Understanding the differences, and which is more profitable?
Before we go into details, a big difference between investing in stocks and cryptocurrencies is that buying in cryptos gives you no ownership interests or voting rights in the underlying entity. But If you own shares representing 1% of the share capital in a company, you also own 1% of the company. Worst case if the company goes bankrupt, you have the right to receive 1% of the company’s remaining assets.
If you’re looking to start investing but you’re a new kid on the block, understanding the differences between stocks and cryptocurrencies can help you decide where you want to start investing. By January 2021, the Bitcoin market cap has reached an all-time high and had grown by over 400 billion U.S. dollars! This growth has attracted traders worldwide but cryptocurrency trading works in a different format compared to Stock trading. In this article, we will talk about the differences & what should be your choice if you plan to invest in 2021. All investments involve some degree of risk. In finance, risk refers to the potential of financial loss in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks.
Successful investing is about managing risk, not avoiding it. – Benjamin Graham
Numbers of investors increased
Historically, during times of economic crises and recessions, investors in stocks have always shied away from investing in the stock markets. However, during the current economic crisis caused by the COVID-19 pandemic, the situation has been quite the opposite. In a surprising move, the number of retail investors has actually increased. The same goes with cryptocurrencies, particularly Bitcoin who’s having a rally since last year. Hitting new all-time-highs (ATH) although it has its ups and downs along the way in January. In addition, Tesla purchases $ 1.5 billion in Bitcoin and said it might soon accept payment in cryptocurrencies, pushing the price to a new high. By the time of writing, its price peaks at US$ 46.700, and it doesn’t look like it’s slowing down for the number one cryptocurrency.
The Differences between stocks and crypto
- Getting Started
You are required to do some paperwork to get started using fiat exchange as traditional finance is a regulated industry. Companies that offer trading services require a great amount of information and sometimes even declaration like “professional investor” which again adds to the cost & time required to start trading.
On the other hand, it’s a lot easier to start trading in cryptocurrencies, rule number 1 if you’re looking to buy Bitcoin or any cryptocurrencies, you need to use a cryptocurrency exchange. The best cryptocurrency exchanges are secure, cost-effective, quick to set up, easy to use and accept a variety of funding sources, such as Indodax, Coinbase, Binance, and eToro to name a few.
- Price movements differences
Stock price movements are considered slower than crypto assets. For Bitcoin particularly, the price movements tend to fluctuate. One of the reasons why the price of Bitcoin is so volatile is due to the limited amount of Bitcoin that is available in the market. There are only 21 million Bitcoins that can be mined in total., and once Bitcoin miners have unlocked all the Bitcoins, the supply will essentially be tapped out. Currently, around 18.5 million Bitcoin have been mined, which means this leaves only less than three million of Bitcoin. Thus to the limitations of Bitcoin in the market, the price is determined by supply and demand.
- Market Hours
Another important difference between stocks and cryptocurrencies is their availability for trading. As most of the traditional exchanges have their sessions, due to which there is no trading on weekends or even on public holidays. Which is a contrast with cryptocurrencies, where crypto exchanges work 24/7.
Stocks are heavily regulated, and most have to go through yearly audits in order to continue to be traded on the market. But is not a guarantee the company that you invest stock in will not go bankrupt. Take for instance Thomas Cook (One of the largest touring company in the world), where it went bankrupt and its stocks collapsed overnight.
Storing cryptocurrencies can also be risky if not stored the right way. There have been significant incidents of theft on personal wallets but also exchanges. Hacking remains a constant threat if cryptocurrencies are not correctly stored and protected.
Many people are quick to jump in with investing and excited to put their money to work. But quickly, they find themselves losing money due to a lack of knowledge. This is not to scare you away from investing, but a warning to ensure you are prepared before investing on something.
And as said earlier, all investments involve some degree of risk. But if you decided to start investing in cryptos, there is a wide selection of crypto app that is safe and easy to use even for beginners, and one of them is NOBI, where you can start from as little as 10 USD!