Investors and traders have bought and sold stocks for many years. As of recently, cryptocurrencies have created a new way for investors to make a profit. The crypto industry is prone to more volatility compared to the stock market, meaning that investors may be able to achieve higher returns. Though, there is always more risk when returns can be greater.
Stocks and cryptos both face volatility, but it is heavily dependent on one main fundamental. Market capitalization. This is why Bitcoin tends to be more stable compared to smaller cryptocurrencies and why Apple stock is less volatile than other stocks.
So, should investors rely on stocks or crypto? The answer is both. Here’s why.
There are major benefits to investing in both stocks and crypto.
Stocks present stable growth over the long term for investors. This is because there is less volatility with stocks compared to crypto. Although, a small allocation to cryptocurrency can work in favor if done correctly. As investors make cryptocurrency a larger part of their portfolio, the risk will increase alongside it.
The risk for cryptocurrencies is much more apparent compared to stocks. For starters, there are no quarterly reports, balance sheets, or financial ratios that apply to crypto. This can make it difficult to understand the true value of the digital asset.
Some investors believe that cryptocurrencies can provide an inflation hedge over the long term as the buying power of certain cryptos increases. This is compared to the dollar that, over a multi-year period, loses buying power and has historically done so for decades. Stocks also outperform inflation over the long term in a more stable fashion.
The main risk with cryptocurrencies is the unpredictable nature of disruption. Because cryptocurrency is a new industry and asset class, there is a lot of competition from developer teams attempting to build the next best cryptocurrency. Investors often debate how to value these digital assets, such as Bitcoin which is considered digital gold because of its limited supply of 21 million coins.
Overall, investors could attempt at using both financial assets if they want to diversify their portfolios. This way, they will gain the best of both asset classes while mitigating risk.