcoin, Bitcoin rose 17.05% compared to the previous day, while MicroStrategy's stock surged 29.16% ($235).

The same applies to Riot Blockchain, the most famous virtual currency-related stock. The Bitcoin mining company Riot Blockchain closed at $44.29 on the 4th, down 10.65% ($5.28) from the previous day. It also dropped 12.63% ($6.60) on the 25th of last month, closing at $45.67. The rise was also greater for Riot Blockchain, with its stock price increasing 40.25% ($9.41) on the 8th compared to the previous day.

Bitcoin-related funds also showed greater volatility. The Grayscale Bitcoin Trust (GBTC), managed by the U.S. asset management firm Grayscale and composed not only of Bitcoin but also altcoins such as Bitcoin Cash and Ethereum, closed at $41.40 on the 4th after falling 10.31% ($4.76). On the 8th of last month, it rose 20.6%, about 3 percentage points more than Bitcoin.

As a result, there are criticisms that stocks and funds related to virtual currencies have a derivative nature. Hong Ki-hoon, a professor of business administration at Hongik University, said, “Since stock prices are formed based on expectations about Bitcoin rather than fundamentals, the volatility is inevitably large,” adding, “Structurally, they have a derivative nature of Bitcoin.” He also explained, “Funds include not only Bitcoin but also altcoins, which results in even greater volatility.”