After The Crypto Crash: Best Places To Put Your Money was written by James Rochester and originally appeared on Wealth of Geeks. James Rochester is a writer for CashBlog. He’s run his own stock market intelligence firm and has decades of stock market trading experience. It has been republished with permission. Please note that contributing opinions are that of the author. They are not always in strict alignment with my own opinions. –Joe
The widespread crypto crash has been all over the mainstream media of late. Millions of people own cryptocurrencies, and the fall of crypto values has been steep.
Many crypto investors are still hoping their investment will again grow in value in the future. But many others feel burned by the crypto crash and are looking for other investment vehicles to generate profitable returns.
There is evidence that the stock market might be a viable alternative to the crypto market. Not only does the stock market have a centuries-long track record of success, but stock options, in particular, might offer a way to amplify profitability according to trading results we've seen from stock market professionals.
How Bad Is The Crypto Crash?
Imagine a plane that loses an engine and crashes uncontrollably out of the sky. That's what the price of most cryptocurrencies has looked like over the last year.
Bitcoin, the most well-known and long-standing cryptocurrency, has fallen more than 70% since its all-time high last November.
Cryptocurrencies took a big hit recently due to the collapse of the FTX crypto exchange. FTX was once so big that its founder was one of the world's ten youngest billionaires. It has now imploded into bankruptcy in a dramatic destruction of investor wealth.
Crypto values have dropped hard and fast, leaving many crypto investors wondering what to do with any money they have left from their crypto investments.
Will Crypto Values Come Back?
One possibility crypto investors face is simply waiting it out and seeing if the value of cryptocurrencies goes back up.
There is no way to be sure what will happen in the future with crypto values. One challenge, in particular, is that crypto is a relatively new investment vehicle.
The crypto market formed just a little over ten years ago. Its short history offers little guidance as to whether it may recover from a crash of this kind. While Bitcoin has seen nosedives in value before, some economists see this crash as fundamentally different from anything else that has come before it.
That means an extra layer of risk might be involved in maintaining a crypto investment.
Crypto prices in recent years mirrored the signs of a market bubble. In some ways, it resembled the Dutch tulip bulb market bubble that occurred back in the mid-1600s, where speculation drove the value of tulips to extremes.
In that case, some tulip bulbs sold for six times the average person's annual salary. Looking back, it seems shocking that anyone would have paid that amount to buy a single tulip. At the time, though, market speculation was driving the price, and the value of tulips became more about emotion and speculation than it did about the actual tulips themselves.
Crypto might be similar in some ways. It has no physical product or organizing body. Considering we got to the point where our barbers and mothers were talking about crypto, the demand for crypto had risen to a fever pitch, perhaps similar to the tulip bulb craze.
Now that the bubble has popped, does it mean that crypto will forever be squashed and never regain its value? No, it doesn't necessarily mean that. But clearly, there are some indications that crypto needs a more foundational value to sustain the prices we saw when crypto was peaking in value late last year.
One thing crypto does have is a track record of volatility during its decade of existence. Future price spikes are, therefore, certainly not out of the question, but whether the crypto market can sustain any potential future price increase is debatable.
Ultimately, there is just no way to be sure what the future of crypto holds. There are plenty of signs that crypto investments carry many risks, but crypto will still have a return to glory in the future.
The stock market may be worth considering if you'd like to sidestep the crypto market risk but still want to earn profits on your investments.
The Stock Market Might Be a Viable Alternative
One thing that the stock market has going for it is a long history of going up in value.
In the United States, the stock market was created centuries ago. And if you look back at the last 90 years, the stock market has increased by an average of 9.8% per year.
That's a stark difference from the crypto market, which seems relatively young.
That's different from saying that the stock market doesn't have periods where it goes down. There, of course, have been many stock market crashes.
The difference with the stock market is that it has a long track record of recovering from those crashes. It has recovered from every crash it's ever gone through.
There is a magnet pulling the stock market up over time. There are occasional periods of distress, but historically the imaginary magnet has always prevailed and pulled the prices back up.
A long-term tendency like that might offer improved odds of making money in the stock market versus the crypto market.
Plenty of research suggests that a “buy low, sell high” investing strategy might be a particularly effective way to make money in the stock market. Since the stock market has such a deep history, it lends itself well to using historical price research to guide future investing decisions.
And right now, the stock market is nearly 20% below its all-time high, which might make market ETFs a good “buy low, sell high” candidate. There's no way to be sure whether it will go lower or higher from here, but in the past, the market has always eventually found a way to go back up.
Suppose your primary goal is to ensure your account value has good odds of going up over time and is unlikely to see an irreversible crash. In that case, the stock market might be a worthwhile investment alternative to consider.
Can The Stock Market Offer Amplified Returns?
For many who invested in crypto, the allure was the potential for explosive gains. For those people, the historical 9.8% average annual return that the stock market has achieved may sound unappealing.
One way to increase the potential for more significant returns is to invest in stock options, which are a mechanism that allows you to control stock at a price that is much lower than the actual share price of the stock itself.
So, for example, if you buy a $100 stock that goes up $5, you make 5%. But if you buy an option for that stock and it costs you only $10, when the stock goes up that same $5, it represents a 50% return. That offers an idea of the potential magnitude of profitability options can offer.
It's important to note that with the increased potential profitability comes a proportional amount of increased risk. If that same stock goes down by more than $10, that decrease could eliminate the option's value.
Options also have expiration dates, meaning that price change must occur before the expiration date to benefit from the upward movement of the stock price. That represents another element of risk that's involved with stock options.
So there is more potential risk with options than with stocks, but that might make options more similar to crypto regarding their volatility and potential for explosive returns.
We know of one option-picking service called Mindful Trader with a strong track record of success with options trades over the last month.
In the last 30 days, his live trading ledger indicates that his options trades have generated a win-loss record of 15-2. His options account grew in value by 32.7% during that period.
For those crypto investors who remember seeing explosive gains in the past, these returns from Mindful Trader might remind them of the glory days. They demonstrate that options might have enough potential upside rewards to satisfy the cravings of aggressive crypto investors.
But it's important to note: Mindful Trader's trading ledger shows that not all periods are alike, and some periods are unprofitable. That underscores the risk involved with options trading.
But for crypto investors who are comfortable with the risk, stock options offer one of the best alternatives to crypto for potentially explosive gains.
The crash has been challenging for most crypto investors over the last year.
For those considering investing alternatives, the stock market might be worth exploring. It has a noticeably longer track record of profitable returns and offers mechanisms like stock options to amplify those returns.
No matter where you have your money, investing will involve some risk. The higher you turn the dial on the potential reward, the higher the level of risk that typically will accompany the investment.