Introduction
If you’re interested in investing in cryptocurrencies, it’s good to have a well-diversified portfolio. That means you should have a mix of Bitcoin and Ethereum. After all, they both perform different functions and have other risk-return profiles.
Investing in cryptocurrencies is riskier than investing in gold.
Cryptocurrencies are a popular choice for investors but are also more risky than gold. They are volatile and decentralized, meaning that investors can suffer huge losses. Only the most risk-tolerant investors should consider investing in them. Of course, gold also has its risks, but it is a safer, more dependable investment.
Bitcoin is an example of a cryptocurrency. The most common way to invest in it is by opening an account on a cryptocurrency exchange and exchanging dollars for digital currency. You will then need to hold the cryptocurrency in a digital wallet. While investing in gold reaffirms your belief in the current international financial system, investing in cryptocurrencies is like betting on a radical alternative.
Bitcoin’s volatility is higher than gold’s. Bitcoin’s volatility is caused by the fact that it is a speculative asset and lacks the historical track record that gold has. It is also a relatively new asset, so it has less time to develop a performance track record. Despite its popularity, there is little evidence that Bitcoin is a better inflation hedge than gold.
Bitcoin and Ethereum are more volatile than gold.
This paper explores the relationship between cryptocurrencies, such as Bitcoin and Ethereum, and financial assets, such as gold and oil. The BEKK-GARCH model shows that cryptocurrencies have higher volatility spillovers than financial assets. However, it also finds that cryptocurrencies and other assets have lower dynamic conditional correlations. Therefore, it is not always clear whether Bitcoin and Ethereum are better safe-havens. Nevertheless, the authors argue that there are many reasons why cryptocurrencies are a better investment than gold.
Unlike gold, Bitcoin and Ethereum are untied to a particular economy or currency. As a result, their value reflects global demand rather than a specific nation’s economy. The volatility in these assets makes them unsuitable for risk-averse investors. However, they are an excellent hedge against inflation and offer long-term growth prospects. However, investors should be aware of the risks and volatility. If volatility is too much for them, they should choose gold or high-yield stablecoins.
They perform different functions.
If you want to know the difference between Bitcoin and Ethereum, the answer is straightforward: they perform different functions within the blockchain ecosystem. Both currencies rely on blockchain technology to store information about transactions. This information is stored in blocks, with each block being dependent on the one before it. This allows for a decentralized ledger of transactions.
While Bitcoin and Ethereum both use a distributed ledger to store and send data, their respective platforms are also different in terms of scalability. Bitcoin, for example, relies on proof-of-work consensus, while Ethereum is moving away from this system and toward a proof-of-stake system, which relies on stakes placed in the wallets of validators. These validators ensure the integrity of the network and verify transactions.
They have different risk vs. return profiles.
Recently, a study by Brauneis and Mestel showed that Ethereum and Bitcoin have very different risk-return profiles. They used Markowitz’s mean-variance analysis to compare the risks and returns of a portfolio that includes both cryptocurrencies. The study uses data from January 2015 to December 2017 to make its conclusions. It also compares the risk and returns profiles of various portfolios.
They complement each other.
Two reasons to buy Bitcoin and Ethereum simultaneously are similar to each other, and the two have their advantages and disadvantages. One of the most significant advantages of purchasing Bitcoin is its widespread adoption and use. Moreover, this form of currency is decentralized, which gives it added value and is secured through proof-of-work mining.
Conclusion
One of the most compelling reasons to buy cryptocurrencies is the risk of missing out. As bitcoin’s value has skyrocketed in the past few years, many people do not want to miss out on the chance to become extremely wealthy. Even though regulators warn that investing in cryptocurrencies is a high-risk proposition, the fear of missing out is a powerful driver for people.
