Risk-ON vs Risk-OFF, Value vs Growth
As crypto is increasingly becoming considered an asset class (discussed within our regulation and banking adoption posts), it is important to understand the characteristics of the market such that we can start predicting future demand. In this article we shall introduce some basic classifications of asset classes and further elaborate upon this in later posts where we shall discuss macro economic drivers of the various classifications.
Risk-ON vs Risk-OFF
- Risk-ON – eg stocks, which take precedence with greater appetite for risk by investors
- Risk-OFF – eg cash or treasury bonds where investors move funds into when appetite for risk reduces
At present however we see that the crypto market as a whole is trading as a leveraged Risk-ON product with a extremely high degree of correlation across the aforementioned crypto categories. This has also been asserted by Goldman Sachs, where they compare Bitcoin with the Risk-ON trade copper, as opposed to gold. It stands to reason, that most non-Bitcoin crypto projects should be trading as Risk-ON assets and in fact we can assess a certain degree of correlation between a generic crypto index and the NASDAQ (a US tech stock index) – this is touched upon in our market bubbles post.
Growth vs Value
- Growth – Growth stocks represent companies that have demonstrated better-than-average gains in earnings in recent years and that are expected to continue delivering high levels of profit growth, although there are no guarantees. “Emerging” growth companies are those that have the potential to achieve high earnings growth, but have not established a history of strong earnings growth. i.e. companies where the expectation of future cashflow is greater than the current.
- Value – Companies which have fallen out of favour but are still returning good returns. i.e. established current cashflow which are trading at a discount.
The technology sector can be considered a prime example of growth stocks where Apple’s share price history highlights how the adoption of innovation follows the uptrend in share price – where investors have bet on the future growth. This is also seen in the current price action of the hydrogen car market, which is seen by many as the natural evolution to the current electric car market.
Disclaimer: This article is written for the purposes of research and does not constitute financial advice or a recommendation to buy.