The cryptocurrency market captured global attention in 2021. From Bitcoin to Dogecoin and SHIB, digital currencies continuously made headlines. Events ranged from Elon Musk suspending Bitcoin payments for Tesla to three major financial associations in China jointly speaking out against virtual currency speculation. The market recently experienced a dramatic overnight plunge, with Bitcoin plummeting 30%, briefly touching $30,000 before rebounding violently by 40% to over $42,000, then settling around $38,000. This rollercoaster resulted in hundreds of billions in market value evaporation, exchange outages, and over 460,000 investors getting liquidated.
Back in early April, when Bitcoin broke $60,000 to set a new record, many viewers asked about it. I dedicated two video sessions to explaining Bitcoin’s investment logic, emphasizing the extreme risks, massive volatility, and significant drawdowns, clearly stating that Bitcoin is not suitable for ordinary investors.
Bitcoin vs. A-Stocks: A Performance Comparison
Looking purely at returns, Bitcoin’s performance has been spectacular, though some listed companies have outperformed it.
From 2013 to April 2, 2021, Bitcoin skyrocketed by over 46 times, creating numerous wealth legends—primarily because its initial price was extremely low. I once knew someone who, unable to find a job, started mining Bitcoin at home. He accumulated a significant amount and now owns an island in the Pacific. In contrast, the top performer in the A-share market was Longi Green Energy Technology, a leader in the "carbon neutrality" sector, which rose about 63 times. Others like East Money Information and Eve Energy Co. saw increases of 59 and 53 times, respectively. Since 2013, only 20 A-share stocks have gained more than 20 times.
Between 2018 and April 2, 2021, Bitcoin’s cumulative rise of over 3 times outperformed 98% of A-share listed companies. Bitcoin began gaining mainstream recognition around 2018. During this period, its performance was highly volatile: a regulatory crackdown caused an 80% crash in 2018; 2019 saw a rapid recovery in the first half followed by a sharp pullback in the second, still ending the year up 94%; 2020 and 2021, fueled by global monetary easing, brought massive gains of 304% and 110%, respectively. Within the same timeframe, 73 A-share stocks outperformed Bitcoin. Excluding newly listed stocks, 42 companies exceeded Bitcoin’s returns, with top performers including Intco Medical (887%), Opcom (864%), Anjoy Foods (829%), and Bai Runjiu (802%).
From early 2021 to April 2, in the post-pandemic era of relentless monetary stimulus, Bitcoin again went parabolic. Amid external liquidity surges, Bitcoin broke $60,000, hitting a new all-time high with a 110% gain. Domestically, however, with marginally tighter monetary policy, the A-market corrected significantly. Only nine A-share companies outperformed Bitcoin, seven of which were newly listed that year, and the remaining two were ST stocks.
Why Extreme Volatility Makes Bitcoin Unsuitable for Most
Amid global central bank money printing and U.S. dollar inflation risks, Bitcoin’s fixed supply of 21 million coins has led institutions to hail it as "digital gold" and a hedge against inflation. However, for the average investor, Bitcoin is far from an ideal investment choice.
Massive price swings mean that while gains can be extraordinary, losses can be devastating and sudden. Without a strong risk tolerance and deep market understanding, most people simply cannot handle such volatility.
The Two Types of Bitcoin Winners
In reality, only two types of people consistently make significant money from Bitcoin:
The first are the true believers. These individuals have deep faith in blockchain technology and Satoshi Nakamoto’s vision. They firmly believe that decentralized digital currency will disrupt the existing international monetary system. Their conviction allows them to hold through violent fluctuations and long periods of uncertainty.
The second group are the speculators. They recognize Bitcoin’s speculative nature and make calculated bets at key moments. By enduring extreme volatility and timing their entries and exits, they manage to capture profits. However, both groups represent a very small minority of participants.
It’s crucial for everyday investors to understand that an asset with such high volatility and winner-take-all characteristics isn’t for everyone. You must know your own risk profile and choose investments that match your individual situation.
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Frequently Asked Questions
Is Bitcoin a good investment for beginners?
No, Bitcoin is generally not suitable for beginners due to its extreme volatility and complex market drivers. New investors should start with more stable assets and build knowledge before considering cryptocurrencies.
What makes Bitcoin so volatile?
Bitcoin's price is influenced by factors like regulatory news, institutional adoption, macroeconomic trends, and market sentiment. Its relatively limited liquidity compared to traditional assets amplifies price swings.
Can Bitcoin really replace traditional currency?
While it's termed "digital gold," Bitcoin currently functions more as a store of value and speculative asset than a daily currency. Its adoption for everyday transactions remains limited due to scalability issues and price volatility.
How can I start learning about blockchain technology?
Begin with educational resources that explain blockchain fundamentals, decentralized finance, and different cryptocurrency projects. Understanding the technology behind Bitcoin is essential for informed investing.
What are the biggest risks of investing in Bitcoin?
Key risks include extreme price volatility, potential regulatory crackdowns, cybersecurity threats, market manipulation, and the possibility of permanent capital loss if investing without a clear strategy.
Should I invest in Bitcoin if I have a low risk tolerance?
If you have a low risk tolerance, Bitcoin is likely not appropriate for you. Consider assets with lower volatility and more predictable returns that align with your financial goals and comfort level.