Bitcoin has been performing well this year, but when we take a closer look at the risks involved, the profits start to look less impressive. According to Goldman Sachs, Bitcoin’s potential for big returns is real, but it comes with high risk.
Gold Is More Stable Than Bitcoin
Goldman Sachs analysts dug into how much profit Bitcoin offers compared to its price swings, also known as volatility. Unfortunately, their numbers didn’t look great. Bitcoin’s risk-to-reward ratio sits below 10%. For comparison, gold, a much more stable asset, has a ratio of nearly 20%. This means that while gold may not always offer sky-high profits, it’s a steadier option that still delivers solid returns.
Bitcoin Can Deliver High Returns, But the Risk Is Big
So, what’s the takeaway? Simply put, Bitcoin offers the chance for high profits, but you also risk losing a lot of money. This has been a common argument from crypto critics for a while now: Bitcoin is too unpredictable to be seen as a safe investment, unlike gold. The wild price swings can leave you with huge gains—or equally huge losses.
Goldman Sachs didn’t stop at Bitcoin. They also looked at other investments and found that only a few—Ethereum, Japan’s TOPIX index, and the S&P energy index—scored worse than Bitcoin when it comes to balancing risk and reward. This reinforces the idea that Bitcoin is best suited for those of us who are comfortable with taking risks.
Global Events Show Bitcoin’s Unpredictability
A recent example of Bitcoin’s volatility came when tensions in the Middle East increased. After Iran launched missiles at Israel, gold prices shot up as investors sought out safe places to park their money. Bitcoin, however, dropped to in value along with the stock markets. This shows us that Bitcoin doesn’t offer the same kind of stability as gold during uncertain times.
Bitcoin Still Attracts Investors
Despite its ups and downs, Bitcoin remains attractive to many investors. One strategy that’s gaining popularity is called “cash-and-carry” arbitrage. In this strategy, traders aim to profit from price differences between the spot market and the futures market. The appeal here is that you can make money without being too concerned about Bitcoin’s daily price swings.
For traditional investors who prefer a lower risk, gold might be the better option. For those of us who don’t mind the risk in exchange for the potential for bigger returns, Bitcoin still has its appeal. According to Matt Hougan of Bitwise, investing in Bitcoin will eventually become as calm as gold, with less volatility than it currently shows.
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