The Motley Fool columnist Kate Space talks about it, how to choose between two types of risky assets. Bitcoinhas become the subject of one of the most controversial issues in the investment world. His supporters believe, what cryptocurrency can destroy the financial industry, and indicate the staggering growth of bitcoin in recent years. Critics highlight bitcoin's volatility (Bitcoin) and associated risks.
Exactly such arguments, as for, and against, sound in relation to another type of asset: biotech stocks. Some investors see them as a great way to make a lot of money from innovative products., while others fear high levels of risk and volatility.
Which of these two is promising, but potentially dangerous assets would be an investment - a smarter choice of an investor?
Risks and volatility
To understand, what is the reason for the volatility of bitcoin and what are the most serious risks, cryptocurrency related, first you need to figure it out, what is bitcoin and how does it work. If you haven't already, there is a section on the Insider's website at your service.
There are three main risks, associated with investing in bitcoin.
- Authorities may prohibit the use of digital currencies outside their control. Bitcoin has experienced a serious drop after the ICO ban and the closure of crypto exchanges in China. If the country's authorities continue to tighten the screws or Japan, USA and South Korea, the three largest Bitcoin trading markets, will impose any restrictions, prices will fall.
- Other cryptocurrencies are robbing bitcoin of market share. Ether now ranks second in terms of capitalization, and it has some advantages over Bitcoin, which will be attractive to investors.
- Companies and exchanges, Bitcoin oriented, can be vulnerable to cyberattacks. Two attacks of this kind in the past have driven bitcoin prices down and contributed to increased volatility.
Selected biotech stocks also face significant risks and volatility. The key risk comes from concerns about the safety of their drugs.. for example, акции Intercept Pharmaceuticals (NASDAQ: ICPT) fell recently after, as the United States Food and Drug Administration (FDA) FDA warned of risks, associated with his drug Ocaliva for liver disease. In the case of Intercept, Ocaliva has already been approved by the FDA. However, many biotech companies are confronted with, that there are safety problems or poor effectiveness of the drug, discovered during clinical trials, do not allow them to bring products to market.
Moreover, there is always a chance, that another firm will release a competing product and take market share. Even the threat of this could damage the stock of a biotech company..
If the drug is too effective, it can be a problem.. for example, for the period from mid-2015 to mid-2015 2017 Gilead Sciences shares fell by more than 40%. This was mainly due to a decrease in sales of the anti-hepatitis C drug.: the drug has cured so many patients, that the Gilead market has shrunk significantly.
so, which is more risky - bitcoin or biotechnology? Shares of selected biotech companies, apparently, bear more risks, than bitcoin. In the same time, you can purchase shares of an exchange-traded fund, focused on biotechnology. These stocks are usually less volatile., than bitcoin, and carry less risks for the investor.
Dynamics of shares
In terms of growth rates, little in common between bitcoin and biotech stocks. The first bitcoin exchange appeared in 2010 year. If then you bought bitcoins on $10 and haven't sold them yet, now your condition would be about 13,9 million dollars. In other words, the average annual profit would exceed 650%. Biotech stocks are hard to find, which for the same time have risen in price at least in 10 time.
However, most investors would not buy bitcoin soon after its introduction.. What has been happening lately? This is how they look in 2017 the dynamics of the index NYSE Bitcoin Index, exchange-traded fund SPDR S&P Biotech ETF and shares of one of the fastest growing companies Puma Biotechnology (NASDAQ: PBYI).
Очевидно, that bitcoin is getting more expensive anyway, than biotech stocks. However, it is worth considering, that this profitability is associated with high volatility.
What to choose
Инвесторы принимают решения, given the ratio of risk and return. Comparing two assets, they have to determine, which one will provide the best profit potential given the accepted risk. Bitcoin has demonstrated the best risk-reward ratio so far, than biotech stocks. But will it last? There is no certainty about it.
Don't expect, that in the future bitcoin will bring the same annual profit, like in the past. On the other hand, the level of risk can be reduced, as digital currencies become more widespread. Возможно, keeping a small part of your investment in bitcoins is a good move. However, it is worth understanding, that it will be a purely speculative game.
If you are interested in big profits, it is worth buying shares of biotech companies. Достижения, которые делают многие биотехнологические компании, невероятны. Возможностей лечения серьезных заболеваний сейчас больше, than ever.
Buying a stake in a biotech ETF is a good way to make money from it, but with less risk and volatility, than when investing in individual stocks.
So what to choose? Возможно, the best option is to invest a little bit in bitcoin, and in biotechnology.