Stocks, bonds and crypto: what do you own, and what can go wrong?
A share, a bond and a crypto token can all sit side by side in one app, but they are very different things. One is a slice of a company, one is a loan, and one is a digital asset whose price rests on demand alone.
Education only, not investment, tax or legal advice. Crypto-assets are high-risk — risk disclosure.
The short answer
A stock is part-ownership of a company, a bond is a loan to a government or company that pays interest, and a crypto-asset is a digital token whose price usually depends only on what buyers will pay. Regulators describe stocks as riskier than bonds, and many crypto-assets as highly speculative.
Key takeaways
- Stocks give you ownership and a share of future profits; bonds give you a promise of interest and repayment; most crypto-assets give you neither.
- Stocks have historically carried more risk and higher returns than bonds, which in turn are riskier than cash.
- Bond prices fall when market interest rates rise, so even 'safe' bonds can lose value before they mature.
- SIPC and FDIC protections do not cover a fall in market value, and crypto that is not a security falls outside SIPC altogether.
What do you actually own with each one?
A stock, or share, gives you part-ownership of a company1. If the company grows and earns more, the value of that slice can grow too. A bond is a debt security, much like an IOU: you lend money to a government, local authority or company, which promises to pay a set rate of interest and to repay the face value when the bond matures2.
A crypto-asset is a digital token recorded on a blockchain network. Most tokens are neither ownership of a business nor a loan to anyone. EU financial supervisors warned in 2022 that crypto-asset prices often rely solely on consumer demand, and that there may be no backing assets or other tangible value6. Our explainer on how blockchains work covers the technology itself.
Stocks, bonds and crypto-assets side by side
| Stock | Bond | Typical crypto-asset | |
|---|---|---|---|
| What you hold | Part-ownership of a company1 | A loan to the issuer2 | A token on a blockchain |
| How you can earn | Price rises and dividends1 | Interest, plus principal back at maturity2 | Mostly price rises |
| Main risks | Company does badly; shareholders last in line in bankruptcy1 | Default, rising rates, inflation, liquidity, early call2 | Sharp price swings, platform failure, little recourse6 |
How does each one make or lose money?
Stockholders make money in two ways: capital appreciation, when the share price rises, and dividends, when the company pays out part of its earnings1. They can also lose money. If a company goes bankrupt, common stockholders are the last in line to share in what is left, behind bondholders and preferred stockholders1, so they may receive nothing.
Bondholders receive interest during the life of the bond and the principal back at maturity, as long as the issuer can pay2. The main risks are credit risk (the issuer fails to pay on time), interest rate risk, inflation risk, liquidity risk and call risk (the issuer repays early)2.
Worked example
Why a 'safe' bond can lose value
Bond prices and market interest rates generally move in opposite directions. In an SEC example, market rates rise from 3% to 4% and the price of a Treasury bond drops from $1,000 to $9254. If you hold to maturity and the issuer pays, you still get the face value back, but selling early would lock in the loss. The longer the bond's maturity, the bigger this effect tends to be4.
Most crypto-assets pay no contractual interest and no dividend, so any gain usually depends on someone later paying a higher price6. EU supervisors warn that prices can fall and rise quickly over short periods and that you may lose all the money you invest6. Our explainer on volatility shows how to read those swings.
Which is riskier: stocks, bonds or crypto?
The SEC's guide to asset allocation describes stocks as having historically the greatest risk and highest returns of the three major asset categories, bonds as generally less volatile with more modest returns, and cash as the safest but lowest-returning3. Crypto-assets sit outside that traditional trio. The SEC has called investments in crypto asset securities exceptionally volatile and speculative5, and EU supervisors describe many crypto-assets as highly risky and speculative and not suited to most retail consumers6.
Figure · From steadier to more speculative
- L4Crypto-assetshighly risky and speculative
- L3Stocksgreatest risk of the big three
- L2Bondsless volatile, modest returns
- L1Cashsafest, lowest return
Risk also varies inside each group. A short-term government bond behaves very differently from a high-yield corporate bond, and a large established company's shares differ from a small start-up's. Our money market funds explainer covers the cash-like end of the spectrum.
What protections apply if something goes wrong?
Two US safety nets are often misunderstood. The FDIC insures bank deposits up to $250,000 per depositor, per insured bank, for each ownership category, but it does not cover stocks, bonds, mutual funds or crypto assets8. SIPC protects customers of a failed brokerage firm up to $500,000, including $250,000 for cash, but it does not protect against a fall in the value of your securities7.
Which safety nets apply
Trading venues differ too. In 2023 the SEC warned that none of the major crypto asset entities was registered with it as a broker-dealer, exchange or investment adviser, so platforms may lack important investor protections5.
Some investors get crypto exposure through exchange-traded products listed on stock exchanges. The SEC notes that spot bitcoin and ether products are not registered under the Investment Company Act of 1940, so they are not subject to its rules on valuation and custody of fund assets the way mutual funds and ETFs are9. See our explainer on spot bitcoin ETFs and on crypto custody.
How do investors combine them in a portfolio?
Spreading money across different asset categories is called asset allocation, and spreading it across different investments to reduce risk is diversification3. The SEC suggests starting from two questions: your time horizon, meaning how long you expect to invest towards a goal, and your risk tolerance, meaning your ability and willingness to lose some or all of your money in exchange for higher potential returns3.
How rebalancing works
- 1
Set a target mix
For example, 60% stocks and 40% bonds on a $10,000 portfolio: $6,000 and $4,000 (illustrative).
- 2
Let markets move
If stocks rise 40% and bonds stay flat, you hold $8,400 in stocks and $4,000 in bonds: about 68% and 32%.
- 3
Compare with the target
On $12,400 in total, 60/40 means $7,440 in stocks and $4,960 in bonds.
- 4
Bring it back
Moving $960 from stocks to bonds restores the original mix. The SEC calls this rebalancing3.
None of this is a recommendation for any particular mix. The right balance depends on personal circumstances, and our risk disclosure explains why Bitfolio does not give individual investment advice.
What mistakes do beginners make when comparing them?
Common beginner mistakes
Treating all three as interchangeable 'investments'
Ownership, lending and holding a token carry different rights. Know which one you have before you compare returns.
Assuming bonds are loss-proof
Rising interest rates push bond prices down, and issuers can default2.
Thinking SIPC or FDIC covers market losses
Neither protects against a fall in value, and crypto that is not a security is outside SIPC7.
Comparing past crypto gains with long-run stock returns
Short, volatile price histories say little about the future and can reverse quickly.
Putting money you need soon into volatile assets
A short time horizon leaves little room to recover from a fall.
Risk warning
You can lose all of the money you put in
Stocks can fall sharply, bond issuers can default, and crypto-assets can lose most or all of their value with no compensation scheme behind them6. Only invest money you can afford to lose, and check whether a firm is regulated using our guide on how to check a regulated firm.
Frequently asked questions
Are bonds always safer than stocks?
Is crypto a stock?
No. A stock is ownership in a company. Most crypto-assets give no ownership in any business. Some tokens can still qualify as securities: SIPC, for example, distinguishes crypto that qualifies as a security from crypto that does not7. Our explainer on the Howey test covers how US law draws that line.
Do crypto-assets pay dividends or interest?
Most do not pay contractual dividends or interest. Some platforms offer a yield on crypto deposits, but EU supervisors warn that consumers are unlikely to have any rights to protection or compensation if things go wrong6.
What happens to stocks and bonds if a company goes bankrupt?
Bondholders and preferred stockholders are paid before common stockholders, who are last in line and may get nothing1.
Is buying a bitcoin ETF the same as owning bitcoin?
Not exactly. You own shares in a trust that holds bitcoin, so you avoid managing keys yourself, but you pay sponsor fees and the share price can differ from the asset's price9.
The bottom line
Stocks make you a part-owner, bonds make you a lender and most crypto-assets make you the holder of a token whose value rests on demand. Regulators rank stocks as riskier than bonds and bonds as riskier than cash, and describe many crypto-assets as highly speculative. Deposit insurance and SIPC do not cover falls in value. Understand what you own, how it earns and what protects it before comparing returns.
Sources
- Stocks — FAQs — Investor.gov, U.S. Securities and Exchange Commission Primary source
- Bonds — FAQs — Investor.gov, U.S. Securities and Exchange Commission Primary source
- Beginners' Guide to Asset Allocation, Diversification, and Rebalancing — Investor.gov, U.S. Securities and Exchange Commission Primary source
- Investor Bulletin: Interest Rate Risk — When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall — U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy, 2013 Primary source
- Exercise Caution with Crypto Asset Securities: Investor Alert — Investor.gov, U.S. Securities and Exchange Commission, 2023 Primary source
- EU financial regulators warn consumers on the risks of crypto-assets — EBA, ESMA and EIOPA (European Supervisory Authorities), 2022 Primary source
- What SIPC Protects — Securities Investor Protection Corporation Primary source
- Understanding Deposit Insurance — Federal Deposit Insurance Corporation Primary source
- Exchange-Traded Products (ETPs) Providing Exposure to Bitcoin and Ether: Investor Bulletin — Investor.gov, U.S. Securities and Exchange Commission, 2024 Primary source
How we checked this page: every figure above links to the numbered source it came from. Spotted an error? Tell the desk — see our editorial policy.
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