Cryptocurrencies vs. Financial Assets In Terms of Risks
With the latest statement of the Federal Reserve chairman promoting digital banknotes and stable coins, perhaps it is noteworthy to compare these two digital assets in terms of risks. Learn how cryptocurrencies manage to keep their competitive advantage despite threats when it comes to stability.
Risk is relative
Who says that only crypto coins are haunted by risks? While there are bank-guaranteed assets, you better be reminded of what happened over a decade ago. A financial recession has brought several financial intermediaries to their knees. It is for this reason that some investors began to shift their interest from well-secured assets to Bitcoin during that time. Thanks to the circumstances that turned the tides in favour of crypto assets following the doubt cast upon government-secured assets.
Bank-guaranteed assets rely on trust anchored in the financial system. And this trust is also prone to be broken despite the control being imposed by the state as preventive measures. What makes crypto coins different is that they make use of peer-to-peer operations devoid of traditional intermediaries. It is a pitch for trust in a free market with the user base as the ultimate determinant of prices. The system is decentralised, being placed in the hands of investors rather than a corporate entity regulated by the government.
You might want to put it this way, the risk is relative. Bank-guaranteed assets are only as stable as the financial ecosystem where they thrive. They are likely to swerve when banks are troubled by the financial crisis. In the same way, cryptocurrencies are only as profitable as their user base. They will perform well as long as the market is active outside the traditional system.
The risk level is equal to rewards
If you are familiar with the financial doctrine that higher risks amount to higher rewards, then you can always count on cryptocurrencies for potential gains over time. The logic works like how highly volatile stocks get to yield high returns to investors. As you know, stocks have promising gains, but playing in the stock market requires a lot of diligence to be able to learn the ropes. Remember that these investors are almost, if not always, surrounded by professional traders.
Cryptocurrencies are not stocks insofar as they are not issued for equity. They are issued for investment opportunities alone brought about by the movement of prices based on the behaviour of the user base. The more participants in the market, the greater are the chances of achieving favourable prices. You might want to revisit the Bitcoin hype early this year, which led to its all-time high value.
This is not the case when it comes to bank-guaranteed assets. Most likely, you will be earning fixed periodic income, not to mention the consolation that your assets are insured whatever happens. As to the terms and conditions, you will have to go over the agreement.
Risk is manageable
Any investor is aware that risk is a given. It will always be that cloud hanging over your head all the time. Nonetheless, you can always choose to look past that. When you learn to adapt, you will find the silver lining where you can focus your sight. The best way to manage risk is through diversification. Never put your money all in one pocket so as not to go home empty-handed when you bump into a thief.
There are many cryptocurrencies where you can spread your investment as much as bank-guaranteed assets on platforms like the bitiq app. Feel free to browse the ever-growing crypto portfolio to increase your chances of growing your coins. You can also choose to use more than one platform in crypto trading. This way, you can control your gains and losses along the way.
Now the best way to manage risk is to come up with informed decisions. That means you cannot simply rely on the opinion of self-proclaimed experts. You will have to hone yourself into becoming an expert, at least within your standards. Then and only then can you stay afloat in a risky environment.
Surely, there is a huge gap between cryptocurrencies and government-guaranteed assets when it comes to security and stability, considering the level of risks. The good thing is that risk tends to be relative, rewarding, and manageable. You only need to be extra cautious in doing so.