Bitcoin is the cryptocurrency par excellence. It was the first one. It is the dominant one. And it is definitely the most famous. It is certainly the most philosophical. That is, the Bitcoin community is the one that dictates the narrative. No one can deny that this is an ecosystem full of dogmas and ideologies. Many buy Bitcoin for ideas. Nevertheless, many others buy Bitcoin in order to profit. This article revolves around a temptation. What is the dilemma? It is about the Bitcoin of ideas or the altcoins of profits.
Anyone, of course, can say that in Bitcoin there are also many gains and that in the altcoin universe there are also many ideas. Obviously here we are choosing to speak in absolutes for a clearer analysis. However, we are not all the same. Each investor has very particular intentions and characteristics. Here, however, Let’s focus on the investor who chooses to sell Bitcoin in search of higher profits on some promising altcoin.
Today’s Bitcoin is not as profitable as yesterday’s Bitcoin. That is, over time, the market has grown in size. Which implies greater liquidity. Hence, greater stability. Of course, the stability of Bitcoin is relative. The asset is still extremely unstable. But it is more stable than before. And it is more stable than most altcoins. Now investing in Bitcoin is safer, but less profitable. In the past, the price of Bitcoin could explode in a few weeks. Now an increase is expected, but more moderate. In other words, no one expects a 1000% increase for December, for example. This is not the case with some altcoins.
Every investor must study their options. The first option is to keep the capital in cash. This is the safest option of all. But that security comes with a price: inflation. While it is true that dollar or euro inflation is not that high, it is always a cost to consider. The second option is a savings account at a bank. Here we are talking about a very modest interest, but, in most cases, enough to offset the rate of inflation. The third option is to go to the bond market. Corporate or sovereign. The latter being more secure than the former. Of course, here we are talking about US Treasury bonds or European Union Bonds. In the case of an Argentine bond or a Venezuelan bond, the security factor would definitely be called into question.
We keep talking about options. So far, we are talking about increments (on average and approximate) of -3, +3, +3, or +6. I am referring to the performance of the different options: Cash, banks, sovereign bonds, and corporate bonds. It is important to note that some non-banks or neo banks offer rates much higher than traditional rates. At present, it is possible to obtain rates of 8% or 12% per year in some companies. Here the risk is varied. It all depends on the company in question. While it is true that there are many fraudulent schemes, it is also true that there are many serious companies. However, you have to look for them.
However, the other option at the investor’s hand is an equity instrument. I’m talking about stocks. This is obviously an extremely wide universe. If we stop to study each company, things become very complex. In other words, the level of risk and return is extremely varied. And it all depends on the companies in question. Here I will limit myself to talking about the S&P 500. This stock index represents the majority of companies and sectors (US). Buying this index implies greater risk than buying bonds, but it promises a higher return. We are talking about an average percentage increase of 10-12% per year.
Important note: Here I am skipping merchandise, metals, collectibles, derivatives, and many other assets for simplicity. I’m focusing on the basics for brevity. Of course I cannot go into detail about all businesses. Trade in consumer goods, services, real estate, etc. In all these fields, the risk and opportunity is variable. Everyone must do their homework to know the options they have. In this article, we are talking about the world of investing. Stocks, bonds, etc.
We continue. -3, -3, +3, +3, +6, +12. These are the reference numbers. An investor legend like Warren Buffett is famous for beating the S&P 500 most years. In the case of Warren Buffett, we are talking about 20% per year on average. To say that in one year we grew 20% is no small thing. I insist. I mean the world of investments. If last year, you had $ 100 and this year you have $ 200, that does not mean that you are smarter than Warren Buffett. Here we speak of capital placed in the investment of financial assets.
The difference between Bitcoin and altcoins is the level of volatility. That is, the level of risk. If buying Bitcoin is taking a higher risk than buying an index fund (S&P 500), buying an altcoin is taking a higher risk than buying Bitcoin. It all comes down to the level of risk that we are willing to tolerate. The ambitious young man usually takes more risks than the conservative old man. In part, because the young have less to lose and the elderly more to care for.
The dilemma between Bitcoin and altcoins is a false one. We don’t have to choose between one or the other. It is possible to have both options in a diversified portfolio. The important thing is to weigh the risks and opportunities when allocating the appropriate amounts for each investment. The sensible thing to do is to allocate more money to the most stable and secure assets. And have smaller amounts for the riskiest assets. In this case, we can be pragmatic and put aside ideologies. In Bitcoin there is a lot of money to be made. But in the altcoins as well. As investors, we can make money in both worlds. The goal is to grow financially. Of course we cannot be naive. We must understand the risks of each investment very well to manage that risk as much as possible.