Investment & Investing

Insofar as the relative risk of crypto - you measure the risk by the same way you measure the risk of any asset class, no? Market risk being primarily determined by volatility, either observed / implied or traded, liquidity risk by how quickly you can offload on a good / bad day, systemic risk (how it moves with respect to unrelated asset classes), regulatory risk, etc...

Volatility alone is a pretty hard measure, I'd have thought.

Aren't gold / precious metals pretty volatile too?

Thanks for this, it made me think about it a bit.

Yes, you're right that volatility is frequently used as a measure of risk, and bitcoin is certainly very volatile in the short term. So does that make it risky? Yes, in the short term it certainly does. But in the long term, four years or a halving cycle, it has only ever gone in one direction, ie up. Can volatility only be one way? I don't think so, so I would argue that, historically, bitcoin has not been volatile over the long term, it has just grown. NB all this is about the past, not a future prediction. And I'm only talking about bitcoin, not meme/shitcoins, which I see as being completely different investment propositions.

Similarly, and I googled this as I didn't know, people say gold is considered more volatile than equities over the short term, and at times of crisis or major change, but less volatile over the longer term.

Other risks:
Bitcoin is a liquid market so liquidity risk low.

Regulatory risk was high as it can be banned, but now much lower as Blackrock etc is in.

Systemic risk is quite good as it isn't directly related to equity markets - although it has tended to move a bit more in line with them than might be expected. But it gives at least some diversification.

Technological risk - there has to be some, whether it's hacking, being overwhelmed by AI, or being replaced by something better. I would put it in the 'unquantifiable but potentially catastrophic' box.

So adding it together, over the long term it doesn't seem that high risk on most measures, but there is the non-zero potential for it to collapse. So someone might decide to buy it for the track record of returns but not to rely on it for money they can't afford to lose, just in case.