The introduction of digital currency/cryptocurrency has brought a revolutionary change in the investment sector. In fact, the cryptocurrency has taken the world by storm and the digital currencies have swelled to more than $2 trillion fiat currency! The rapid growth of cryptocurrency has raised the question among many investors and many investment experts are questioning the future of stocks in the upcoming modern world. In this article, I will discuss all the differences between cryptocurrency and stocks. Let’s dig into the article.
The main difference between cryptocurrency and stocks is the asset type. In the stock exchange, stocks of various companies are traded while a cryptocurrency exchange trades in various cryptocurrencies. Other key differences between cryptocurrency and stocks are asset ownership, issuance of assets, maturity of the market, price volatility, etc.
What Is Cryptocurrency?
A cryptocurrency is a type of virtual currency that is secured by cryptography and can be used to buy goods and services. Cryptocurrency is also known as a digital currency. Basically, a cryptocurrency is a collection of binary data and it is designed to work as a medium of exchange. For cryptocurrency, transactions are internet-based and are recorded in a blockchain. The blockchain stores the transaction history for each unit and is used to prove ownership. You can consider cryptocurrency as virtual tokens. These tokens can be programmed to record financial transactions and other valuable information. You can trade cryptocurrency and it is a new trade in the crypto world. Crypto trading is different. Here, traders buy and sell cryptocurrencies just like trading shares. Usually, the crypto monetary system impacts the cost of crypto trading.
What Is Stock?
A stock is a type of security that represents ownership in a company or corporation and represents a proportionate claim on its assets. When a person buys stocks of a company it gives stockholders a share of ownership of the company. You can buy and sell stocks on stock exchanges. If you buy or sell stocks outside of the stock exchange then they will be considered as private sells. This type of private sale must be conformed to government regulations which are meant to protect investors from fraudulent practices. Usually, public companies sell their stock through a stock market exchange. Then the investors can buy and sell these shares among themselves.
Difference Between Cryptocurrency And Stocks
Below is the list of key differences between cryptocurrency and stocks –
1. Assets Traded
a. Type of Assets
b. Asset Ownership
c. Issuance of Assets
d. Maturity of the market
3. Market Reach
4. Fees and Regulations
1. Assets Traded
a. Type Of Assets
This is the main difference between cryptocurrency exchanges and stock exchanges. A stock exchange trades in stocks or shares but a cryptocurrency exchange trades in digital currencies.
b. Asset Ownership
The stock market represents the equity in a company. When you buy stocks of a company via the stock exchange, you become a part-owner of the company itself. The value of your stocks is determined by how the company is doing the business.
C. Issuance Of Assets
Based on the local laws Issuance of assets, a company can issue shares at will in order to raise money. On the other hand, cryptocurrencies have a capped number of coins or tokens. Therefore, according to basic economics, the value of cryptocurrency will increase more because of its capped number.
2. Maturity Of The Market
Stock exchanges have more maturity compared to crypto exchanges because stock exchanges have been trading for longer than cryptocurrency exchanges. Usually, the stock exchange is Regulated by local laws. Moreover, stock exchanges are also backed by the government. The activities of the stock market have to be public to provide transparency to shareholders. Moreover, stock exchanges have high volumes and diversity of trade. On the other hand, crypto exchanges are very young and most of the exchanges are in a state of continued development. Moreover, there are no laws or regulations available for crypto exchanges and governments don’t have any control over these exchanges.
This is another key difference between stocks and cryptos. Stocks are trad in large volume and it gives stability to the market. So, the more stable the market the less volatile it would be. On the other hand, crypto exchanges experience greater volatility. The Crypto market is new therefore it is not stable like the stock exchange. Moreover, the crypto market’s highs and lows are very pronounced which makes this market vulnerable to the trade movements of ‘whale’ traders. A whale trader referred to someone who can own a large amount of cryptocurrency like Bitcoin and manipulate the price of the coin. For example, when influencer Elon Musk invested $1.5 billion in Bitcoin, the price of Bitcoin suddenly jumped 17% to a new record high.
4. Market Reach
Thanks to the myriad rules and regulations of the stock exchange it is not easy to start investing in stocks. You have to fulfill some requirements before you can invest in various stocks. You have to choose a broker and then get the approval to buy and sell stocks. On the other hand, investing in cryptocurrency is very easy. You can trade cryptocurrency any time and on any day. Moreover, anyone can trade in cryptocurrencies regardless of their age so it makes cryptocurrencies more accessible to people of all social standings.
5. Fees And Regulations
This is another important difference between stocks and cryptocurrencies. Stock exchanges are heavily regulated marketplaces and there are many rules available to protect traders and investors and keep the playing field fair. Moreover, there are fees, and costs associated with traversing the stock exchange, and these fees are very high. On the other hand, cryptocurrency trading has fewer fees and costs. In fact, the cost associated with transacting on the blockchain is very small.
Risks And Safety Of Cryptocurrency And Stocks
1. Cryptocurrency is not backed by assets or cash flow; basically, digital currency relies on public sentiment to increase the price.
2. If crypto investors don’t want to own a cryptocurrency, then the price of the currency might become Zero.
3. Volatility is common in cryptocurrency; the price of a cryptocurrency can rise or fall 50% within a short period.
4. Any country can ban cryptocurrency entirely, as China did in 2021.
1. The success of stocks fully depends on the company, if the company makes a profit, then the price of the stock will increase and if the company fails then the price of the stock will also fall.
2. Investors have full freedom to sell their stocks any time they want. So, if an investor sells a large number of stocks of a particular company, then the price will fall.
3. Volatility is high with stocks; a stock can rise 100% or more in a long time or might fall very quickly.
Where Should You Invest: Cryptocurrency Or Stock
If you are an investor then you have to decide which will be the best option for you. Is it cryptocurrency or stock? A stock price moves depending on the success of the company. So, if you want to invest in stocks then you have to identify some strong companies that have a bright future ahead and buy these companies stocks. This way you can minimize the risk factors and losses. On the other hand, the crypto world is very new. There are lots of new cryptocurrencies including in the market every day. Therefore, if you are planning to invest in cryptocurrencies then you have to research the market a lot and identify cryptocurrencies that have positive hype in the market and its technology has to demand in the coming future. You can follow expert crypto investors and find out which crypto coin they are buying. This way you can know which cryptocurrency has less risk to invest in. Some renowned crypto coins to invest in are Bitcoin, Ethereum, Litecoin, Dogecoin, Cardano, Polkadot, etc.
Finally, both cryptocurrency and stocks have significant differences. But one common thing between these two investment options is the risk factors. Investing in cryptocurrency and stocks have risks involved. Therefore, whether if you are planning to invest in Cryptocurrency or stocks make sure you do enough study before investing in any of them.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.