Crypto vs Bonds: Which is a Better Investment Option?

Everyone is always on the lookout for ventures that can make them more money. There are some financial instruments that investors can put their money in to get substantial returns. These securities include cryptocurrency, stocks, precious metals, commodities, and bonds. In this article, we’ll compare cryptocurrency vs bonds to see which is the better investment.

A cryptocurrency is a digital currency that cannot be duplicated or double-spent. Crypto is the first application of blockchain technology which safeguards a network with the computers connected to it. Cryptocurrencies aren’t issued by government authorities, which places the power of its generation entirely in the hands of the people.

Bonds are debt-backed securities that governments and corporations usually issue. Sometimes the government or a firm might need to finance projects such as infrastructural development or company expansion.

If there’s a lack of money, the government or firm may sell bonds to investors at a fixed interest rate. At maturity, the entity that sold the bond will have to pay back the amount. As of April 2023, the interest rate on a 10-year US government bond is 3.46%.

Benefits of Investing in Cryptocurrency

Accessibility

When you invest in cryptocurrency, you’ll have full access to your entire funds anytime. If you try to withdraw a large amount of money from your bank account simultaneously, your bank might restrict the withdrawal. However, crypto allows holders to transact at any amount they want.

Also, if you’re trying to send funds from your bank account to an individual in another country, there could be several issues. Even if the transfer goes through, the stress could make you give up.

Cryptocurrencies are global and can be sent between borders without restrictions. Within a matter of minutes, the receiving party would receive the funds.

Potential Returns on Investment

Investors have always been concerned about the expected returns on their investments. The bigger the expected returns, the higher the value of the investment. The cryptocurrency investment potential is high. That’s why many investors are flooding the digital currency market.

Cryptocurrencies such as Bitcoin, Ethereum, and Ripple sometimes triple their values during the entire length of a bull run. Smaller cap coins can go as high as 200 times their initial value, translating into massive returns. For instance, if you had invested $1,000 into Solana at the start of 2021, you’d have had $118,000 a few days before the year’s end.

Speedy Transactions

Investing in traditional securities like bonds and stocks can take much time. A simple transaction, such as a bank transfer, can take days. Some banks even charge higher fees to get the transactions completed faster. If you need quick access to liquidity, traditional investments are not the way to go.

Cryptocurrencies build their networks using distributed ledger technology, also referred to as the blockchain. Cryptocurrency networks do not have a central authority, meaning no intermediary (like banks) can slow down your transaction.

Investing in a cryptocurrency requires you to place your credit card details, buy the funds, and have them in your wallet in a few minutes. The average confirmation time for a transfer on Bitcoin’s network is 10 minutes.

Cons of Investing in Cryptocurrency

Volatile Prices

With the potentially rapid price growth, cryptos also tend to experience sharp price drops. In two months, Bitcoin’s price halved in June 2021, leading to a sharp market correction.

Lack of Regulations

In several countries, cryptocurrencies are legal but not regulated. Hence, while agencies like the SEC monitor bonds and stocks, cryptocurrencies have no regulatory guidelines. This has discouraged many investors from delving into the space, sparking the belief that cryptocurrency investments come with much more risk.

Benefits of Investing in Bonds

Ease of Purchase and Sale

There are several pros of bond investment, and the first is its ease of being purchased off the market. Nevertheless, if you’re investing in a specific bond, you have to be familiar with its conditions and interest rate. You can get a bond through bond mutual funds.

Great Financial Investment

Although stocks and crypto give better returns on investment, bonds are less risky than other securities since they promise the investor a fixed income level. There’s nothing better than receiving annuity payments and still getting paid the face value of the bond on maturity.

The returns on bond investment are substantial to several traders and afford investors a decent income. The capital gains on bonds also appeal to anyone with investment diversification strategies.

Safe Investment

Bonds are less risky than stocks and cryptocurrencies since their volatility is considerably lower. The least volatile bonds are the short-term and medium-term bonds.

Bonds are a great option for long-term investment planning. Some retirees choose to invest in bonds since the fixed income can take care of their daily needs. Also, if a company goes bankrupt, bond owners purchasing the debenture type of bond will be reimbursed before preference and ordinary shareholders.

Cons of Investing in Bonds

Price Volatility

Although bonds are less volatile than other investments, it doesn’t mean that their prices remain constant. The forces of demand and supply work to increase or reduce the market value of a bond. Depending on the economy, a bond’s value can either grow or take a hit.

Credit agencies that rate bond issuers based on their financial health also affect the bond market trend. Although external factors don’t affect its fixed income (interest payment), a lower bond value would be unfavorable to investors who intend to sell the security.

Changes in Interest Rate

The increase or decrease in interest rate payments depends on the market value of the bond. The higher the price of the bond, the lower the interest rate. On the other hand, the lower the price of the bond, the higher the interest rate.

These changes in interest rate payments do not go down well with investors who prefer lower variance in interest rate payments.

Changes in Issuer’s Stability

When the issuer becomes insolvent, the bondholder’s capital risk becomes increased. The issue of experiencing problems with liquidity can halt the bondholder’s interest payments, and this becomes unfavorable to the investor.

Conclusion

Investors sometimes consider whether to invest in cryptocurrency or bonds. While cryptocurrencies offer freedom, increased accessibility, and high ROI, they could also lead to big losses due to sharp price reductions and zero regulations.

On the other hand, bonds offer investors fixed interest payments and are considered safer investments. Nevertheless, there’s always the risk of the bond issuer being able to pay back the funds upon maturity. Interest rates could also fluctuate depending on the bond’s market value.

Which do you prefer between crypto and bonds? Have you invested in bonds before? Did it yield any returns? Share your experience in the comments.