Since crypto investing is relatively new, everyone is looking for the perfect comparison. Some think that buying crypto is similar to buying gold, while others think that digital currencies are comparable to crypto.
The truth is that cryptocurrencies are both similar and different to stocks and gold at the same time.
How do Cryptos Compare to Gold and Stocks?
Crypto v/s Gold:
There are a couple of major reasons that cryptos, specifically Bitcoin, often draw comparisons to gold. The first reason is that both have a finite supply. Once that supply is gone, we cannot get more of gold or Bitcoin. The second reason is the no or poor connection to centrally controlled payment mechanisms. The Federal Reserve, for instance, does not have the liberty to supply more gold to the market in an attempt to combat inflation. Both gold and Bitcoin are beyond this control, and therefore, are quite appealing to people who are distrustful of central financial institutions.
However, it is important to not take such comparisons very far. In spite gold’s tendency to be volatile, it is very much different to legalization of bitcoin. From the three-year period from the latter half of 2015 to the latter half of 2018, the price of gold went up from approximately $1,000 to around $1,400 – an increase of 14%. This movement is nothing compared to Bitcoin, which saw highs, exceeding $19,000, as well as lows of almost $315 during the same three-year period.
In addition to this, gold is also backed by history. When things go south, a gold investor knows that he can sell his gold off to vendors, if need be. On the other hand, some apocalyptic scenarios, such as the complete destruction of the electric grid, would force Bitcoin – and its value – into extinction. Even though these are largely unrealistic concerns, they can affect the perception surrounding cryptocurrencies.
Crypto v/s Stocks:
Basically, when you buy a cryptocurrency, you essentially buy into a specific startup. It is likely that the coin’s creator developed the currency to raise money for their business venture, and you have made an investment because you believe in the technology and its potential for growth. In that sense, it is quite similar to purchasing shares of a company. The only difference is that since you do not actually own any company shares, you cannot enjoy any investor services.
Moreover, this means that you have invested in a startup, which is still in its infancy. Even though the rates of failed startups range from 50-80%, depending upon the surveys and information used, the truth is that a large number of startups fail to survive. Hence, you need to accept that there is a fair probability that your investment will fail. Of course, we are yet to see the failure of any renowned blockchain startup, but it is only because these startups are still very new. So, we do not know what will happen if one of the major blockchain names goes under, particularly if the bankruptcy is not expected.
Having said that, it is not like the blockchain planet has never tasted failure. In fact, as per a study conducted, almost half of all the coin offerings made in 2017 either failed or could not get the amount of money that they needed to get the venture going. If you include companies that have turned dormant, this percentage goes up to 59.
To conclude, many newcomers to the world of crypto want to know more about how it compares to more traditional investments. If you are considering starting investing in Bitcoin and are looking for the right platform.