Cryptos or Equities: Which Is A Better Investment Proposition?

Crypto currency reminds me of a very famous movie character - Gordon Gecko, played superbly by Michael Douglas in the movie Wall Steet who said "The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right." For those who believe in this sentiment and have a very high-risk appetite - then crypto is for you, subject to legalities of course.

There is another famous saying in the stock market, which is "Higher the Risk, Higher the Gain". Anything that is perceived to have more risk could potentially reward the risk taker with higher returns. Equities, when compared to fixed income instruments like Bonds and FDs - are high risk and have offered higher returns as compared to fixed income investments over longer periods.

The risk of investing in crypto however is significantly higher when compared to equities too. In fact, crypto may be one of the riskiest investments in today's day and age. And this is why:

Equities 3 - Crypto 0?

Regulation

World over, Equity Markets are highly regulated. SEBI in India, SEC in the USA and FCA in the UK, to name a few, are bodies that are in charge of equity markets. They ensure that the entire ecosystem of buyers and sellers is running smoothly. They frame rules that punish those who try to defraud investors and ensure that they are brought to book.

Crypto, on the other hand, has no regulator. While it is a great expression for freedom, when it comes to financial matters having a big brother watching and pulling up fraudsters and defaulters may not be such a bad thing. After all it is your hard-earned savings on the line!

Clear Demarcation of Responsibility

In equity markets it is very clear as to what the role of the Regulator is, what function will the exchanges perform, what is the role of the broker, the investor and all other intermediaries. In case there is something going wrong with a transaction it is relatively easy to pinpoint the source of the problem and correct it. if fraud is found then the fraudster can be tracked down due to the trail of the transaction.

Crypto, with its blockchain technology that enables anyone to authorize a transaction provided they have the authorization key lacks this demarcation of responsibility. It could be that someone sitting in an entirely different continent is authorizing your purchase of the Bitcoin. You don't know who is authorizing your transaction.

Redressal Mechanism

Stems from the above point actually. In the Indian context SEBI has the excellent SCORES mechanism which allows investors to flag off any irregularities in their transactions. Based on this complaint SEBI then questions the stakeholders of the transaction and tries to resolve the investor's query.

This kind of a mechanism is currently impossible in the Crypto world. If, for whatever reason, something goes wrong with the transaction then it becomes very difficult to pinpoint the source and rectify it.

Do remember that any and all investments come with their own risk level - depending on your risk appetite and your investment horizon should you invest. It is always best to have a guide, a financial advisor you can depend on who you know will not steer you wrong. Coming back to the topic, there are some investors with a high enough risk appetite to invest in cryptos - but for most of us looking to save with a goal in mind - crypto becomes 'too risky' to put a large chunk of your savings into - given the uncertainties around crypto.

All in all - while both have their own levels of risk - where equity wins hands down is the Regulation aspect and the fact that they are ownership of businesses and are linked to growth in earnings of those companies. Cryptos, on the other hand, have no underlying.

To end with yet another saying - 'look before you leap'. Gauge if you have the risk appetite to jump and if you decide to then ensure your harness is securely tied if you do.

The author is Head Marketing Epsilon Money Mart.

Disclaimer: The views and opinions expressed are those of the author and do not necessarily reflect the official policy or position of Epsilon Money.