According to the Sharpe Ratio, Bitcoin has generated better returns than US stocks in the last five years, but it is riskier than stocks because the bitcoin market is much more volatile than the stock market. You need to measure the risk tolerance before choosing an investment option, and if you compare bitcoin with stocks, you can find a crypto trader is a riskier option.
Bitcoin cannot be used as a medium of exchange, and it is extremely volatile than stocks. Why is bitcoin so volatile? You can find the reasons here for this high volatility:
- Apart from BTC, hundreds of cryptocurrencies are available in the market, and there is huge competition between these currencies. Investors can invest their funds in other cryptos like ETH and Altcoins to diversify their portfolio, and it can increase the volatility of Bitcoin because the demand for bitcoin will be decreased, and the price will be dropped automatically.
- Fast inflows and outflows in the crypto market can make this coin more volatile because it is comparable to a new coin launched in 2009, and it will take some time to settle down. So, many people are using this coin for their daily trading activities, and you can find a huge fluctuation in BTC prices due to such reasons.
- It is not true that crypto is the only volatile market. You can find gold with similar volatility. People consider bitcoin as digital gold because it is capped with a certain number like gold, and it is equally volatile to gold.
- Since the crypto market is not regulated, it leads to the crypto world’s volatility. No central authority can control this coin, and a lack of regulations and authorization from the government can lead to huge losses and uncertainty.
The volatility of bitcoin as compared to the stocks:
Many people said that bitcoin and other cryptos would vanish from the market soon, but the crypto market is growing rapidly. So, it is unbelievable that bitcoin will lose its value over time.
If you compare bitcoin with major stocks like Google and Tesla, you can find a huge movement in the Bitcoin market. For example, bitcoin moved more than 10% in one day, on 21st Jan, 4th Feb, and 28th Feb, in 2022. Similarly, Google stocks have moved almost 10% in a day in the same year. So, we can say that bitcoin and Google stocks are almost the same, and we can face a huge fluctuation in the stock and bitcoin market.
But there is a difference, as you know, the fear of the stock market, which is unknown in the BTC market. For example, the price of stocks can be predicted, as a central authority regulates it. But, you cannot predict the movement of bitcoin, as it is not controlled or monitored by any central authority. So, bitcoin is riskier than stocks.
People may think that the bitcoin market can crash at any time, but you can avoid such gimmicks because they will not go soon. Apart from that, it will be less turbulent. The price of bitcoin has fallen below $60 billion, and the present price of BTC is approx. $3.5K. So, other cryptos cannot compete with bitcoin, and the value of bitcoin will rise over time.
But there are some advantages of investing in bitcoin compared to stocks. According to experts, you must add stocks and bitcoins to your portfolio to diversify your profile. Bitcoin and the stock market are complicated, and you should not invest your funds in stocks and bitcoins without having proper research and knowledge. The main advantage of investing your funds in bitcoin is to use the coins as a medium of exchange, which is not supposed to be used to save your funds, but you can still use your coins to buy goods and services. You cannot do it with your stocks.
Apart from that, you can invest and trade bitcoin 24×7, as the crypto market is open throughout the year. Bitcoin operates in a free environment, so you can use it for cross-border transactions. You cannot use your stocks like bitcoins.
Also read: Robinhood’s 2021 Restriction of Trading of Stocks
