Cryptocurrencies are investment assets whose value can go up or down. Stocks are also an investment asset whose value can go up or down. In terms of how these assets are structured, cryptocurrencies are digital assets while stocks are representations of companies. Both of these assets are tradeable, however each of them has its own opportunities, as well risks.
The presence of cryptocurrency, especially Bitcoin as the first crypto assets, sparked the debate among the investors. Stocks already exist since a couple centuries ago then gained popularity and reliability status. While cryptocurrency has only been born in recent years. It is safe to say that cryptocurrency are alternative instrument assets to stocks, because it is in the form of digital assets, while most of the stocks represent physical beings of companies that provide goods or services.
Let’s take a look at how each of these assets works
How Cryptocurrency Work: In Short
Cryptocurrencies are digital assets that run on the blockchain networks. It is a digital asset without physical form. It is using the cryptographic encryption technique to verify and secure transactions which are stored on the distributed blockchain network. Mostly cryptocurrency is being used as a medium of exchange for the decentralized ecosystem and decentralized finance industry. Cryptocurrency can also be used as a store of value despite its volatility nature, although this is a very high risk investment. The cryptocurrencies market value are determined by pure supply and demand.
How Stocks Work: In Short
The stocks represent a partial ownership of companies or businesses. This practice has spanned for hundreds of years since the age of exploration began. In order to fund the voyage, private companies raise capital from interested investors, in return the investors earn a percentage of trading profits from the voyage. In modern times, stocks also entitled its investor shares of profits through dividends.
Companies or businesses can issue their stocks to the public when they are required to raise funds in order to expand their business. The stocks market value is determined by supply and demand, however this supply and demand are very related to the company’s performance and other factors such as news regarding the company and any other relevant announcements.
Major Differences between Cryptocurrency and Stocks
Although both cryptocurrency and stocks can be used as an investment or store of value, there are many fundamental differences between the two.Here’s several distinguishing characteristics between cryptocurrency and stocks.
Stock: To own or buy a stock, investors need a brokerage account. This broker needs verified information about the investors such as identity card, address, signature, etc. When investors buy stocks, they can keep the assets digitally or physically in the forms of paper. Owning a stock means that the investor owns partial ownership of a certain company.
Crypto currency: Cryptocurrency offers a more anonymity approach regarding this. Investors can keep their own cryptocurrency portfolio in their crypto wallet. This crypto wallet can be created for free and without any verification about the investors. However the cryptocurrency and its wallet can only store digital assets. Owning a cryptocurrency means investors own a certain digital currency that can be used as a payment for decentralized finance activities.
Stock: There are national institutions such as the Securities and Exchanges Commission (SEC) in the United States to oversee the stock market. There are several institutions involved around the stock market such as central exchanges, brokerage, custodian, etc.
Cryptocurrency: In contrast, cryptocurrency is unregulated because of its decentralization and pseudonymity nature. There are mixed views among the investors regarding the lack of regulation of cryptocurrency. Some are supportive because maintaining decentralization is important, while some others are wary about the safety of their assets. To this day several countries’ regulators still cannot decide whether cryptocurrency is a security or a commodity.
Stock: The movement of stocks heavily depends on how well the company’s performance. The better the company performs, the better its stock price in the market. To protect investors from sudden huge movement of stock prices, several countries limit the movement of stock prices by a certain percentage amount.
Cryptocurrency: Cryptocurrency highly regarded as a volatile asset. A cryptocurrency can go up in price more than 100% in a few days, and some other can have its price crashing 99,9% in a week.
4. Trading fees
Stock: In most cases, investors pay commissions to brokers when they purchase the stocks. These trading fees can vary depending on the commission fee the broker charges the investors.
Cryptocurrency: There are two types of trading fees in cryptocurrency. The first is exchange fees when the investors buy or sell cryptocurrency in a crypto exchange. The second is the gas fee if investors are trading directly via the blockchain. While the trading fees inside the exchange depends on how much the exchange charges its investors, the gas fee on the blockchain uses votes from miners or validators on the network to determine the gas fees.
5. Trading hours
Stock: There are only 5 working days to trade stocks. The duration of how long the stock market opens can be different for each country
Cryptocurrency: The cryptocurrency market available 24 hours 7 days a week or non stop. This can be achieved because of the decentralization and the digital aspect of cryptocurrency.
Cryptocurrency Pros and Cons
|No centralized authority||Unregulated|
|Crypto can be stored individually||Hardware and key/seed phrases loss risks|
|Accessible and trustless||Banned in several countries|
|Varied in terms of types of assets||Volatile|
|Pseudonymity and anonymity to access||Prone to fraud or scams|
|Technological and utility potential||Vulnerable of cyber attacks and hacks|
Stocks Pros and Cons
|Supervised by trusted national institutions||Very centralized|
|Asset’s safety guaranteed by trusted custodian||Investors required to submit identification|
|Represent real world businesses or companies||Gains opportunities somewhat low compared to crypto|
|Dividend payout||Company not performing or bankrupt risks|
Which One is the Best Investment?
The answer depends on investors’ investing style and risk tolerance. While stocks provide safety and work in regulated manner, cryptocurrency offers pseudonymity and works in decentralized distributed manner. While cryptocurrency is very volatile, its potential gains are very huge compared to stocks. However certain stocks share their profits with dividend payout to all investors.
Both of these instruments are valid investment choices as long as investors do their own research and are aware of the following risks.