Cryptocurrency (cryptographic asset) and stocks

What is the difference between cryptocurrency (crypto asset) investment and stock investment?

In this column, I will explain the difference between cryptocurrency (crypto asset) investment and stock investment.

Bitcoin itself, which is the beginning of virtual currency (cryptographic assets), has only about 10 years of history, and it has only been about 5 years since the full-scale launch of exchange operators.

Equity investment is the most established means of asset management for the general public, and according to JSDA (Japan Securities Dealers Association) data, there are approximately 24 million securities accounts only in Japan as of the end of 2019.

On the other hand, the number of virtual currency (crypto assets) accounts is about 2 million as of the end of 2019, according to JVCEA (Japan Cryptocurrency Trading Association) data.

Both of these statistics refer to the number of accounts with balances or the number of accounts traded during the aggregation period.

The difference in this statistic shows that cryptocurrencies (cryptocurrencies) are not yet a well-established investment in the new asset class.

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Risk of cryptocurrency (crypto asset) compared to stocks

Let’s sort out the risks of cryptocurrency (crypto asset) investment compared to stock investment.

1. Accuracy of Financial Market Analysis

First, accurate financial analysis and investment target analysis methods have not been established throughout the industry.

In the case of stocks, PER (Price Earnings Ratio) and PBR (Price Book-Value Ratio) can be used to quantitatively analyze judgments such as cheapness or high price, which can be used as a reference for investment decisions.

However, such an analysis method has not been established for virtual currencies (cryptographic assets) such as Bitcoin.

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2. Periodical Financial Report

Second, standardized investor materials have not been released.

For stocks, it is mandatory to announce the financial results every quarter, and investor materials will also be released.

However, in virtual currencies (cryptographic assets) such as Bitcoin, there are many cases where companies do not operate them in the first place, and there is no mechanism for such materials to be published on a regular basis.

As an investor, you must actively collect information from various sources to make investment decisions.

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3. Volatility of Market Price Movements

Third, virtual currencies (cryptographic assets) are often said to have high volatility.

Money management becomes more important, as it can rise and fall sharply.

However, even in the stock market, the prices of stocks of start-up companies listed may fluctuate sharply.

It is important to manage funds and create portfolios for both stocks and virtual currencies (cryptographic assets).

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Benefits of cryptocurrency (crypto asset) investment

The advantages of investing in cryptocurrencies (cryptographic assets) are that they are less affected by the global economy than stocks, and that you can invest in assets that have the potential to grow in the future.

Bitcoin is attracting attention as the highest-performing asset, surpassing government bonds and gold, as the value of all assets declines in 2020 due to the impact of the coronavirus.

In addition, the half-life of Bitcoin has also overlapped last year, and it is receiving a tailwind as an asset that can be expected to return even in the case of the coronavirus.

In addition, Bitcoin and Ethereum are expected to be used in large numbers in the future, so there is a possibility that there is room for price increases.

There may also be other cryptocurrencies with similar growth.

The possibility of investing in such growing assets is also an advantage of cryptocurrency (crypto asset) investment compared to stock investment.

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