Over the last few years, cryptos have taken the world by storm. Investors have been putting huge monies on crypto, which has seen these digital currencies grow in value to about $2 trillion. The rapid appreciation of cryptocurrencies has many investors question the place of stocks in their portfolios. To decide whether you should invest in stocks or crypto, here are some worthy considerations:
Investing in Stocks
A stock or share refers to a fractional ownership interest in a business. As an investor in stock, you get the legal ownership stake in the business. This means that you have a claim in the cash flow and assets of the business. This also gives you a basis for valuation and a share in the companies’ profits.
When investing in stocks, your main consideration is the rise or fall of their prices. You must assess the possible future of the company and what it will mean to your investment. The ability of the company to grow its profits over the long term will ensure that the stock will continue rising. Investing in such a company is considered viable.
Cryptocurrencies are different from stocks in that they are not backed by any hard assets, apart from stable coins. Once you buy crypto, you can perform a limited number of functions with it, such as sending money or using smart contracts, or executing transactions.
Since cryptos are not backed by cash flow or assets, the price movement is subject to speculation that is driven by sentiment. Whenever a sentiment changes, the price of the crypto will shift, sometimes dramatically. According to RoboMarkets, when you invest in crypto, the value of that asset will be derived from the hope that someone will want to buy it for more in the future. The phenomenon is known as the greater fool theory of investing, which requires someone to be willing to buy the crypto from you for a specified amount of money.
Making the Decision between Stocks and Crypto
Each of the investment options has its own share of benefits or challenges. While choosing one at the expense of the other may seem like the easiest option, doing so limits your potential for growing more wealth. It can be more beneficial to include both assets in your portfolio. However, keep the proportion of your crypto at the lowest to hedge yourself from the risk of investing in a highly volatile asset.