Is Cryptocurrency the Same as Owning a Stock? | Business

Historically, Bitcoin and the S&P 500 Index (SNPINDEX: ^GSPC) have practically no correlation. That means the direction of their value changes aren’t related. That’s good for diversification, but negative correlation — where one asset appreciates in value while the other declines in value — is usually better for managing risk.

It’s also important to note cryptocurrencies are historically much more volatile than stocks. So, when they go up in price, they go way up, and when they go down, they go way down. And since there’s no correlation between cryptocurrency prices and stock prices, that means adding cryptocurrency to your portfolio alongside stocks will increase the risk profile of your portfolio.

Owning cryptocurrency is definitively not the same as owning stock. The crypto asset class may be attractive to investors looking to take on additional risk in exchange for greater potential returns. But crypto investors should understand what they’re buying and the role it plays in their portfolio.

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