The Ultimate Investment Showdown: Bitcoin vs Bonds
Introduction
Would you rather risk steep losses for the chance at enormous gains, or choose smaller but reliable returns? This
difficult choice between investments in Bitcoins Vs Bonds, is something millions of people have to make every day.
To start, let's define what Bonds and Bitcoins are. Bonds are defined as “an investment product where you agree
to lend your money to a government or company at an agreed interest rate for a certain amount of time.” On the
other hand, Bitcoins are a type of cryptocurrency made to function as money and a form of payment, not in the
control of entities/groups, or individuals. In this article, I will discuss their risks/volatility, growth potential and
returns, and their suitability for investors, to determine which is a better investment.
Risk and Volatility
Bitcoins and Bonds differ slightly in terms of the amount of risk and volatility involved in investments, making them
fitting for different types of investors. Lets begin with Bitcoins, to understand what the main risks are when
investing in them. Since Bitcoins have no standardized value, they are extremely unpredictable and prices could
crash dramatically in short periods of time. Paul Single, the managing director and senior portfolio manager at City
National Bank said, "The price is only as good as what the next person is willing to pay, which presents an
enormous economic risk”. Another prominent risk is losing access to your cryptocurrency account, if you forget the
digital keys to your account. The digital keys of the account are typically a string of letters and numbers, and so
losing them can mean you no longer have access to your cryptocurrency. Lastly, security breaches are also
extremely dangerous and can pose major threats to your cryptocurrency wallet. We already discussed how the
reliance of your account on digital keys can be dangerous, but there are also major risks when using hardware
wallets (etc. USB’s). These USBs can be lost, damaged or malfunction, requiring many copies. Keeping
cryptocurrency on Exchanges, where investors deposit money and trade cryptocurrency at market prices, can also
be risky. If these exchanges are hacked, investors can lose access to their funds instantaneously, as exchanges
do not offer government backed- insurance like the FDIC or SIPC.
Bonds on the other hand, have only a few major risks, one being interest rates. When interest rates rise, these
new higher paying bonds rise in demand, while the older bonds pay less interest comparatively. Since there is less
demand for the older, lower paying bonds, their price is lowered to attract buyers. However, if the interest rates fall,
then investors face reinvestment risk as the new bonds have lesser returns. Inflation can also affect bond
purchasing power, as the interest earned from bonds will allow the purchasing of less goods/services after
inflation. Banks in response, increase interest rates causing the old lower paying bonds to lose value. Investors
prefer the newer high returning bonds, causing the older bonds to be lowered in price. Lastly, Credit risks occur
when the issuer of a bond (eg. government/corporation) fails to issue the interest payments, or even pay back the
original amount. This causes investors to receive late payments or none at all. While these Credit risks are low for
government bonds it is common in risky corporate bonds. In all, Bonds and Bitcoins both have their respective
downsides, though Bonds are significantly more safer than Bitcoins, in terms of volatility and risks.
Potential Returns
While the unpredictable bitcoin has delivered some eye opening returns in the last decade as compared to bonds,
certain investors value the steady gains in bond investments. I chose to compare Bitcoin to the US 10+ Year
Treasury Bond, as it's a popular benchmark for bonds.
Figure 1 - Data of Bitcoin (2012-2025)
Figure 2 - Data of Bloomberg US 10+ Year Treasury Bond (2012-2025)
In figure 1, we can see that from 2012-2025, The Bitcoin has returned 91.33% percent on average, which means
its value almost doubled each year. Its standard deviation (how much the investment fluctuates) is extremely high
at 148.01%, meaning the Value of Bitcoin could drop rock bottom or soar sky high, at any moment. The sharpe
ratio (amount of return per unit of risk) is 0.79, highlighting Bitcoin's high returns, somewhat compensating for its
enormous risks. In all, in the last 15 years Bitcoin has shown tremendous growth, with massive ups and downs,
with quite strong returns. On the other hand, in Figure 2, Bonds has had an average compound growth rate of
0.50%. This shows the stability of Bond investments, but also its very low returns in comparison. Their standard
deviation is 12.4%, which is much lower than Bitcoin's 148.01%, showing its stability and low fluctuations. Its
sharpe ratio of 0.05, showing how Bonds offer very little returns relative to their small risks. Overall, Bitcoin has
shown extraordinary returns but comes with extreme volatility, while US 10+ year Treasury Bonds provide stable
but relatively low gains. Investors must where to invest their money based on their preferences in terms of
monetary returns. This comparison shows that while Bitcoin may have greater returns, bonds are made to remain
stable instead of maximising growth.
Suitability for Investors
I believe that the suitability between bonds and Bitcoins depends on the risk tolerance of the investor and financial
goals. Bitcoins are fitting for investors who accept the high risks, and focus on the enormous returns that come
with it. Additionally, investors who are looking for long term growth may also gravitate towards investments in
bitcoin, and are okay with short term losses or volatility. Lastly, Bitcoin's high volatility with huge ups and downs,
also needs to be acknowledged by the investor. Overall, if the investor can recognize the short term volatility and
risks, and holds Bitcoin for a long time period to maximise returns, that is the path they may gravitate towards. On
the other hand, conservative investors who value stability over huge returns may find Bond investments appealing.
To add, if an investor wants to safeguard their original capital, while also earning predictable income in the form of
bond interest payments, Bonds may be more suitable for them. Lastly, investors may also choose Bonds Over
Bitcoin if they want a less volatile asset. They may not want their investment to face huge ups and downs. In the
end, both appeal to different types of investors, with bitcoin suitable for those who seek high risks and large
growth, and bonds allowing for less volatile and stable returns.
Conclusion
While bitcoins offer tremendous returns, it has high volatility and risk, as compared to
bonds being a more reliable and less risky investment. This means that the best investment, solely comes down to
the risk tolerance of the investor and their financial objective, instead of one being a better option.
Bibliography
The Basics of Investing In BondsWashington State Department of Financial Institutions
(.gov)https://dfi.wa.gov › financial-education › information
https://www.cnb.com/personal-banking/insights/bitcoin-risks-opportunity.html
https://curvo.eu/backtest/en/market-index/bitcoin?currency=usd#summary
https://curvo.eu/backtest/en/market-index/bloomberg-us-10plus-year-treasury-bond?currency=usd