Is Crypto Really an Investment—or Just Speculation?

A 2023 Pew Research Center study found that 75% of U.S. adults familiar with cryptocurrency aren’t confident in its safety or reliability. Still, crypto markets recorded over $2 trillion in trading volume last year. So is this space a misunderstood technological breakthrough—or just speculation in disguise?

Key Takeaways

Many cryptocurrencies behave more like speculative trades than income-generating assets.
Lack of fundamentals, extreme volatility, and market hype make valuation difficult.
Crypto may have a role in some portfolios, but sizing should align with risk appetite.
FOMO and emotional trading behavior are especially common in crypto markets.
Blockchain technology has potential, but most tokens may not offer lasting utility.

Where’s the Underlying Value?

Traditional investments like stocks and bonds are generally valued based on expected cash flows—such as earnings, dividends, or interest. Crypto assets rarely follow this model. Bitcoin produces no income. Most tokens don’t reflect ownership or offer claims on profits.

Supporters often compare crypto to gold—valuable because people agree it is. But gold has tangible scarcity and centuries of use as money. Crypto’s value often depends more on network adoption and perception than underlying fundamentals.

According to CoinGecko, more than half the tokens tracked on its decentralized exchange (DEX) tracker have failed in the last five years. This raises a broader question: if most projects don’t survive, how stable is the category overall?

Hypothetical: A 5x Gain That’s Hard to Realize

Suppose an investor puts $5,000 into a trending token that grows 500% in one year. Their investment is now worth $30,000—on paper. But when they go to sell, the market turns thin, slippage increases, and short-term capital gains taxes cut into returns.

This example highlights two critical issues:

Low liquidity: Spreads widen quickly in volatile markets.
Tax friction: Gains can be taxed before they're easily accessed in cash.

Without exit planning or diversification, headline profits can shrink fast.

Why Crypto Often Resembles Gambling

Critics say crypto behaves more like betting than investing. Key reasons:

Most tokens lack intrinsic value or yield.
Prices move more on hype than fundamentals.
Regulation is limited, exposing investors to fraud risk.
Many investors chase short-term momentum over long-term conviction.

For example, Dogecoin dropped roughly 88% from its May 2021 high by mid-2022. Its prior surge wasn’t tied to earnings or innovation—just social media buzz and memes.

Still, not all crypto is identical. Bitcoin and Ethereum have longer histories and more institutional interest. But even these assets remain highly volatile. As of mid-2025, BTC/USDT trades over 60% below its 2021 peak, showing how fragile price support can be.

The Psychology of Crypto: Emotions and Echo Chambers

Crypto's market swings tend to amplify emotional reactions:

FOMO during rallies
Fear-driven selling in crashes
Overconfidence after gains
Confirmation bias in tight online communities

Discussion forums like Reddit and X (formerly Twitter) often create echo chambers where bullish sentiment overshadows risk. Investors who enter for the tech may find themselves riding waves of speculation instead.

This feedback loop—where emotion drives price and price reinforces emotion—is one reason crypto can behave less like investing and more like betting.

Can Crypto Be a Sensible Portfolio Allocation?

Some investors include crypto in their portfolio—usually in small allocations, such as 1% to 5%—treating it as a high-risk, high-upside asset.

Historically, Bitcoin had a low correlation with the S&P 500 (around 0.08). However, in 2022, both declined sharply—stocks dropped 18%, and Bitcoin lost over 60%. That experience showed that low correlation alone doesn’t guarantee portfolio stability.

For crypto to make sense in a portfolio, investors should be able to withstand:

Steep and sudden losses
Ongoing regulatory uncertainty
Prolonged drawdowns

Crypto isn’t inherently flawed—but many tokens behave like high-volatility lottery tickets rather than stable assets.

Crypto Market Performance & Risks — FAQs

How much trading volume did crypto markets record in the last year?

Crypto markets saw more than $2 trillion in trading volume over the last year, despite high volatility and persistent concerns about reliability.

What percentage of crypto tokens failed over the past five years?

More than 50% of tokens listed on decentralized exchange trackers failed in the past five years, reflecting high attrition in new crypto projects.

How far did Dogecoin fall from its 2021 peak by mid-2022?

By mid-2022, Dogecoin was down roughly 88% from its May 2021 peak, showing how meme-driven assets can swing dramatically without earnings support.

How far below its all-time high is Bitcoin trading now?

Bitcoin remains over 60% below its 2021 all-time high, reflecting the sharp declines experienced during the 2022 Federal Reserve tightening cycle.

How did Bitcoin perform relative to the S&P 500 in 2022?

In 2022, the S&P 500 fell about 18%, while Bitcoin dropped over 60%, showing both assets declined together despite historically low correlation.

What correlation has Bitcoin shown to U.S. equities over time?

Historically, Bitcoin’s correlation to the S&P 500 hovered near 0.08, suggesting weak linkage. But during 2022 stress, both assets sold off sharply.

What are typical portfolio allocations some investors assign to crypto?

Some investors treat crypto as a small speculative slice, often around 1–5% of portfolios, to balance potential upside against significant volatility risks.

How can taxes impact short-term crypto gains?

Gains on crypto held less than a year are taxed as short-term capital gains, which can sharply reduce profits, especially when paired with slippage in thin markets.

What behavioral risks amplify crypto volatility?

Investors often experience FOMO during rallies, panic selling in downturns, overconfidence after wins, and confirmation bias in online echo chambers.

Why do some critics compare crypto investing to gambling?

Crypto lacks intrinsic cash flows, depends on hype cycles, faces limited regulation, and often trades on short-term momentum—factors resembling high-risk speculation.