Bitcoin Outperforms Tesla in Hypothetical Index, Yields 5% Higher Return

Standard Chartered's analyst Geoff Kendrick has proposed a hypothetical scenario where Bitcoin replaces Tesla in the Magnificent 7 index, a group of tech giants that includes Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla. Kendrick's analysis suggests that this substitution would have yielded higher returns and lower volatility over the past seven years. According to Kendrick, if investors had converted their holdings to the Mag 7B index, which includes Bitcoin instead of Tesla, they would have seen a 5% higher return since 2017.

Kendrick's findings indicate that Bitcoin's performance has been comparable to that of tech stocks, particularly Tesla. This is due to the high correlation between Bitcoin prices and the Nasdaq index, which suggests that Bitcoin should be viewed more as a tech stock rather than a tool for hedging against traditional market volatility. The analyst's conclusion is based on the observation that the Mag 7B index, which includes Bitcoin, has both higher returns and lower volatility compared to the traditional Mag 7 index.

The analysis highlights the potential benefits of including Bitcoin in a diversified portfolio, particularly for investors looking to capitalize on the growth of the tech sector. By replacing Tesla with Bitcoin, investors could have achieved better returns while also benefiting from the lower volatility associated with the Mag 7B index. This suggests that Bitcoin's performance is not only competitive with tech stocks but also offers additional advantages in terms of risk management.

Kendrick's analysis underscores the evolving role of Bitcoin in the financial landscape. As the cryptocurrency continues to gain traction, its inclusion in traditional investment portfolios could provide investors with new opportunities for growth and diversification. The findings also challenge the conventional wisdom that Bitcoin is primarily a speculative asset, highlighting its potential as a stable and profitable investment option.

Investors can view Bitcoin as both a hedge against traditional finance and as part of their tech allocation. However, in the short term, Bitcoin may be better viewed as a tech stock than as a hedge against traditional finance issues. This perspective is supported by the strong correlation between Bitcoin and the Nasdaq index, which indicates that Bitcoin's price movements are more aligned with those of tech stocks rather than safe-haven assets like gold.

Kendrick's report also suggests that Bitcoin should be seen as serving multiple purposes in investor portfolios. This would open up the possibility of even more institutional buying. Asset managers have been advocating for including Bitcoin in investment portfolios for diversification purposes. For example, BlackRock, the world's largest asset manager, recommended considering an up to 2% Bitcoin allocation in traditional stock and bond portfolios. Meanwhile, asset managers like 21Shares and Bitwise have launched exchange-traded funds (ETFs) combining gold and Bitcoin as complementary assets.