The advent of blockchain technology has disrupted so many aspects of daily life. None of them has been quite as transformative as its effect on the financial industry.
Where before people only had a few options for investment such as the stock market or property, there are now many different cryptocurrencies that all have different functions.
The biggest player is of course Bitcoin, but there are many smaller coins that are very attractive to investors.
The blockchain has still not reached its potential, so the upside is still very high. Of course, nothing is cut and dry so it may not be the best place to try to invest.
In this article, we will go over some of the things you should know so you can decide whether to invest in crypto or the stock market.
How strong are crypto coins?
If you had invested in cryptocurrency like Ethereum or Bitcoin in early 2017 and sold the coins by the end of the year, you would have answered incredibly strong.
Now, if you had invested late in 2017 and held onto them into early 2018, then your perception would be decidedly more pessimistic.
2017 saw gains of up to 100 times for certain coins. If you had invested a couple of thousand in January, you could have cashed out in December and bought a house with your gains.
Then everything crashed. Early 2018 saw almost all of those gains wiped out in a matter of days. If it were the stock market, we would be looking at worse than Depression levels for the same kind of crash.
How safe is the stock market?
The stock market is usually a much safer place to invest over crypto. There are ups and downs, of course, but there are red flags that show themselves before a downturn in most cases.
In fact, this is what makes it very attractive to invest in the market. These ups and downs are what allow people to beat the market if they time their investments right. Buy low, sell high is the mantra.
The stock market has been heating up the last five or more years bringing gains to pre 2008 crash levels. Will it crash again soon? There are signs pointing towards a crunch soon. There is no way to be certain, but it seems like if you want to invest, then waiting a bit might be the right way to play your cards.
The stock and crypto disconnect
One of the most attractive aspects of crypto is that it is not tied to the stock market. What that means is if there are signs that the stock market is overheating and may burn out soon, that doesn’t mean crypto will as well.
You may see some clouds on the stock market horizon and decide to hold off before buying. In the meantime, crypto might be seeing some strong gains making it an attractive place to park your money while you wait for the stock market correction.
Some of the factors that go into the strength of the currencies is the technology itself. Many coins are basically ways to raise capital for building out the blockchain infrastructure.
For instance, there are coins used to pay for an Internet of Things type of blockchain. In this case, the blockchain is designed to help trucking companies efficiently ship goods. This makes the investment attractive as technology advances as the coin associated with it gains value. That has nothing to do with any speculation that goes on with the stock market.
In other words, you may find a technology that you like and decide to invest in its own coin because you see the potential in how it works. That is opposed to speculating just because you think the coin is at its lowest point and will grow because other coins are also growing.
Crypto vs gold
Gold was long touted as an alternative to investing in a volatile stock market. A safe way to park money with a great upside. Well, gold has lost 30% of its value since 2012.
Meanwhile, Bitcoin has surpassed the price of an ounce of gold for the first time ever. What does this mean? It can mean just about anything, but one thing is for sure. It represents a significant shift away from traditional investing.
Any investment is a risk. There is no avoiding that. The best advice is to find the right amount of risk for your tastes and proceed accordingly. There is no crystal ball, after all.