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Can blockchain stocks shield investors from crypto volatility?

The crypto market has cratered to multi-month lows, with top digital assets such as bitcoin and ethereum plunging from their all-time highs. Under such circumstances, can investing in blockchain stocks shield investors from the volatility seen in trading of digital assets?

Blockchain stocks refer to companies that derive their various businesses from the crypto ecosystem such as crypto trading, cryptocurrency mining, and crypto technology development.

Nvidia, Coinbase, Block, and AMD were among the top 25 stocks in terms of trading volumes in May, according to Vested Finance, a global investment platform.

Other major crypto stocks include Robinhood and MicroStrategy, which is the biggest corporate holder of bitcoin in the world.

Stocks of companies that enable crypto trading such as Coinbase and Robinhood have fared worse than crypto assets, while companies such as Nvidia and AMD that are involved in manufacturing chips and designing technologies used for crypto mining have fared better.

“This would be because these latter companies have other sources of revenue, apart from crypto. When it comes to crypto exchanges, missed revenue estimates and poor earnings forecasts, too, have affected their stock price,” said Viram Shah, co-founder and CEO of Vested Finance.

On a one-year basis, bitcoin is down 42%, ethereum 48%, MicroStrategy 74% and Coinbase 78%.

According to experts, investing in crypto assets or stocks is riskier due to the volatility.

“However, investing in stocks of companies that have crypto exposure but whose revenues are not dependent on earnings from crypto may be safer. Plus, it is also an option for investors who may not want to buy and store crypto assets. With the price of crypto assets having fallen substantially from their highs, some investors may choose to buy with the dip,” said Shah.

Some experts suggest that crypto or blockchain stocks both have their relative merits and demerits.

“Investment into crypto is a direct bet on a single or multiple currencies and tokens, with an expectation that a handful of them could become potential replacements for traditional assets including currency and gold. On the other hand, investment in blockchain companies are based on an expectation of the technology itself growing in importance and becoming prevalent,” said Ramkumar Venkatramani, lead, investment advisory, Kristal.AI.

For investors, risk appetite and long-term asset allocation are equally important. Do note that crypto investments in India attract a flat 30% tax on capital gains from digital assets with effect from 1 April. From 1 July, there will also be a 1% TDS on every crypto transaction.

Investments in overseas stocks are subject to capital gains tax, irrespective of whether the company is part of the crypto ecosystem or not.

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