Traditional Investments vs Crypto – What Should You Consider?

If you are reading this, chances are you know about Bitcoin, Ethereum, or other cryptocurrencies. If you already have investments in the crypto market (or even if you are not), it can seem like a foreign concept that is very difficult to grasp. 

Crypto has become a lot more mainstream in recent months. It is primarily due to the sudden attention given by media outlets and financial experts alike. However, it is still quite an intimidating subject for beginners.

So what are the differences between a traditional and crypto investment?

Traditional Investments

Traditional investments are generally long-term purchases. They have an inherent feature to last, and they typically help provide a reliable source of income. In terms of safety, they tend to be safer than cryptocurrencies.

You can familiarize yourself with the variety of traditional investment vehicles: bonds and stocks, real estate, savings accounts, commodities, collectibles, mutual funds (which can be either equity or fixed-income funds), certificates of deposit (CDs), exchange-traded funds (ETFs), Treasury bills (T-bills), money market funds, and Treasury notes. All of these have their pros and cons.

In general:

  • Bonds often offer higher interest rates than CDs but are considered riskier investments by most investors.
  • CDs protect your capital if an asset loses value, and you will not lose money if the market changes suddenly.
  • Mutual funds allow you to invest in various assets without buying them individually. It can give you diversification across different kinds of investments.

Pros of Traditional Investments

The good news is that you can make a lot of money with traditional investments. Even on a modest return, the amount you will have years down the line can pay for your house, tuition fees, and other expenses, and maybe even help buy your kids a new car or save for retirement. 

Cons of Traditional Investments

With the rise of cryptocurrency and technological advancements, many wonder whether traditional investment vehicles and financial instruments are still relevant. Surely, after all, there must be a better method of managing one’s money than through stocks or mutual funds, which have been around for decades?

Traditional investments carry high levels of risk and are often unsuited for the modern investor. Mutual funds operate by pooling many investors’ money together into a single fund that gets invested into different assets depending on what type of mutual fund it is. 

The gains made when an asset performs well get passed along to investors as dividends or other means of profit-sharing. The losses sustained during down years get distributed among investors. They suffer together instead of letting one person shoulder the burden alone. 

Unfortunately, this method results in a lower net return than it would otherwise be possible to achieve.

Crypto Investments

The basics of cryptocurrency are relatively straightforward. These coins exist in a digital space, and you can trade them with other people who have these coins. However, these concepts can be hard to wrap your head around without further explanation. 

It helps to understand what goes into successfully buying, selling, and trading cryptocurrencies. Thus, you can make smart investments and avoid getting scammed by sketchy exchanges. Here are some tips to keep in mind before getting started!

It is essential to understand the functioning of the cryptocurrency exchange to set your foot in the market. You can seek the various information available online to get an idea about this part. Numerous exchanges like OKX (brand) offer plenty of benefits to the users for trading.

Pros of Crypto Investments

You are about to make the most important decision – whether to invest in cryptocurrency or traditional stock trading. If you are anything like me, you have spent the past few months confounded by the difference between these two worlds. 

You should note that flexibility and decentralization are the biggest offerings by the cryptos.

Cons of Crypto Investments

The first thing you should know about investing in cryptocurrency is that it is quite different from traditional investments. Unfortunately, most investment advice gets geared toward the average person using typical investment vehicles, like stocks and bonds. Those instruments have been around for over a century and have become widely accepted as a medium of exchange. 

In contrast to traditional investments:

  • Digital currency is not yet widely accepted as a medium of exchange.
  • Cryptocurrency price volatility means your money could disappear overnight.
  • Cryptocurrency markets lack transparency, so you may not know if you are getting ripped off.
  • Cryptocurrency lacks insurance from any government or central bank (although some people argue this foundation of trust is part of what makes crypto feel safe).
  • Cryptocurrency exchanges can get hacked (so your money could disappear overnight).

These factors might seem daunting to an investor who has never considered cryptocurrency before. They are not guaranteed to be deal-breakers. Also, they will not necessarily stop many crypto enthusiasts from putting their money in the digital currency market.

Ultimately there is no one-size-fits-all rule when it comes to investing. For some people, cryptocurrencies are better options than regular stocks and bonds. But there are pros and cons worth considering. If nothing else, it gives you more information to decide whether this type of investment is right for your goals.  

Show More