Hello everyone! In this blog, let me discuss on one of the most discussed topic - Crypto vs stocks. There have been various debates, factions and misconceptions. I'll try to clear some air about it and provide my opinion.
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Crypto market in a glance
Being on HIVE, many are aware of history and evolution of cryptocurrency. Though very few might have witnessed the crypto market journey personally. The crypto market of 2010 is not same as 2017 and its definitely not same in 2020 and 2021. The whole crypto space is going though a great evolution. It will obviously change the face of financial world, there is no denial. What Internet did to the technology is same as what cryptocurrency will do it for financial/banking world. I'm a firm believer in 'Change', so is everyone.
Every time we see a 'change', not just the price change but the narrative, adoption, acceptance, awareness, diversification, everything seems to be changing over a period of time. So, we can conclude Crypto is here to stay. Will it kill stock market? Let us see in next section.
Stock Market
The history of stock market is very long, hundreds of years. It is too deep and great way to empower common public and businessmen if done right and with a good intent. There would always be scams and scamsters, be it stock or crypto, lets set them aside for now.
Stock market in general is a great way to raise funds for a company, and its an opportunity for common man to own great businesses thereby generate wealth. Many have genuinely benefitted through stock market, be it in US or India.
Many have lost money too, due to their own mistakes, lack of understanding and ignorance. Sometimes external factors have wrecked havoc, on top of it various scams and operator manipulation.
Since the stock market is operational for a long time, it has a massive amount of money churning in it. The market size is huge compared to crypto. It would be wrong to say crypto will kill stock market, it may have its own fair share as extra money always tries to find an alternative to invest. Now, people have got an alternative to stocks hence the money is flowing into crypto market too. Will it sustain for long? May be yes, may be no. Depends on US fed interest rates, 10yr G-Sec yield, bubble burst etc.
Should crypto compete with stock?
Absolutely not! As an investor, they shouldn't be seen as competitors. Instead use both of them for your benefit. Consider Crypto as an alternative to fast track your growth, of course keeping the risk in the mind. Neither write off stocks completely nor the new-age crypto.
Crypto market size will grow in future and it will not kill the stock market. Recently Coinbase was listed in US stock market, its a great step for crypto world. Here we are making use of best of both the worlds. Do you think people at Coinbase are dumb to think one day stock market will be eaten up by Cryptocurrency exchanges? That's totally irrational. Instead of getting into debate in support or against crypto, think of how the world is changing and your ride on the growth engine of crypto.
The best way to balance out on crypto and stocks is to create a portfolio. It should have allocation to both crypto and stocks. You can tweak the allocation percentage based on your risk management. I'll try to write in details about risk management and why its important as a trader/investor in future.
Investment Portfolio
As an investor, you must design a portfolio which consists of stocks and crypto. Ideally, you should have 70% in equities(including ETF, MF), 20% in crypto and 10% in liquid(cash, deposits, bonds) if you are firm believer in crypto and possess high risk appetite. Depending on how well you have planned your financial life, your crypto allocation can go up to 50% too.
Do not get enticed by the great returns, there will be slump too. You should be able to handle paper loss and do not quit seeing 40% negative returns, that's a bad time to sell. As the popular saying goes, don't put all your eggs in same basket. Diversification is always good but shouldn't overdo it. Strike the right balance and learn the art of managing profit & losses. Asset allocation is the key factor, understand how it will benefit you in all the market cycles.
Crypto in a stock market
This is quiet interesting, in 2015 the crypto market was totally different and 2017-18 boom was fantastic, made many institutions to look into this technology. Soon, Bitcoin Futures were introduced and in past few years we have multiple investment products in cryptocurrency. You can even open Fixed Deposits, start SIP, receive interest etc. Many more innovative products have been introduced, many coins have gone bust too. From ICO frenzy to IDO today, NFT is nascent.
Many have found a way into stock market too. In future, you might witness Crypto Index ETFs, Mutual Funds which contains Bitcoin & ETH, promising tech funds etc. Its immaterial to debate on who will win or when crypto market will fizzle out. In short term, there would be turbulences once the covid pandemic reduce but in long term we shall see massive change in how we transact.
Big banks, governments, institutions are working on blockchain technology and partnering with existing crypto networks which are fast, scalable and reliable. Singapore is front-runner in modernizing fintech and blockchain plays a huge role.
10 Year Bitcoin return
10 Year NIFTY return(Indian Equity)
Conclusion
The crypto market will not kill stock market anytime soon but it may grow in size. It might have its own share of growth story. The additional money being printed by governments all over the world will continue to find way into crypto market as well as other capital markets.
All the above growth story doesn't include the payment and public acceptance, if that happens then things will skyrocket. Hope we ride on that success story!
