When it comes to crypto investment, one should keep in mind that it is a rather different animal compared to traditional assets such as stocks and gold. All investments come with some degree of risks Bitcoin and stocks are no exception. Even the most experienced investors might not be able to foresee a market crash from happening and thus liquidating their holdings.
When choosing assets to be added into your portfolio, it’s crucial to take risk into consideration. When it comes to stocks, there are plenty of past data that can be used to predict future market performance. Although stocks are generally less volatile than cryptocurrencies, the stock valuations still fluctuate regularly and the less experienced investors may risk impulsively selling.
When it comes to cryptocurrency, it is highly speculative and more volatile. The value of crypto for the investors in the coming months and years is up for speculation. For a stock, there are established valuation models such as “discounted cash flow” or “price to book” that allow investor to determine the fair value of a stock. That being said, some believe that the volatility of cryptocurrency is a good sign that the market is active and will encourage the growth of the crypto ecosystem.
Now, although stocks do carry lower risk than crypto, this also means lower returns. Crypto assets could yield higher returns over a given period of time compared to traditional investments. If one had held Bitcoin when it was just $10 ten years ago, he or she would be looking at more than 10,000% return as of today.
As stocks have been around way longer than cryptocurrencies, there are plenty of regulations that govern stocks and stock markets. This, in turn, protects retail investors. Stocks are often traded on centralised platforms, making them a lot easier for the government to regulate.
Cryptocurrencies, on the other hand, usually trade on unregulated platforms. That being said, more and more crypto exchanges are going the way of being regulated themselves.
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