Most people are familiar with the stock market, which has generated wealth for centuries. Born out of the 2008 financial crisis, cryptocurrencies have become a popular alternative asset worth over $3 trillion. While smaller than the stock ($55 trillion) and bond market ($46 trillion), crypto’s growth has been nothing short of remarkable.
But how do these investments really compare? And more importantly, what roles should crypto play in your investment portfolio?
This article dives into these questions to help you understand the differences between these assets and determine where crypto fits in your portfolio.
The Fundamental Differences Between Crypto and Stocks
Stocks represent fractional ownership in corporations. For example, if you owned stock in a company that is acquired, you would receive your share of the acquisition proceeds. Moreover, many stocks pay a portion of their net income as dividends, enabling you to profit from owning shares of the company over time.
You can determine a company’s intrinsic value by discounting its future cash flows to its present value. Companies that anticipate a lot of growth have higher future values that fluctuate more due to uncertainty, while companies with low volatility have predictable future income, making for more stable prices.
Most cryptocurrencies are digital tokens without any intrinsic value. Like gold or other precious metals, the market values them primarily based on supply and demand. That said, decentralized finance (DeFi) makes generating income from crypto assets possible, while non-fungible tokens (NFT) may have an intangible value like artwork.
Many cryptocurrencies also have a limited supply with no centralized control. Unlike currencies or stocks, where governments and corporations can dilute value over time, cryptocurrencies like Bitcoin have a maximum supply that doesn’t change. This means the “supply” side of supply and demand will always be favorable to pricing.
The merits of stocks and crypto are hotly debated. In conventional finance, many experts warn that cryptocurrencies are a speculative bubble. However, in crypto circles, the digital economy represents a complete paradigm shift that will eventually replace the traditional financial system with a more efficient alternative.
The truth may lie somewhere in the middle. Crypto assets have proven to be more durable than tulip bulbs or other speculative bubbles—even generating income in the case of DeFi. On the other hand, they are highly volatile and represent just a fraction of the size of the traditional stock and bond markets.
Tax & Regulatory Differences – Crypto vs. Stocks
Cryptocurrencies are far less regulated than traditional stocks and bonds—despite the SEC’s best efforts to enforce its wishes. While public companies must file numerous disclosures in SEC filings, cryptocurrencies don’t have any reporting requirements. They may not even have a whitepaper describing how they work or why they exist.
For example, Pump.fun enables anyone to create and promote memecoins in seconds. At the same time, a public company may need to file hundreds of pages of legal documents before undergoing an initial public offering (IPO). While crypto lowers regulatory hurdles to launch and enables more innovation, it may also have fewer investor protections in place.
Despite legal differences, stocks and cryptocurrencies are both treated as “property” by the IRS, subject to capital gains taxes. Stockbrokers typically provide tax forms each year detailing how much you owe, but crypto assets are harder to track because they can be minted or transferred between offline wallets and exchanges.
ZenLedger simplifies the crypto tax preparation process. Source: ZenLedger
Fortunately, ZenLedger can help keep track of crypto tax obligations. Our platform automatically aggregates transactions across wallets and exchanges and matches them up to provide accurate cost basis and capital gains calculations. We also generate the paperwork you need to file each year in a few clicks!
It’s worth noting that the regulations surrounding crypto assets remain in flux. With President Trump’s election, the SEC could take a lighter approach to the market and give the CFTC more control. Meanwhile, many experts hope that the IRS will clarify uncertainties surrounding the tax treatment of some crypto transactions.
Where Crypto Fits in a Portfolio
The meteoric rise of Bitcoin over the past decade has attracted many Gen Z and Millennial investors. According to a report by NFTEvening, 26% of American adults started investing in Bitcoin following its surge past $100,000 with 70% of adults owning crypto in 2025. About 80% of owners are Gen Z or Millennials, and only 4% of boomers hold the assets.
Bitcoin’s sharp price increase also means that many investors are likely holding oversized positions in the assets. For example, if 10% of their portfolio was in Bitcoin last year, it could now account for 20% or more of their portfolio. While nobody dislikes a significant gain, it could leave investors over-exposed to the volatile crypto market.
Most financial advisors recommend a portfolio that matches your risk and return requirements. Gen Z can afford big risks because they have a long time horizon, while Gen X or boomers may find volatile crypto assets unsuitable for their portfolios. However, diversification is also important to increase risk-adjusted returns over time.
Bitcoin prices may be sharply higher over the long run, but there have been many significant ups and downs. Source: Coin Market Cap
Diversification helps smooth volatile returns across different assets. For instance, if Bitcoin moves lower, stocks might move higher; bonds might move higher if stocks move lower. The result is higher risk-adjusted returns (returns per unit of risk taken), which results in more consistent performance and the ability to use leverage.
For example, suppose one portfolio consists purely of cryptocurrencies. This portfolio might have a 32% annual return with 85% volatility, which yields a Sharpe ratio (a risk-adjusted return metric) of 0.35. On the other hand, a diversified portfolio might have a lower annual return of 17.6%, lower volatility of 34.6%, and a Sharpe ratio of 0.45.
The Bottom Line
Cryptocurrencies have become popular investments, especially among Gen Z and Millennials. While Bitcoin’s meteoric rise has made it successful, it’s important to understand the differences between crypto and conventional financial assets and where both fit in a diversified financial portfolio.
If you invest in crypto assets, ZenLedger can help you stay organized for tax time. Our platform aggregates transactions across wallets and exchanges, computes capital gains and losses, and generates the paperwork you need to file each year. You can also identify ways to save on tax loss harvesting! Get started today for free!
The above is for general info purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
