Investing in Stocks VS Crypto-currency
Is Crypto what your portfolio needs, or is it a miss?
2020 and 2021 have flipped the idea of investing on its head, and more than ever people are excited to jump in and build wealth. But is Crypto-currency the new answer to building it?
The answer: Maybe, but understand what you're investing in.
The New Way to Pay
Investing in Stocks (i.e. Equities) has been around for a long time, while crypto-currency has only slowly appeared into our lives over the last decade, and now, as I'm sure you've noticed, is becoming more and more towards being a genuine currency - Paypal have announced 2021 support - and Visa is not far behind either.
But does this mean you should be throwing all your savings into Bitcoin, or Ethereum, or god help us, Dogecoin? As of this article, Dogecoin has increased 400% in just a matter of a week, and it's hard to see this kind of news and not wonder if you're missing out on some serious gains. In a way, you are, but FOMO (or, Fear of Missing Out) is not necessarily the way to make big bucks in a matter of a week. Do we know what Bitcoin will cost in a month's time? No. Nor do we know whether Dogecoin will go up or down from here.
The general consensus from those in support of it is that Cryptocurrency is good to have about 10% of your investment portfolio in. Some have even claimed it's the new Gold, and investor Chamath Palihapitiya claimed that crypto (specifically Bitcoin and Ethereum having his support) are a great way to hedge against traditional currency, supposing that the banking system were to overturn or take more serious losses in the future.
Some are not such a fan, here's why!
If you look at the track record of other famous investors who have been around a long time, such as Warren Buffett and Charlie Munger of Berkshire Hathaway - two US Billionaires who made a name by having smart lifetime investments - are NOT a fan of Cryptocurrency at all. Their friend Bill Gates, who has also obtained more wealth than his founding company Microsoft over the years with investments, tends to agree with them.
But why? While everybody is hyping about Bitcoin rising, why are these investors saying no? Plenty would say that technology would not be Buffett's forte, or maybe it's out of Gates' league - but they understand one thing fundamentally about investing, and how they've chosen to invest over their lifetimes thus far:
Crypto is a Non-Tangible Asset
Crypto-currency is not based upon any fundamental value - plenty will point to how revolutionary the blockchain technology is, and let's face it - most of us don't entirely understand it. But the technology, and the currency will work, regardless of whether one coin is worth $0.0001 or $1 Million. And there is always a looming question with no answer - which Cryptocurrency will win this race in the long run, and therefore which currency should we be invested in? Will Bitcoin continue the lead?
One thing a lot of people overlook, is that profiting from Cryptocurrency comes from one very important transaction, and it's how nearly all profits are made from investing; You must buy the coin for a price, and sell it to somebody else for a higher price.
So if everybody suddenly decides that Bitcoin isn't worth $55,000USD (as of 18/4/21) - you will be left with coins that may not hold up to the value you initially put in from your original currency. The prices we see could be a bubble of hype, or it could be very low prices we're seeing compared to the future ahead. Unfortunately, that's the risk you have to take jumping in.
Stocks are Safer - and worth something!
Investing in Stocks, is investing in a company. When you own shares of a company, you can consider yourself an owner of the company. Therefore, when the company makes higher profits, the stock price tends to go up, and you tend to have a higher value share. Some stocks will even entitle you to an amount of the profits the company creates, known as dividends - however this is not the most important thing with investing at all.
Just because stocks are safer, doesn't mean they're without risk either. Nor reward. But they are based not purely on emotion, but instead prices and emotions tend to be based around the news and performance of a company - making them attached to something tangible.
If you want something REALLY safe to passively invest in, consider Market Indexes - investing in an entire market with regular sums of money - whether it goes up or down - and holding long term. This is what many investors would consider for most people, such as Buffett, or even John Bogle of Vanguard.
Basically, Investing in a company means you are investing in something that is creating wealth and growing - at least if you are doing your research into what you are investing. And yes, shares can be undervalued or overvalued, but the market generally tends to correct itself. Investments, after all, are a game for the patient, not the impatient. The best time to buy things is when they're low, and the best time to sell is when they're at highs and you no longer feel like investing in it (or see something better to invest in, perhaps.) - but the greatest investors will hold onto shares of companies for a lifetime, if possible, and see vast wealth from owning something which has grown naturally into a bigger and more profitable company.
Crypto is about being a Prophet more than Profit
Crypto does not have anything that makes it "more profitable" - It is only profitable to own a coin if it means more people are buying that coin and driving its price up. And frankly, because it's 2021, you're behind the curve when it comes to Cryptocurrency - or you may believe that there's much further to go now that it's becoming more usable as an actual currency.
Whether you take the risks many have into the world of Crypto-currency is up to you. It does seem like an exciting and uncertain time, and perhaps while sentiment is down about Bitcoin or Ethereum may be the perfect time to buy some. But be careful where you put your money, and be ready to hold what you put in longer-term just in case emotions change about the coins you're buying - Try to think about how you can use the coins in the future!