Cryptocurrency vs. Traditional Investments — Can They Compare?
Cryptocurrencies, you’ve heard about it, your parents heard of it, your neighbours heard of it, it’s pretty much taking over the world right now… So you took the plunge and went looking into what exactly is crypto and where did it come from (psst, if you haven’t done that yet — have a read here) Now that you’re all caught up, you’re probably wondering “what makes Crypto investments so different than traditional investments?” Well we got you covered!
As many of you may know from our previous articles. Cryptocurrencies are decentralised in nature, therefore they are likely to become a stable alternative to other methods of investing. The most common traditional investments that people are involved in are the stock market, bonds, forex (foreign exchange) as well as precious metals. Let’s explore how they all compare to Crypto Investing.
CRYPTO vs. STOCKS
First we will be discussing cryptocurrencies in comparison to the stock market. Stocks are the closest comparison within the traditional investment realm that can be compared to cryptocurrencies as when their markets are strong, benefits can generally be expected from the price appreciation, as well as both markets (stocks and cryptocurrency) have their bad and good days. With stock markets having a longer history, there can generally be a better prediction to guide investors for the future. However, stocks face different types of risks, which include business and financial risk, purchasing power risk, market risk, government control and regulations and even the general state of the economy. Aside from that due to the fact that there are literally thousands of stocks to choose from, it can be difficult for investors to predict the risk of how a company would perform in the future.
CRYPTO vs. BONDS
Next would be the comparison between cryptocurrencies and bonds. Bonds are more commonly known as fixed-income securities — which puts them in a generally different category from stocks and cryptocurrencies, but regardless of which is a method of investment. Bonds allow an investor to loan money to a third party entity for a period of time and the investor will receive a fixed amount of interest on a periodic basis. In comparison to cryptocurrencies and stocks, bonds are typically considered as having less risk as well as provide a higher current income. Regardless of current income, the potential for high returns, in the long run, is much lower in comparison to cryptocurrencies and stocks but this is expected due to the risk being comparatively lower.
CRYPTO vs. FOREX
Next would be discussing Forex, also known as foreign exchange. Investors who are involved and actively participating in the forex market buy and sell foreign currencies. This type of investment is arguable riskier than cryptocurrencies as the capital gains fully depend on the economy of that country.
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CRYPTO vs. PRECIOUS METALS
Last but not least would be the comparison of investing in precious metals in comparison to cryptocurrencies. Interestingly, Invest Diva CEO, Kiana Danial mentions in the book Cryptocurrency for dummies that “The precious metals comparison is actually the best argument when someone tells you cryptocurrencies are worthless because they don’t have any intrinsic value” (Danial, Kiana) She mentions this as the in today’s day and age, the main reason people would consider investing in precious metals would primarily buy such items to use specifically as jewellery or alternative currency. In which the market sentiment is the only value determiner of gold and silver. Such risks involved in investing in precious metals include their portability, their probable import taxes and their need for a high level of security. In comparison most investors don’t need to make a physical transfer when it comes to cryptocurrencies besides their need for hardware/digital wallets mentioned in the previous paragraph.
Through these comparisons we can see that though cryptocurrencies are still a fairly new form of alternative currencies and investment, it already reaps the benefits where most traditional investments can’t. Just like any other market, there will be bad investment periods as well as good investment periods, and this comes with more understanding with trends and predictions through trading platforms.
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