Can blockchain stocks protect investors from cryptocurrency?
The crypto market has cratered to several months’ lowest level, with top digital assets such as bitcoin and ethereum plummeting from their all-time highs. Under such circumstances, can investing in blockchain stocks protect investors from the volatility of trading digital assets?
Blockchain stocks refer to companies that derive their various businesses from the crypto ecosystem such as crypto trading, cryptocurrency mining and the development of crypto technology.
Nvidia, Coinbase, Block and AMD were among the top 25 stocks in terms of trading volume in May, according to Vested Finance, a global investment platform.
Other major cryptocurrencies include Robinhood and MicroStrategy, which are the largest holders of bitcoin in the world.
Shares of cryptocurrencies such as Coinbase and Robinhood have performed worse than cryptocurrencies, while companies such as Nvidia and AMD involved in chip production and the design of technologies used in crypto mining have performed better.
“This will be because these latter companies have other sources of income, apart from crypto. When it comes to crypto exchanges, lost income estimates and poor income forecasts have also affected their share price,” said Viram Shah, co-founder and CEO of Vested Finance.
On a one-year basis, bitcoin is down 42%, ethereum 48%, MicroStrategy 74% and Coinbase 78%.
According to experts, it is more risky to invest in cryptocurrencies or stocks due to volatility.
“But it may be safer to invest in shares of companies that have crypto exposure, but whose income is not dependent on earnings from crypto. In addition, there is also an option for investors who may not want to buy and store crypto assets. As the price of crypto assets has fallen significantly from the peaks, some investors may choose to buy with the downturn, “said Shah.
Some experts suggest that crypto or blockchain stocks both have their relative advantages and disadvantages.
“Investing in crypto is a direct bet on a single or multiple currencies and tokens, with an expectation that a handful of them could become potential replacements for traditional assets including currency and gold. On the other hand, investing in blockchain companies is based on an expectation that the technology itself is growing in importance and becoming widespread, “said Ramkumar Venkatramani, head, investment adviser, Kristal.AI.
For investors, willingness to take risks and long-term asset allocation are equally important. Please note that crypto investments in India attract a flat 30% tax on capital gains from digital assets with effect from 1 April. From 1 July, there will also be a 1% TDS on each crypto transaction.
Investments in foreign shares are subject to capital gains tax, regardless of whether the company is part of the crypto ecosystem or not.
