As economic uncertainty drags into another year, many investors are questioning where their money is safest. For some, cryptocurrency once seemed like a hedge against inflation and market chaos but 2025 hasn’t entirely borne that out.
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“In 2025, the S&P 500 rose about 16%, while Bitcoin gained only around 6%,” said Gleb Kurovskiy, chief digital officer at Luminary. “This shows that even the largest cryptocurrency can underperform stock markets for long periods.”
Experts say crypto is not the digital gold it was promised to be, but more like a high-risk tech stock, especially when the economy starts to feel shaky.
1. Crypto Behaves Like A Risky Stock
Crypto doesn’t have the backing of time-tested companies with a solid record like stocks do; it is very sensitive to investor sentiment and tends to fall when investors panic.
“During October’s Black Friday sell-off, Bitcoin fell sharply from $122,000 to $102,000, while safe-haven assets like PAX Gold rose,” said Kurovskiy.
In fact, according to Wheeler Pulliam, a CFP at Xponify Financial, “Cryptocurrency tends to act more like the high-risk penny technology stocks did in the late 1990s.”
Pulliam added that emotional trading often makes volatility worse. Investors buy high, sell low and can’t always exit quickly due to limited liquidity.
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2. Regulation is Underway That Could Change Everything
Crypto is still largely unregulated compared to stocks. Thus, Pulliam said, that means “there is only one thing that can happen at some point; it gets regulated.”
While new regulation could force greater transparency, it could also strip crypto of its outlaw appeal, potentially driving investors away.
Efforts are underway, such as the U.S.’s Guiding and Establishing National Innovation for U.S. Stablecoins Act, (GENIUS Act), the pending CLARITY Act, which seeks to create a regulatory framework for digital assets, and others around the world.
3. Economic Instability Makes Crypto Riskier
When markets swing as they do in times of economic uncertainty, crypto companies may not hold their value. Many now hold digital coins as part of their business reserves, a strategy known as Digital Asset Treasury Strategies (DATS), which makes their balance sheets highly volatile, according to Jason Bishara, financial lines practice leader at NSI Insurance Group.
“Sharp market drops can instantly devalue token holdings or collateral, undermining balance sheets and investor trust.”
Some stocks tied to these assets have soared from mere cents to triple digits, only to crash again, revealing that crypto’s wild price shifts create serious risks to investors.
4. Uncertainty Reveals Crypto’s Weak Spots
In a nutshell, economic turbulence reveals crypto’s weak spots, such as unpredictable returns, governance holes and limited protection.
“In a volatile market, people start to get seasick from the big up and down waves … they start to look for a steady shore like CDs or blue-chip stocks and bonds,” Pulliam said.
Investors who want to dip their toes into crypto should do so cautiously and slowly, not overburdening their portfolios with the risky investment, and probably not much in times of economic uncertainty like these. During instability, reliable returns often come from disciplined investing, not digital hype.
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This article originally appeared on GOBankingRates.com: 4 Reasons Economic Instability Makes Crypto a Risky Investment
