Crypto vs. Stocks: Which Investment Has Less Risk?

Quick Answer

Stocks and cryptocurrency are both considered volatile, but cryptocurrency is the riskier investment.
A woman looks at her phone showing a stock graph while her computer is in the background.

Stocks and cryptocurrency are two popular investment vehicles, but does one pose more risk than the other?

Cryptocurrency is significantly more volatile than stocks, though investment returns for either option are never guaranteed. If you're intrigued by crypto investing, it may be worth earmarking some investment funds for it if you have extra money after funding your retirement accounts, minimizing debt and ensuring your emergency fund is plentiful. Cryptocurrencies are high-risk assets that could also have explosive rewards—but you can't count on it.

Read on to learn about the pros and cons of cryptocurrency versus stocks, and for tips on investing as safely as possible if you do buy crypto.

Key Differences Between Stocks and Crypto
Extremely volatileHighly volatile
New and uncertain wealth-buildingTried and true wealth-building
Lacks complete regulatory frameworkRegulated primarily by the Securities and Exchange Commission

Pros and Cons of Investing in Cryptocurrency

Is it possible to make money investing in cryptocurrency? It is, but there are no guarantees.

The combined market value of all crypto has swelled since Bitcoin's 2009 launch, though wide fluctuations overall and with individual currencies are common. The total market value of all cryptocurrency rocketed to $3 trillion in November 2021—then dropped to $2.5 trillion in early December. Meanwhile, the value of a single Bitcoin has grown from effectively $0 at the time of its introduction to an all-time high of $68,990 in November 2021. Some experts predict single Bitcoins could reach as high as $500,000 in value by 2030. Other investors predict their worth will plummet.

Cryptocurrency isn't generally backed by any physical cash or company assets, unlike stocks, which makes many investors skeptical about its viability. Others see it as the future of money, and crypto has made its way into the mainstream and the portfolios of investors. According to a CNBC survey, nearly half of millennial millionaires have at least 25% of their wealth in cryptocurrencies.

Pros of Investing in Cryptocurrency

  • Potential for appreciation: Cryptocurrency is a volatile asset, which makes investing in it inherently risky. But that risk isn't always a bad thing. Crypto assets could yield higher returns than conventional investments over a given period of time. Of course, a coin's value can always swing in the other direction, leaving you with poor or zero returns.
  • Easy to start: Buying and selling cryptocurrency used to be somewhat difficult and often involved using unsecured, unregulated sites. But today, crypto exchange platforms like Coinbase and Cash App make trading crypto straightforward and more secure.
  • Diverse coins to choose from: Although Bitcoin dominates about half of the market, there are plenty of altcoins—crypto investor-speak for any cryptocurrency that isn't Bitcoin—you can invest in. Ethereum is another popular contender. Just remember to thoroughly research a crypto company before you invest in its currency. While there are thousands of cryptocurrencies on the market, some are scams, and others aren't likely to take off.
  • Upward momentum: Financial giants like Tesla are adopting crypto investing with increasing haste, and the country of El Salvador officially adopted Bitcoin as legal tender in September 2021. So, while there's certainly a need for caution when considering investing in crypto, which is still considered a purely speculative asset, there's also plenty of room for optimism.

Cons of Investing in Cryptocurrency

  • Value volatility: Cryptocurrency is about as volatile as an asset can be. Since crypto isn't backed by any physical asset, its value is determined entirely by whether or not people want to buy it. A coin's value can swing wildly, "mooning" (crypto-slang for sharply increasing) when traders want to own and plummeting when they don't. These highs and lows can cause novice investors to make emotional, impulsive decisions and end up with poor returns.
  • Cybersecurity risks: While cryptocurrency exchanges like Coinbase are far more secure than earlier alternatives, any online wallet is susceptible to cyberattacks. If your money gets stolen by a hacker, it isn't usually possible to retrieve it. To mitigate the risk of theft, experts recommend additional security measures like encrypted wallets and offline cold storage.
  • Long time horizon: In investing, a trader's time horizon is how long they intend to hold an investment before selling. The sooner you need the money from an investment, the shorter your time horizon. Experts recommend that you put your money in safer assets, such as bonds, high-yield savings accounts or money market funds, if you'll need to cash out in the short-term. You should generally only buy risky assets like crypto if you're investing long-term and can avoid selling for at least five years.

Pros and Cons of Investing in Stocks

When you invest in stocks, you're buying shares of publicly traded companies. The stocks you invest in give you fractional ownership of the company, meaning a tangible asset backs your investment. Unlike crypto, whose fluctuating value hinges on public opinion, the value of a stock is determined by the company's performance, outlook, valuation and cash flow, among other factors.

Stocks have seen an average 10-year growth rate of 9.2% over the past 140 years, according to data from investment bank Goldman Sachs. With that measured longevity, the stock market is considered more stable than cryptocurrency—but individual stocks are still seen as one of the most volatile assets. Here's what to know before you decide how to invest.

Pros of Investing In Stocks

  • Less volatile than crypto: Stock exchanges have been around since 1611, and this long history of trading means financial experts have lots of data to work with when it comes to spotting trends and predicting future market performance. While it's hard to predict the success of a single publicly traded company, index funds and other mutual funds and exchange-traded funds mitigate risk by investing in groups of companies rather than a single one.
  • Accessible: While investing in stocks once required access to a stockbroker and substantial sums of money, today, platforms like Fidelity, Acorn and Robinhood, and fractional shares allow people to invest a small amount of money.
  • Highly regulated: Stock trades are secure and closely regulated by the SEC, and most trading occurs on a few main centralized exchanges. While there are investment fraud schemes that use false advertising to promote scam high-yield stocks, you can avoid these scams altogether by looking for warning signs like extraordinary claims of high returns.
  • Diverse investments to choose from: The stock market has something for most investors. Index funds like ones that invest in S&P 500 companies are an option for investing broadly in a large group of companies. You can also choose to invest in something you know well, such as tech, coffee, wine, video games or travel services.

Cons of Investing In Stocks

  • Volatility: Because stock valuations fluctuate regularly, novice investors may be at risk of impulsively selling and losing money.
  • Lower risk means lower reward: Those interested in crypto are often after the thrill of potentially huge returns. If you're after high-risk, high-reward assets, investing in mutual funds or bonds may not be what you're looking for. However, there are plenty of high-risk, high-reward individual stocks to choose from if that's what you seek, from startups to companies that invest in innovative but untested technologies. If you choose to roll the dice, be strategic and cautious. Experts typically recommend allocating only a small percentage of your portfolio to risky assets.
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Crypto vs. Stocks: Which Should You Invest In?

Should you invest in stocks or cryptocurrency? The best strategy may be to invest in both—if you have the extra funds to do so.

Many experts advise allocating the majority of your portfolio to lower-risk, stable assets such as mutual funds and exchange-traded funds; S&P 500 index funds are a popular choice.

You may choose to devote a small segment of your portfolio to speculative capital, which goes into high-risk, high-reward assets like crypto. How much of your investments are speculative is ultimately up to you, but experts suggest 5% or less. You should only invest money you don't need anytime soon in these assets.

The benefit of diversifying your portfolio with crypto is that, if cryptocurrency's value rockets, the 5% you put into it will see high returns and could drastically increase the value of your portfolio overall. At that point, you might sell a portion and reallocate those funds back into your reliable assets, never leaving more than 5% of your portfolio tied up in volatile investments.

The Bottom Line

Cryptocurrency dominates much of the conversation among those new to investing, which could put them at risk of neglecting the tried and true long-term wealth-building world of stocks. On the other hand, investors could be missing out if they ignore crypto altogether.

As with any investment, your unique financial situation, including your timeline, risk tolerance and goals, will help determine the best path for you. When in doubt, reach out to a financial planner to discuss your best options for building a personalized wealth-building strategy.