How does crypto investment compare to traditional investment?

01 July 2022
  • Is crypto worth investing in?   
  • Crypto investing for beginners?   
  • Can I invest $1 in crypto?   
  • What crypto to invest in?   

These are some of the most googled questions regarding crypto investing, and some of the search results may or may not surprise you.  

The State of Crypto Markets 

As of 2021, approximately 106 million people around the globe are reportedly using cryptocurrencies.  

An NBC News poll showed that one in five Americans has dabbled in crypto, and by 2025, analysts claim the global blockchain market could reach a whopping $39.17 billion.  

And, even though past events have shown that investing in gold, stocks, or real estate could bring even the toughest investors to the verge of tears (ENRON anyone?), crypto-related investments are still generally seen as far riskier than ‘traditional’ investments.  

So, let’s look at why crypto is considered a risky investment and compare the crypto market to the traditional finance market to add some perspective to this debate. 

What makes Crypto Risky

With crypto there are technical risks, market and disclosure risks.

Since cryptocurrency can easily be converted to cashable assets, criminals look for ways to hack crypto exchanges, wallets and personal data. Most of the time, traders rely on their security software’s strength and updates to keep data safe. However, hacking is becoming more and more sophisticated so traders, especially business traders, need to manage technical risks carefully.

Furthermore, digital assets are extremely volatile. Back in 2021, Dogecoin rocketed by more than 20,000%. However, just a few months later, in May, it lost over a third of its value due to speculation.

Speculation acts as a charger for cryptocurrencies with some investors quickly buying and selling their assets as soon as there's any sign a price will fluctuate dramatically. Compared with regulated securities, many project tokens offer far fewer disclosures regarding the underlying business model, information transparency and economics concerning team members, related parties and even unknown founders. These all represent potential fraud risks to investors.

When considering the technical, market and disclosure risks and lack of regulation associated with cryptocurrency, (P2P trading, decentralization, varying laws in different countries, taxation, etc.) it’s not hard to see why investing in crypto is considered riskier than investing in traditional assets.

Crypto stories that color public perception

In February 2022, the United States Department of Justice (DOJ) confirmed a seizure of 94,000 Bitcoin valued at more than $3.6 billion. This was not only the DOJ’s largest seizure of cryptocurrency ever but also the largest single financial seizure in the department’s history.

Furthermore, a top US Secret Service official recently stated that the agency has confiscated over $102 million of cryptocurrency assets from criminals since 2015.

Some investors welcomed the government’s effort to catch criminals, but many were worried since this meant an exchange could freeze someone’s assets based only on a government request.

Although we’ve all heard the stories about crypto investors buying Lambos with crypto profit, we’ve also listened to many cautionary tales about how people lost their homes/savings due to the Bitcoin crash. And lately, the latter has been making the news more than the former thanks to some recent events like the Terra/Luna crash and exchanges limiting withdrawals.

Still, we find ourselves increasingly interested in terms like FOMO, HODL, FUD and the rest of the abbreviations we didn’t know existed.

The truth about crypto-investment

The truth is: no one can guarantee that a crypto project you invest in will succeed. However, you could say the same about stock market investments. Crypto investment is inherently risky. Regardless, it’s up to you how much risk you want to take on for the potential rewards.

One risk you can mitigate is crypto custody. Crypto custody refers to the action a cryptocurrency holder takes to secure or store their private keys (and tokens). There are many ways crypto can be held and stored, such as cold wallets and hot wallets, with each allowing different security and accessibility levels depending on the holders’ needs.

Many crypto custody solutions can help individuals and small-to-medium businesses alike in the management of digital assets, but often, they involve huge setup costs.

Unido EP provides a plug-and-play option that enables transaction flexibility, along with the security of our proprietary, distributed key architecture built on the blockchain.

TradFi’s crypto adoption

If we look at any investment project throughout its history, it has to be widely accepted to be considered profitable in the long run.

The same goes for any cryptocurrency project. The question is, when and how can a cryptocurrency be considered ‘traditional’?

One of the first cryptocurrencies that could become part of a TradFi space is Bitcoin.

First and foremost, it is predictable and, therefore, not so exciting. However, the events we have witnessed in the crypto market have shown us how cryptocurrencies like Bitcoin and Ethereum, the two largest cryptocurrencies, can crash over 30% in value but also recover really fast. Cryptocurrencies are extremely volatile assets susceptible to various external factors, from Tesla CEO Elon Musk tweets to Chinese government directives on crypto mining.

The truth is, the crypto space is starting to integrate with traditional financial systems and what we are witnessing nowadays is the arrival of leveraged players. And, what is most important, this space is heavily unregulated. That is why regulators around the globe are working on institutionalizing a public policy framework through which exponential growth of cryptocurrencies can be better managed and accounted for,

Portfolio diversification

When investing in cryptocurrency, there’s this well-known idiom to follow: “Don’t put all your eggs in one basket”.

That means the same thing as it does for stocks on the traditional market. Never risk all your assets by committing to only one plan, idea or crypto.

It’s always good to DYOR (one more Gen Z abbreviation meaning ‘do your own research’).

Other ways to gain exposure to crypto without buying crypto

If buying cryptocurrency is not for you right now, there are other ways to profit from the movements within the crypto market.

As we already mentioned, a plethora of companies are dealing with crypto and have their stocks on regular exchanges such as PayPal (NASDAQ:PYPL), Block (NYSE: SQ) or Coinbase (NASDAQ:COIN).

You can also invest in an exchange like CME Group (NASDAQ:CME), which deals with crypto futures.

Why investors choose Bitcoin for the long-term

Whenever a recession hits, some other asset becomes more popular than fiat. Bitcoin came to the fore after the 2008 subprime-induced recession.

After the infamous fall of Lehman Brothers in August 2008, trust in centralized institutions fell as well, and Bitcoin became an alternate solution backed by a decentralized entity.

Back in 2019, the Covid pandemic threw the world back into recession with governments printing money and this created massive inflation by leaning too much on quantitative easing. We are still feeling the effects of that inflation now.

The coming balancing act for the investment world

With the coming ‘Balancing act’, there are a few possibilities.

  • The first is that the US Federal Reserve somehow gets inflation under control, lowers interest rates, and inflation decreases. The market, then, rises sharply, as well as crypto.
  • The second possibility is that the Federal Reserve’s tightening actions will cause a recession. In this scenario, inflation is high, the economic growth rate slows, and unemployment remains steadily high. So-called recession-proof assets like corporate bonds or gold, platinum, etc., grow. Bitcoin falls, leading altcoins into a 90%+ drop in value.
  • The third possibility sees the US government continue to borrow. In this scenario, inflation reaches double digits, but the stock market, real estate market, and crypto market continue to grow. They attain massive valuations wholly disconnected from the economy. Bitcoin grows as well.

Regardless of which scenario plays out, blockchain technology and cryptocurrencies are the future.

Still, it is difficult to predict which projects will last or fail. Even though you can never be 100% sure, it’s important to learn about the crypto market and DYOR.

Here at Unido we’re committed to creating a safer environment for SMEs to dip their toes into the crypto market. Safe self-custody is vital for business and an option that caters to thousands of tokens and coins on the market will help to bridge the gap between businesses and crypto assets.

If you’re a small or medium business looking to invest in crypto, we’d welcome you to test our secure and easy-to-use enterprise wallet, Unido EP, and join our community on Discord (see link below) to stay up-to-date on the latest developments.

What are your thoughts on investing in crypto?

About Unido EP

Unido EP takes the complexity and expense out of digital asset management for organizations with sophisticated corporate governance needs. Our patented, end-to-end platform seamlessly automates corporate governance and self-custody of crypto assets so you can securely store, manage and invest in crypto without massive overheads.

Unido EP comes with a web-based dashboard and a decentralized application (dApp) featuring a robust set of DeFi tools, easy-to-set-up authority regimes and iron-clad security. All of this is inside a complete digital asset management platform, built with financial institutions in mind but tailor-made for any organization or individual’s needs.

Learn more:

Unido Opinion, Unido Ep, Crypto Adoption
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