With cryptocurrency prices touching the skies once, they lured a huge chunk of investors and traders away from stocks as an asset class. Even though they function a lot similarly, they are poles apart when it comes to the fundamental difference between them. If you’ve been wondering whether to step into the crypto market or keep investing in traditional stocks, this article will help you steer through the mysticism and make better decisions.
What is a Cryptocurrency
A type of currency or digital asset that originated digitally with the utilization of blockchain technology back in 2009 with the launch of Bitcoin. The first-ever and biggest cryptocurrency or crypto asset in terms of market capitalization, Bitcoin, was created by Satoshi Nakamoto, an anonymous identity who created a PoW consensus-based cryptocurrency with only 22 million coins in total. Let’s give you quick and concise leads about cryptocurrencies.
- Cryptocurrencies aren’t backed by any physical assets, and they lack intrinsic value. Hence, their prices aren’t affected by any physical asset’s worth. Instead, their prices are solely driven by public sentiment, celebrity influence, and tech enthusiasts. What else contributes to the price of these digital assets is their supply and demand in the market, their scarcity, and the vision behind the native coin’s project.
- Unlike the US Dollar or Indian Rupee, Bitcoin or any other cryptocurrency is completely digital and isn’t issued by any central government or banking authority. Being unregulated by any entity, cryptocurrencies come with a risk, as does investment in them.
- Cryptocurrencies hold the title of the most volatile asset class of all, which makes them a bit questionable as currencies, as they don’t do complete justice to value. Of course, transactions are possible, but they come with certain limitations that are yet to be overcome.
- Cryptocurrencies are far more anonymous than owning any physical asset, but the prize comes with security risks like forgetting your storage’s access key, losing crypto coins to hackers and scams, or losing access to your digital wallet.
Why Trade Cryptocurrencies? Benefits of Crypto Trading
So, you’re intrigued by cryptocurrencies! What’s your game plan? Are you here to make speculations on the crypto price, or do you have investments in mind? If you are here for the former, we’ve brought you some benefits that crypto trading has!
- As you know, cryptocurrencies are highly volatile. The price fluctuations in a short period of time make these assets alluring to traders. Faster intraday movements bring with them a number of opportunities to make money.
- The cryptocurrency market is not governed by any central authority or nation. Hence, it’s free from any time limits and is available to trade throughout the days and nights.
- Another significant advantage of cryptocurrencies, which is probably the best one in comparison to any asset, is enhanced liquidity. Liquidity is how fast you can convert your crypto assets into cash and is directly proportional to transaction speed, pricing, and accuracy.
- Cryptocurrency provides traders with the ability to go long or short on their positions, allowing them to make money in every market situation.
What are stocks?
A stock or a share that we purchase from the authorized stock markets of a particular country is fractional ownership in a business or company. With stocks of a business in your portfolio, you are provided with a claim on the asset along with the overall cash flow of the company. Let’s understand stocks at a few key points.
- Stocks or shares of a company are backed by the fundamental value of the particular company, thus backing your investments and providing you with a reason to invest in them.
- The entire stock market functions on a mix of the future assessment of the companies, their assets and liabilities, their earnings and cash flow, and their management, along with personal sentiments like fear and greed about the market.
- If you want your investments in the stocks of a company to grow, the underlying company needs to perform well financially while ensuring not to hurt people’s sentiments in any manner possible.
Why Trade Stocks? Benefits of Stock Trading
Of course, traditional stocks are no less valuable than cryptocurrencies in the long term. In fact, the wealth of early investors has surged multifold along with the growth of the country’s GDP and economy. These assets serve as a valuable part of your investment portfolio and safeguard your money against inflation and taxes.
- Stocks are backed by a physical entity that does possess some intrinsic value. Hence, they are relatively safer than digital assets and give investors a sense of security that their money is safe.
- Investments in equity can help you save your wealth from taxes and inflation to a large extent, and they have proven their ability to do so many times.
- Stocks can provide you with benefits like regular income from dividends and capital appreciation over time. However, you must note that income earned through stock investments is tax applicable if you fall under the standard tax slab on LTCGs and STCGs.
- There are a variety of shares to choose from in accordance with the industry type and size, the sector they serve, or the type of shares, like stocks with high dividend yield.
Cryptocurrency vs. Stocks: The Core Differences
There are a plethora of fundamental differences between stocks and cryptocurrencies, and understanding the primary differences between them will help you make thoughtful and knowledgeable investment decisions.
Stocks have been around for centuries now, and there is probably no way stock markets are shutting down. Since the first stock exchange was established in Amsterdam in 1602, stocks have come a long way in terms of growth, reliability, and safety. Cryptocurrencies, on the other hand, are a much more recent development, one of the gifts of blockchain technology, with the first one, Bitcoin, being created in 2009. Regardless of the age difference, both stocks and cryptocurrencies have managed to have a significant impact on the global economy and continue to be popular investment options for both individuals and financial institutions alike.
When it comes to price fluctuations, there is no doubt that both cryptocurrency and stocks can be quite unpredictable. However, there are some major differences between the two that you must ponder. Cryptocurrencies possess much higher volatility, with prices fluctuating significantly in short periods of time. This can be perceived as both a blessing and a curse by investors, as it can lead to quick profits but also substantial losses. On the other hand, while stocks can still experience powerful price swings, they tend to be more stable in the long run.
Stocks are heavily regulated by government agencies like the SEC and SEBI, while cryptocurrencies operate in a more decentralized manner and in a less regulated environment. While less regulation can bring more profit to the table for investors, it also means increased risk and uncertainty.
Scams and Security Risks
With cryptocurrencies, there have been a number of instances of scams and fraudulent activities, so it’s important to only invest in reputable coins and digital assets and use secure platforms for trading and storing them. On the other hand, in the case of stocks, there have been multiple cases of insider trading and fraudulent accounting practices, so it’s important to research the business thoroughly before investing.
The Future of Investing is Now
Both cryptocurrencies and traditional stocks have shown tremendous growth and have had their own shares of ups and downs throughout history. Any asset from any category comes with its own risks and benefits, and investment is all about money management, portfolio management, and risk management. Both stocks and cryptocurrencies demand their own risk tolerances from investors while offering commendable returns. With technology evolving at an exponential pace, there is no denying that markets are going to see new entries, profits, and growth, marking a better future for investments.