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Crypto vs. Stocks: A Guide
People have been putting money into the stock market for a very long time. Still, crypto is a newer phenomenon that investors only recently started taking advantage of. It’s quite difficult to approach a crypto vs. stocks debate, especially considering that until a few years ago, crypto was not that known.
Either way, stocks and cryptos are different, and whether you are a newer or more experienced investor, you need to know what differentiates them. So, in this article, we will look into crypto and stocks and see their strong points and weaknesses.
Stocks vs. Crypto
Crypto and stocks can both be used in order to grow wealth if you are an investor. Before you start investing in any of it, you should do a lot of research. After all, they come with their own risks, and it’s essential to know them before you move forward. Let’s take a look at some information about stocks and crypto so you can understand both of them better.
What Are Stocks?
Stocks refer to a percentage of a business. They correspond to a part of a functioning company and have costs that show how valuable that company is. This applies even though stocks and sectors sometimes become popular with investors or go out of fashion with them. Stocks tend to change their price range according to the performance of the organization in the market.
What Is Crypto?
Cryptos or cryptocurrencies are different digital asset types that can be created digitally and also stored digitally. Someone investing in cryptocurrency would end up owning a set amount of it. How much the cryptocurrency values will depend on multiple factors, like the demand for it and the current supply.
What’s the Difference?
Until recently, most investors were mainly into stocks, but things changed when cryptocurrency emerged. The rise in the price of cryptos and bitcoin has attracted more and more investors, so a lot of people ended up joining the crypto market. However, the difference between crypto and stocks is that cryptocurrencies are very volatile – therefore, they are much riskier than stocks.
At the same time, stocks are not the most stable either, as the S & P 500 ended up losing more than one-third of its value after the pandemic started.
On top of that, there are many other things that set cryptos and stocks apart from each other. For instance, cryptos are not encrypted, while stocks are. But when it comes to cryptos, they are more independent, and anyone can start mining them. With stocks, they have to be created before anyone can start investing, so it is not that easy to invest in them.
The two of them are also different in terms of transaction fees. When you purchase cryptocurrency, the exchange fees are quite low, so the trade is more rewarding. At the same time, the gas and transaction fees will be different depending on each exchange.
On the other hand, stocks bring transaction fees all the time, so you cannot escape them. If the fee is for a small investment, all your profits from the stock will be eaten up.
7 Key Differences Between Stocks and Crypto
There are lots of differences between stocks and cryptocurrencies and you should know what sets the two apart if you are interested in investing. Here are 7 key differences to keep in mind:
When it comes to stocks, you must own a brokerage account to make the transaction. Your brokerage account can be verified using information such as your Social Security number, address, signature, and others. The goal of this information is to make sure there is protection in case of fraud or identity theft.
With cryptocurrencies, you can stay more anonymous, which is great. Once you purchase cryptocurrency, you can keep it in a digital wallet, either a software one or a hardware one.
Although it’s nice to stay anonymous, this can also bring some risks to the table. For instance, you may end up losing your currency to potential hackers, or you might forget the password to your account. If you have a hardware wallet, which comes in USB drive form, you might lose or misplace it, losing all your money in the process.
Cryptocurrency exchanges are pretty new, with Binance, the largest one, being around since 2017. Coinbase also launched in 2012. Binance had a daily trading volume of more than $50 billion in May 2021.
On the other hand, stock exchanges have been around for over two centuries. Nasdaq had a trading volume five times the volume of Binance in May 2021, and that says a lot considering Nasdaq is a smaller part of the global stock market.
Stocks are considered liquid by many investors, but when it comes to cryptos, their liquidity varies from one crypto type to another. Polygon is less liquid than Bitcoin, for instance, which is due to the trading volume.
Also, both crypto and stock investors can end up dealing with slippage, which happens when someone sells a large amount of an asset during a low liquidity period. It involves losses for the investor. But crypto owners have a higher risk of this happening.
Buying crypto or stocks has a lot of volatility and risk. The stock market is pretty volatile, but over the years, it only went up. People have access to a lot of information about public stocks, so they are able to decide whether to invest or not.
Cryptos are more volatile, which means that the risk of them going through various changes all of a sudden is higher. Bitcoin is very volatile, for instance, which is obvious looking at the drastic value changes.
Those who want to invest in crypto will have to accept that they will deal with lots of costs, especially considering the charge fees and gas fees. Every crypto will have its own fees, some pricier and some more affordable. In order to make transactions faster, some networks will boost gas fees.
Stocks are more expensive, though. An investor will have to pay transaction fees that will affect their returns. This applies even if you purchase low-fee stocks.
Crypto markets tend to be available all the time, so you have access to them no matter the time of the day and week. Stock markets, on the other hand, are only open during business hours in their particular home country.
Most investors care about portfolio diversification. Cryptocurrencies are usually considered non-correlated assets, meaning that they do not react to market events the same way bonds and stocks do. Some also think that crypto could be a hedge against inflation.
Stocks usually work in association with the larger economy, and they are more affected by inflation and other factors.
- How to Make Money with Cryptocurrency
- How to Withdraw from Binance
- How to Transfer From Coinbase to Coinbase Pro
- How to Transfer from Coinbase to Binance
- How Does Cryptocurrency Gain Value?
- How to Read Crypto Charts
The Bottom Line
Cryptos and stocks can be great for investors in many ways, and each one of them brings different benefits to the table. It is essential to know what makes them different if you want to start investing, so you know which one is more suitable for you. Hopefully, this article was helpful in this respect.