Investing in Crypto vs. Stocks is a debate that has been raging for almost a decade. It has never been just a one-way street. For centuries, individuals have had many choices in how to best manage their money. From standard stocks, bonds, and real estate investments to more unique business opportunities.
A new option arose over the last decade: digital currencies.
But how do digital assets stack up to more traditional investment options like stocks?
What is crypto?
Crypto is short for cryptocurrency, which is a type of digital money. It is different from regular money because it uses blockchain technology to keep track of transactions and to keep it secure.
Crypto investors can also use these digital coins to buy and sell things online, just like they would with regular money.
Crypto Market
- 24/7, 365 days a year
- Smaller, less liquid
- Sparse regulation at best
- Suited to investors with a very high-risk tolerance
What are stocks?
Stocks are financial investments in a publicly traded company. A stock represents a part-ownership of that company and entitles the owner to certain rights such as voting rights. Furthermore, stocks usually pay dividends so you don’t necessarily have to sell a stock to realise a profit.
Many investors buy shares in a company, as they are essentially betting on its future performance and growth potential. As the company grows, so does the value of the stocks.
Stock Market
- Established companies with a history
- Heavily regulated
- Investor protections
- Tried and tested investment vehicles
The significant similarities between crypto vs. stocks
Economists and analysts have found many similarities between crypto markets and stock markets. The most obvious is that it represents something, rather than being that something.
Representation of wealth / an asset
Stocks are a representation of wealth because they represent partial ownership in publicly traded companies.
Crypto on the other hand is somewhat similar as it represents a value to the part ownership of a public money network.
The similarity is not the value or how value is derived but rather the mechanics of representing a piece of something you do not have full control over.
The tools used are very similar in nature
Traders exchange both Crypto and Stocks primarily online.
Whilst stocks are mostly listed on regulated exchanges in recognised jurisdictions, the majority of administration (exchange of ownership) is captured using online trading platforms such as MetaTrader or the like.
Trading analysis, especially charting tools like TradingView are exactly the same for both markets.
Trading methodologies are interchangeable
There are 3 main Trading methodologies that exist and most trading strategies fall into these categories or a hybrid thereof.
Stocks have a better dataset to work with as it has been around much longer. Furthermore, the stock market is highly regulated for the most part.
- Fundamentals.
This is more suitable as a strategy when trading publicly listed stocks, as the business is audited and the information which comes out of the business is verified.
With crypto, the fundamentals are shaky at best as it is an asset class that doesn’t really solve any problems and has no real underlying asset value. Bitcoin in particular could be put in a special category but is beyond the scope of this article. - Sentiment.
Here we treat both crypto and stocks the same. The sentiment is very much driven by the news media and news cycles.
Professional traders do not trade based on sentiment but rather use it as a guide to establishing how their trading ideas will play out or to seed future trading ideas. - Technical Analysis.
This is the holy grail of fortune-telling. Some TA traders believe the chart will tell you everything and love to backtrace to show how signals have played out in the past.
The problem with TA is that it is basically the same as reading tea leaves or rubbing a crystal ball.
7 Major Differences when comparing crypto vs. stocks
When it comes to investing, stocks and cryptocurrencies both offer potential rewards but also significant risks.
To get the best bang for your buck (or crypto according to which you choose), make sure you know what sets these two asset classes apart.
I have identified 7 key differences so you can decide which is right for YOU!
Ownership of Digital Currencies vs Equity
When it comes to investing, the stakes are high and so is the need for protection. That’s why you must own a brokerage account for stock transactions – with info like your Social Security or National Insurance number, address and signature acting as verification tools against fraud or identity theft.
Whereas traditional investments involve more paperwork, cryptocurrency allows investors some much-welcomed anonymity – but at what cost?
Digital wallets may offer convenience in storing currency online. However, they also pose risks. Hackers can steal your funds or you can forget or lose your passwords. You may never be able to recover such losses. Even if you opt for hardware wallets (in trusty USB drive form), misplacing them could mean losing all access to those precious crypto coins too!
Stock Exchanges compared to Crypto Exchanges
Cryptocurrency is still a rather new development on the market and has taken off like wildfire since 2017. Binance, one of the largest cryptocurrency exchanges with an impressive $50 billion trading volume in May 2021, boasts about five times less activity than Nasdaq – showing just how big stock exchanges are by comparison!
We still lump Crypto in one sector – Finance or “FinTech” as some call it. The stock market, in contrast, has multiple sectors that influence each other and are influenced by external factors in a highly complex matrix.
In crypto, when bitcoin goes up, everything else goes up and conversely when bitcoin goes down, everything else goes down.
Regulators are yet to regulate crypto exchanges. There are some rules to abide by but still, there is no regulation of digital currency exchanges or the cryptocurrency market, which can be compared to the equity markets anywhere in the world.
Conversely, a stock exchange, like the New York Stock Exchange (NYSE) is heavily regulated. All stock market activity in the USA falls under the purview of the SEC (Securities and Exchange Commission).
Liquidity – How easy is it to get in or out of an investment position
With stocks, liquidity is a given – but when it comes to the crypto market, investors have no choice but to jump into the unknown. While Bitcoin has its fair share of liquidy-lovers streaming in and out on any old day, Polygon isn’t so lucky; trading volumes just don’t compare!
And unfortunately for crypto owners – they’ve faced an even bigger worry: slippage. When large amounts are sold during low liquidity periods this could lead to big losses that’ll leave you high & dry… or maybe more like ‘low & wet’ instead?
Volatility
Investing in crypto or stocks can be a thrilling, but risky venture – especially when it comes to the volatility of cryptos like Bitcoin. That said, history tells us that stock markets have seen ever-growing success over time – despite the volatility of some stocks.
Plus investors have plenty of information available on public stocks at their fingertips for informed decisions! Crypto trading is much more of a wild west situation still.
Trading Costs
Investing in cryptocurrency can be a costly adventure. Every coin is different, and some have steeper fees than others – but to help speed up the transaction process?
It’s all about boosting those gas costs! Stock investors face their own burdens; regardless of the low-fee stocks you choose, your returns will take transaction fees into account.
Talk about added financial duties!
Trading Hours
Forget that early 9-5 hustle, slip into the 24/7 crypto market and trade around the clock!
No matter when you feel like making a move on your investments, there’s sure to be something happening in this always-open cryptocurrency world.
Diversification
When constructing a portfolio, savvy investors know better than to put all their eggs in one basket.
That’s why they are increasingly turning to cryptocurrencies as an uncorrelated asset which can add much-needed diversification and stability – not just financially but also psychologically!
After all, with its resistance towards inflationary pressures, it’s the perfect way of safeguarding yourself against turbulent times.
The Bottom Line
Investing in Cryptocurrency vs Stocks require in-depth knowledge of both industries. You also need a wealth of knowledge to know how to navigate the space in a safe way.
Not only are they both high-risk investment options, which are only suitable for seasoned investors but they both have many scammers lurking in the dark.
Always get independent financial advice when making investment decisions. Never invest more than you can afford to lose, especially in crypto holdings.
What are your thoughts on the “investing in cryptocurrency vs stocks” debate?
Leave a comment below!
