A new survey has found that 84% of people view cryptocurrencies as a much riskier investment than traditional stocks. The survey conducted by financial trading platform Stake also identifies the key stocks that are most reactive to crypto movements.
Here’s the lowdown.
What has been happening to crypto recently?
The crypto market has been on a wild ride recently. For example, after reaching a record high of around £45,000 in April, the price of the leading cryptocurrency, Bitcoin, dropped to lows of £23,000 in a few short weeks.
Although the price of Bitcoin has risen again recently, the sharp price movements reflect the volatility and instability of the market. So it’s no surprise that the majority of investors are wary of investing in this space.
Investor preference: crypto or stocks?
Stake conducted a survey of over 5,000 international traders after Bitcoin reached a record high in April. Of those polled, 51% said they had invested in cryptocurrency. The vast majority (90%) of those investors said they had made money trading it.
Interestingly, despite the fact that they made a profit, the majority of respondents (84%) still saw it as a riskier form of investing than other methods.
Matthew Leibowitz, founder and CEO of Stake, explains, “Crypto is crazy right now. There are some major investment strategists making pretty bold predictions for just how far Bitcoin will go, and the enigma of crypto seems to be attracting new investors all of the time. However, our research shows that investors are still wary of going too deep on crypto.”
In addition to viewing crypto as a riskier investment, nine in ten investors (91%) actually admitted that they prefer trading stocks to crypto.
The majority of those surveyed were under the age of 35 (70%). This shows that the younger generation is still wary of this relatively new asset.
Which stocks are most reactive to crypto movements?
Stake has revealed the stocks on its trading platform that are the most reactive to cryptocurrency movements. Stake says these stocks allow traders to indirectly invest in the crypto market without actually purchasing Bitcoin and other cryptocurrencies.
The top five reactive stocks are:
1. Coinbase. This is one of the leading crypto exchanges in the world. The company went public back in April.
2. MicroStrategy. This is an internet services firm that famously announced in August 2020 that it would be purchasing £306 million worth of Bitcoin, which was trading at around £8,600 at the time.
3. Chipmakers. This includes manufacturers of high-end chips (such as Nvidia, AMD and Micro) and processors used in the mining of Bitcoin and other cryptocurrencies.
4. Square. A payments company founded by Twitter CEO Jack Dorsey, which has invested more than 5% of its cash holdings in Bitcoin.
Why is investing in stocks less risky?
Stocks have been around for centuries, as opposed to crypto, which is a relatively new asset. In the course of their existence, stocks have demonstrated their resilience time and again. They have helped millions of investors build wealth.
The first cryptocurrency, Bitcoin, was only created slightly more than a decade ago. While its value and that of other cryptocurrencies has risen exponentially since then, they have been plagued by extreme volatility, with prices sometimes swinging by double figures in a matter of hours.
Another reason is that stocks are actually tied to something tangible. When you purchase a share in a company, you are buying a piece of this company in the hope that it will grow in the future, increasing the value of your investment.
On the other hand, cryptocurrencies are not tied to anything tangible. They do not have an inherent store of value on their own. Any crypto you own only maintains value as long as the market says it does.
In a nutshell, while crypto assets promise a greater potential for reward than stocks, they are inherently riskier.
That is not to say that stocks are not without any risk. However, by doing your research, crafting a personal investment strategy based on your goals and preferences and sticking with it for the long term, you can significantly mitigate this risk. That said, past performance is not a guarantee of future returns.
If the idea of investing in stocks sounds more appealing to you than crypto, you should check out our comparison of some of the top providers of online share dealing accounts in the UK.