Not bad for 2020: Up 42% in Q4, Bitcoin price outperforms top bank stocks

Historically, traditional market analysts and old school investors tend to look at Bitcoin and other cryptocurrencies with a wary eye, and when crypto pundits attempt to make comparisons between the two these investors say it’s an apples to oranges argument.

Take, for example, Warren Buffett, who many a time has said Bitcoin is nothing more than a Ponzi scheme as it does not produce anything and therefore has no value.

According to these traditionalists, comparing Bitcoin to Apple, Tesla, or a bank stock like JPMorgan is irrational as the latter employ workers, produce products, and generate revenues and dividends which are distributed to shareholders.

Despite these arguments, a simple fact remains. Bitcoin has had a strong year and the digital asset is outperforming financial stocks in 2020 due to a considerable increase in institutional demand, investors’ belief in BTC’s exponential growth potential, and its asymmetrical price action in the face of global economic uncertainty.

As shown in the chart below, the majority of top U.S. banks posted record results in Q2 as the entire market roared back from the COVID-19-induced sell-off in mid-March, but significant threats to the stock market and global economy remain. At the same time, Bitcoin massively outperformed the financial sector, particularly in the fourth quarter.

Bitcoin price action against JPM, Goldman Sachs, BofA, and Citigroup. Source: TradingView.com

Bitcoin price rallied 42% since the start of Q4

Since the start of the fourth quarter, the price of Bitcoin has increased from $10,773 to as high as $15,366 on Binance. This is an impressive 42% increase in less than two months and a show of the digital asset’s strong momentum.

Bitcoin quarterly returns (%). Source: Skew.com

The strength of Bitcoin’s rally can partially be attributed to the growing perception that is an alternative store of value. Earlier in the year billionaire Wall Street investor, Paul Tudor Jones described Bitcoin as the ideal inflation play. The overall positive sentiment around BTC as a potential safe-haven asset is clearly buoying its momentum.

In comparison to other sectors, bank stocks have performed relatively well since the March crash. The shift in consumer demand from in-store purchasing to online shopping severely affected businesses that lacked a digital footprint. But relaxed financial conditions, massive economic stimulus from the Fed, and the government’s business-friendly stance led banks to beat quarterly estimates and perform strongly.

JPMorgan, for instance, recorded a 32.63% rally since the March 23 low. In the fourth quarter, the $319 billion banking giant is up over 8%.

In the second quarter of 2020, JPMorgan recorded a revenue of $7.3 billion from bond trading, wildly outperforming analyst estimates. At the same time, investment banking and equities trading revenues also soared.

Other major banks, including Goldman Sachs, saw a similar trend. Goldman’s trading division recorded a revenue of $4.55 billion. The bank exceeded Wall Street expectations with ease, posting a 29% year-over-year increase.

While each of these is a commendable performance, especially considering the high levels of uncertainty and economic downturn brought about by the coronavirus pandemic, Bitcoin’s price action has dwarfed that of banks and other risk-on assets for the majority of 2020.

Why is BTC continuing to outperform most assets?

Bitcoin performance vs macro assets (%). Source: Skew.com

Bitcoin has consistently seen a unique combination of surging institutional demand a steady increase in mainstream awareness.

According to a survey released by Grayscale, more than half of U.S. investors are interested in investing in Bitcoin. The study said:

“Interest is on the rise: More than half of U.S. investors are interested in investing in Bitcoin In 2020, more than half (55%) of survey respondents expressed interest in Bitcoin investment products. This marks a significant increase from the 36% of investors who said they were interested in 2019.”

Businesses, investment banks, and retail investors have all recognized that there is great growth potential in Bitcoin, and this possibly why companies like PayPal and Square, have decided to support cryptocurrency.

Coincidentally, financial institutions that have actively supported cryptocurrencies have performed especially well in recent months.

PayPal stock, as an example, rose 12% in the past three days, demonstrating optimistic momentum since it announced that it would integrate crypto buying and selling.

As 2020 comes to a close, investors of all levels will be keeping a close eye on Bitcoin’s (BTC) price to see if it continues to heavily outperform equities markets.

The fact that major bank stocks like JPMorgan, Goldman Sachs, Citigroup, and Bank of America are falling behind a ‘small-cap’ cryptocurrency is a significant occurrence and this is likely to draw more curious investors to the crypto sector.