Choosing where to begin can be very challenging for those who are new to investing. There are so many different instruments to pick from. Which market is best for you: forex, index funds, bonds, stocks, or crypto? Over the past year, an increasing number of individuals have begun to include cryptocurrency as a component of a serious long-term portfolio. We will compare cryptocurrencies with conventional financial markets in this current article.
Prior to comparing cryptocurrencies to the S&P 500, Nasdaq, and FTSE 100, three important stock market indices, we will first examine the returns in the stock and cryptocurrency markets. Let’s analyze some returns now!
Crypto Vs. the Stock Market
It can be challenging to compare the returns of stocks and cryptocurrencies. Over the past ten years, the S&P 500 has generated an average annual return of 10.9% while the Nasdaq has generated an average annual return of 14.4%. The average return for the FTSE 100 was 7.4%. It appears that the winner is obvious when comparing these numbers to Bitcoin (195%) and Ethereum (663%) since their inception.
This contrasts apples and oranges, though, we are, after all, contrasting individual crypto assets with much lower market caps with baskets of companies. Even then, Amazon (28.5%), Google (19.7%), Tesla (62.9%), and Microsoft (26.4%) don’t even come close to matching the returns of the two main crypto assets. A more accurate comparison would be to compare the returns of some tech stocks to cryptocurrency.
However, stocks have performed better over the past year. Compared to this time last year, the S&P 500 is up 5.4% while Bitcoin is down more than 30%. On the midterm, it appears that the two classes perform very differently. Cryptocurrency has, nevertheless, grown more closely associated with stock market returns despite these distinctions. The S&P and Bitcoin have a strong 0.58 90-day correlation, according to recent data from Arcane Research.
Cryptocurrency Vs S&P 500
As previously stated, Bitcoin and Ethereum are down significantly this year compared to the S&P 500, which is up 5.4%. But over the last ten years, cryptocurrencies have significantly outperformed. Will crypto hold up over time is the question. It is clear that the S&P has merit in the real world. A more secure investment than cryptocurrency, which is still in its infancy, would be a basket of 500 well-established businesses that make money and add value in the real world.
Crypto Vs NASDAQ
An index of 101 (non-financial) stocks traded on the Nasdaq exchange is known as Nasdaq (Nasdaq-100). We reached exact break even at the time of writing after a 28% rally over the previous year, which was followed by a 24% correction. Strong moves made over a year ago have only served to reset the situation. Very impressive. The market cap of all cryptocurrencies has increased by 22% over the same time period, but you can only trade that by creating your own cryptocurrency index. The bigger cryptocurrencies have lost value over the past 365 days, as was discussed.
Again, the Nasdaq is a collection of well-established companies, so while contrasting its performance with that of a developing asset class is intriguing, it is important to remember that there are other factors to take into account when making an investment. For example, risk and investment size should be taken into account equally.
Crypto Vs. the FTSE 100
The less well-known British counterpart of the Nasdaq 100 is the FTSE 100 (also known as the Footsie). The British stock market has experienced fewer issues recently than its American rivals. And as a result, has maintained its strength. In the last year, the index has increased 10%. So, in this comparison, the FTSE 100 outperformed all other assets and the 10-year average. The Footsie wins in terms of pure reward and possibly risk to reward as well. The FTSE 100 is depicted in the chart below since 2019.
Can These Asset Classes Actually Be Comparable?
We always have a really hard time comparing any asset to cryptocurrency. Unlike cryptocurrency, which is a much more speculative investment, stock market indices (or individual stocks, for that matter) have revenue streams, annual reports, and dividend payments to support the value.
Although this is acceptable, it puts the two assets in entirely different divisions. You’re contrasting apples and oranges, in other words. If you ask me, stocks and cryptocurrencies are complementary components of a diversified portfolio in a risk-on environment. It is counterproductive to compare investments based solely on returns without taking into account the risks, investment size, and time horizon involved.
Personally, I believe that every asset class has a purpose and that diversification can significantly increase a portfolio’s returns.
I strongly advise you to try something new if you are currently only investing in one market, whether it be stocks, cryptocurrency, or anything else. Even experimenting with forex can encourage you to learn something new that will probably apply to what you are already doing. By dipping our toes into the stock may teach us a lot. While experimenting may initially be intimidating or challenging, the effort is ultimately worthwhile. Try new things, do your research, and let’s keep making money!
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