One investment medium that is often compared to cryptocurrency is stock holding. Both Cryptocurrency and Stocks have a lot in common from an underlying asset valuation point of view. However, in this article, we would take a dip at the comparison between cryptocurrency vs stocks.
Cryptocurrencies have their share of fame, as they have given staggering returns to their investors.
All the early investors of bitcoin are millionaires/billionaires right now. But Bitcoin is not a get-rich-quick scheme, it is a legitimate investment among people aiming for long-term & short-term gains.
Stocks are the shares of ownership of a public company. The investors put their money to buy the stocks of the companies, and as the business grows the value of a stock increases over time.
The demand for the stock increases, hence price increases generating a lot of wealth for the investors.
On the other side, when there is high demand for a particular cryptocurrency, then the prices go up.
This can also be understood as the bitcoin market pool increases, the value of the cryptocurrency also increases.
Although, both are assets, where the valuation increases/decreases based on demand & supply. As the demand for a particular cryptocurrency/stock increases, the price also goes up! But both are different in their way.
What is the Difference between Cryptocurrency and Stocks?
Here are the top 9 key differences between cryptocurrency and stocks.
Cryptocurrency vs Stocks: Ownership
To invest in stocks, you need to open a Demat account/broker account to conduct your transactions. You need to link your brokerage account with your social security number/Government ID, signature, and much more. Also, banks keep on improving on their security measures to make sure that your investment stays safe.
On the other side, you can store your cryptocurrency as a digital asset in your crypto wallet like Metamask and Trust wallet. Even on hardware wallets like Trezor and Ledger. You can also buy Cryptocurrencies from Exchanges like Binance, Bybit etc. These exchanges also require a Government ID, selfies with IDs etc.
But still, there is a risk of losing your currency to hackers or if you forget your password. Therefore, being anonymous has its advantages but it has its risks as well.
Cryptocurrency vs Stocks: Exchange
Whenever anyone mentions the stock exchange, then the name “Wall Street” pops up first. Located in New York City, and it has been there for over 200 years.
We have London Stock Exchange for United Kingdoms, Tokyo Stock Exchange for Japan, National Stock Exchange for India and so on.
On the other hand, cryptocurrency exchanges are relatively new. The two major cryptocurrency exchanges are Binance (Estd. 2017) and Coinbase(Estd. 2012).
The stock market trades over $5 trillion each day. Binance traded about $789 billion in September 2021. Stock exchanges are way bigger than cryptocurrency exchanges.
The main reason here is that stock exchanges have been around for a long time. On the other hand, crypto exchanges are new and people are still adapting to the idea of investing in cryptocurrencies.
Major Cryptocurrency Exchanges are listed below:
Cryptocurrency Vs Stocks: Products
When you buy stocks of a company you profit by selling stocks at a higher price. Which means you gain by buying the asset low and selling it at a higher price.
Unlike the above, in cryptocurrencies you can not only earn by selling the asset at a higher price, you can also buy products which can multifold your profits.
You can buy a cryptocurrency and stake it in a staking pool with an Exchange. Earning rewards through staking is just like earning interest from a Bank. For more information on staking, you can check out this article.
You can easily stake your cryptocurrency at Binance and earn rewards. This means you are not only making a profit by buying your asset low and selling high but also by earning interest on staking it. (staking rewards)
Apart from staking there are other products like Mining, Yield Farming, Liquidity Farming. You can get an insight into the differences between these products for earning passive income by referring to this article.
If you are an absolute beginner, you can register yourself at Binance which has various products for earning passive income.
Cryptocurrency vs Stocks: Liquidity
Market liquidity refers to the practice where an investor can sell and purchase an asset without causing a drastic change to the asset’s price. When we talk about liquidity in general, then it means that how quickly you sell an asset can convert its value in cash.
Over the past few years, stocks have been an ideal choice for someone looking for liquidity. High liquidity led to the concept of day trading, where a trader purchases/sells stocks within a day.
With cryptocurrency, liquidity depends on the market demand of a particular cryptocurrency. If we take an example, Bitcoin offers the highest liquidity because it is the most traded cryptocurrency over the years.
Again, it is about supply and demand because the higher the demand of a cryptocurrency, the higher the liquidity.
However, both crypto & stock investments are victims of slippage, an investor can face losses while selling large amounts in times of low liquidity.
Crypto markets are more prone to low liquidity as it depends on the valuation of cryptocurrencies subjected to their highs and lows.
Further, different cryptocurrency exchanges have different liquidity for different cryptocurrencies. Infact, there is a high possibility that the cryptocurrency is listed for trading at one exchange and not at the other.
Cryptocurrency vs Stocks: Volatility
Both cryptocurrency and stocks are subjected to high volatility. Both investments go up and down in value. You must have heard the advice to never try to time the market, and it works for both crypto and stocks.
The stock market has seen its ups and downs over the past decades. But there are always measures to identify the upcoming volatility on the stock market.
All publicly-traded companies show their reports on a quarterly, annually, half-yearly basis. Looking at all the figures’ investors & strategists can identify upcoming volatility in the stock market.
On the other hand, cryptocurrencies are more subjected to sudden valuation based on events and news.
For example, as soon as China declared that they are banning cryptocurrencies. The crypto valuation started falling. Similarly, the value of dogecoin skyrocketed when Elon Musk tweeted about it.
This is why cryptocurrencies like Bitcoin face more volatility over time. Cryptocurrencies make big jumps & fall steeply within hours. It makes it very difficult for investors to predict volatility in the crypto market. Also, this is the reason why people have faced huge gains and big losses at the same time.
But, if a publicly-traded company goes bankrupt then it might lose its entire value. On the other hand, cryptocurrencies still have a chance to rise back and regain their value over time.
Cryptocurrency vs stocks: The Cost of Trading
A stock investor has to pay certain fees as brokerage to their brokers where they hold their trading account. Brokerage firms hire investment bankers as managers to buy/sell stocks on your behalf.
But, the cost may vary depending on the firm and the trading volume through the brokerage account.
On the other hand, trading in crypto costs of cryptocurrencies fluctuate. Crypto exchanges charge investors a “gas fee”. These are the costs of the blockchain network that verifies the validity of a given cryptocurrency exchange.
The fees vary from one crypto exchange to another. Some crypto exchanges focus on speeding up the transactions and increasing the gas fees in return. The average cost here is about 1.5% in fees of the exchange value.
Most of the exchanges make the gas fees a part of the Exchange rate itself. And charge a nominal commission.
Binance charges a 0.1% commission for both makers & takers.
Bittrex charges 0.75% for the same
Cryptocurrency vs Stocks: Regulation
The SEC(Securities and Exchange Commission) regulates the stock market in the United States.
The organization looks over all the mutual funds and exchange boards that deal in the trading/investing of stocks. It ensures that publicly traded companies conduct themselves to ensure transparency & fair conduct of practices.
On the other side, for cryptocurrencies, there are either decentralized cryptocurrency exchanges or centralized cryptocurrency exchanges. Most of them are not bound by any law.
At present, most governments aren’t ready to integrate cryptocurrencies in the current fiat money economy. China and United Kingdom in fact banned Cryptocurrencies sometime back for the time being.
If a particular government bans cryptocurrency then it might lead to huge losses to all the investors & the crypto exchange will crash.
El Salvador has accepted cryptocurrency as a mode of conducting financial transactions.
India on the other hand is still to take a decision in this respect.
Cryptocurrency vs Stocks: Operating hours
The trading at the stock market takes place between the weekdays(Monday – Friday), and the market is closed on the weekends. Also, the market remains closed for trading on national holidays. On all working days, the market remains open during business hours.
On the other side, the crypto market stays open for all days of a year, and trading is done 24×7.
Cryptocurrency vs Stocks: Diversification
Stocks offer more diversification options to their investors, where you can invest money in multiple stocks from different industries. You can diversify your stock portfolio to balance the volatility of the stock market. Also, the stock market is known to perform in correlation with the economy and is impacted by factors like inflation.
The cryptocurrency market has limited diversification because is it fairly new. In fact, it is now that we have rising segments of Cryptocurrencies like Gaming, Decentralized Finance(DeFi), Non Fungible tokens(NFTs).
Further, It does not perform in correlation with the economy and market events. Cryptocurrency markets are not hit by rising inflation. Therefore, cryptocurrencies are a better instrument option for people with inflation-sensitive asset portfolios.
Cryptocurrency vs Stocks: What’s in the future?
Considering both for investment, cryptocurrency and stocks have a bright future. The stock market has been around over the past 2 centuries. It is going to be a prominent investment in portfolios of investors.
On the other hand, cryptocurrencies are new to many people around the world. Being a technologically advanced investment medium, most people don’t understand how the whole blockchain ecosystem works.
On the other hand, the governments have not yet adopted cryptocurrencies as a part of their economies. With most authorities quoting the traditional fiat money as the medium of trade.
Addressing the big question: Will crypto fade away?
Well, cryptocurrencies have seen their ups and downs. Countries like the UK & China have banned cryptocurrencies. However, the demand & trade keeps increasing. With many investors around the world, it is quite evident that cryptocurrencies are going to last!
Yes, cryptocurrencies are going to be an ideal investment in the future. If you look at them from a technology perspective, blockchain can be compared to E-Commerce and its phenomenal success. The value depends on the investors of the crypto ecosystem. As soon as people continue to trade in cryptocurrencies, the government will also have to adapt the crypto in the economy with the traditional fiat money as we have witnessed in the case of El Salvador.