Bitcoin vs Stocks: Which is better for your portfolio?
Not surprisingly, this is a question that many investors have been asking. After all, even licensed moneylenders in Singapore would want assurance that their borrowers can repay their loans, surely, investors would want only investments that offer profitable returns too.
If you are wondering if you should venture into the crypto market or stick to stocks trading, read on as we review the pros and cons of both asset classes to help you assess if they are right for your overall portfolio goals and risk tolerance.
Why Invest in Cryptocurrency?
The past week has been a volatile one for the crypto market as Bitcoin (BTC) dropped from nearly S$48,000 levels to S$39,000 mid-week before regaining most of the losses later. This is how far the crypto market can fluctuate. However, it is also because of such volatility that made investing in cryptocurrencies incredibly attractive to many investors.
Pros of Crypto Investment
Even though Bitcoin prices have taken a hit in recent weeks, a closer look at the price performance from 2015 to 2020 quickly revealed the positive potential of the digital currency.
(Source: Coindesk)
Furthermore, cryptocurrencies comprise a host of currencies that have been experiencing positive performance since the start of 2021. These results are clear indicators that investing in cryptocurrencies does offer significant growth potential. Just take a looking at Dogecoin and Maker that increased by 7,555% and 760% respectively, even if you have invested in these cryptocurrencies with borrowed money from a licensed money lender at 4%, you would have made a bundle if you entered the market at the right time.
(Source: Statista)
Cons of Crypto Investment
Of course, as an investor, you should not be blindsided by the growth potential and completely ignore the risks that come with such investments. The high volatility of crypto prices may present opportunities but it can also be extremely risky since digital currencies are highly speculative investments and there’s no guarantee that they will succeed over the long run. Crypto investments existed only in 2009, it is a relatively new asset class and it could be premature to place total confidence in them. Even though the crypto market capitalisation has reached over S$2 trillion, there are still looming doubts if digital currencies can uphold their positions as reliable currencies of the future.
Why Invest in Stocks?
Cryptocurrency investment is definitively not the same as trading stocks. Cryptocurrencies are digital and virtual, but when you buy a stock, you are essentially buying a share of a physical company that exists in the real world.
Pros of Stock Investment
There are risks in most investments but stocks are different because there are always telltale signs of where prices might go if you research correctly. Whether this involves a deep study of the company’s financial position, past performance or upcoming ventures, the stock price fluctuation would always move in accordance. In comparison, cryptocurrency is speculative because it is based completely on supply and demand.
Even though trading stocks have a fair share of risk, they tend to have more long-term reliability since there are large pools of investors around the world to ensure the liquidity of the stock market and a substantial number of regulated players to keep the ecosystem going.
Cons of Stock Investment
With stock investment, there is no guarantee that you can win big; the best bet is to do enough research so that you know what you are buying into. Even with enough preparation, there are still chances of losing money because of the volatile nature of the market and unseen recessions that are not always predictable. Let’s take the Covid-19 pandemic as an example- not only did it cause a recession that made many turn to licensed moneylenders for financial aid, even the once-profitable Singapore Airlines with share prices hovering around S$10 to S$11 per share in 2016, has hit a 21-year low; the current share barely hitting S$5.
Another downside of trading stocks is the competition you’ll face with institutional investors and professional traders who have better holding power and more sophisticated trading tools at their disposal. When these institutions want to dump certain shares, they would release very positive views or public announcements to trigger reactions from retail investors in their favour. As a small-time retail investor, you may easily get caught in the game unless you exercise prudence in every trade you make.
Make An Informed Decision
Stocks may seem like a safer option but that should not deter you from exploring Crypto as an alternative asset class since it presents lucrative options. The trick is to make informed investment decisions which mirror your risk appetite and financial goals before betting every dollar on them. Always be prepared for possible losses and be clear about what you’re buying and how it might affect your portfolio. If you need some funds, check out Cash Direct, a licensed moneylender in Singapore, who will offer fast and convenient loans to get your investment plan started.
