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Cryptocurrencies have emerged as hot new alternatives to traditional investments like stocks. In fact, many investors tend to pit crypto versus the stock market regularly due to the similarities in the nature of price volatility and potential for gains.
Stocks and crypto have certain basic similarities like they can both be traded on an exchange, anybody with a valid trading account can access them, and so on.
That said, there are inherent differences between cryptocurrencies and stocks, all of which can determine where you should invest your hard-earned money. You can consult a Cube wealth coach or download a Cube Wealth App.
Stocks were considered to be one of the riskiest investments until cryptocurrencies became popular. On the surface, cryptos and stocks behave the same way. But the devil lies in the details.
Stocks have their value pegged to the success or failure of the companies they belong to. These are usually companies that produce tangible goods you can see, feel, touch, taste etc.
On the other hand, the value added by cryptocurrencies is often tangible and for many cryptocurrencies, this value is entirely intangible and perceived.
Cryptocurrencies are of course very young as a concept compared to regular money or stocks. They are still evolving and finding their feet in this world that’s slowly learning to accept them as a real asset class. This brings about several challenges and benefits.
A cryptocurrency is a fully digital asset powered by the blockchain. It is decentralized by nature (i.e. it is not governed by any overarching body like the US Federal Reserve or the Reserve Bank Of India).
It is also often tied to a project or company that has its own goals and objectives. Here’s where it gets interesting. The owner of the project can limit the number of cryptos that’ll exist over a lifetime like Litecoin.
Or, there can be an infinite supply of coins like in the case of Dogecoin. Either way, a digital activity called “mining” is required to introduce fresh cryptos into circulation.
This is different from stocks in that a company can issue new shares whenever it wants. The limited quantity of cryptocurrencies and the immutable nature of blockchain is what makes it attractive to investors.
There are further measures cryptocurrencies can take to ensure there is no inflation and they also fight the problem of double-spending, a phenomenon where the same token is spent twice due to security gaps.
Furthermore, owning crypto does not necessarily grant you a stake in the project or company’s business, nor does it allow you to partake in key business decisions as is the case with stocks.
Most cryptocurrencies are either tradable assets or utility tokens like Cube’s Tikka Token that are designed to help you purchase goods or services within the blockchain.
There are of course rare exceptions to this. Certain tokens called security tokens are known to behave like stocks and have similar perks.
That said, there are also cryptocurrencies with no use case at all - many of these are scam coins, meme coins or simply tokens that have value only as long as people continue to trade them.
Given that most cryptocurrencies are not backed by any physical asset (except stablecoins), their price is purely speculative and depends largely on investor sentiment, among other things.
This is essentially why cryptocurrencies drastically gain or lose value in a relatively short span of time. This is also the reason why cryptocurrencies have outperformed stocks over the past few years.
Here’s a direct comparison of YTD returns of the largest cryptocurrencies and stocks by market cap.
Now that you’ve got an overview of cryptocurrencies, it’d help to understand the pros and cons.
A stock is a share of a publicly-traded company. It is issued by the company in question and can be bought or sold on a stock exchange. A stock represents fractional ownership in a company. This has benefits.
For example, shareholders can play a part in business decisions, receive dividends, and more. Furthermore, stocks are regulated by recognized entities like SEC, SEBI, and others.
This is a direct contrast to cryptocurrencies where there’s no central regulatory authority. Being regulated means that publicly-traded companies are required to be transparent about their finances by law.
As a result, public companies publish quarterly and/or annual reports so that shareholders and potential investors can judge the health of the company based on which they can decide to buy, hold, or sell.
The price of a stock is thus tied to a tangible property, which is the performance of the company. By association, this means that the health of the company plays a part in determining the value of its stock.
Even though the debate about cryptocurrency versus the stock market has been raging on for quite a while, stocks have the leverage of legacy and historical track records that stretch back to the 1980s and 90s.
However, stocks can only be traded during market hours during weekdays. On the other hand, crypto can be bought and sold at any time during the week as the market functions 24x7, 365 days a year.
That’s not all. Stocks can only be bought with fiat currencies like USD, INR, and others while cryptocurrencies can be bought with fiat currencies and other cryptos. You can consult a Cube wealth coach or download a Cube Wealth App.
Investing in any asset like crypto or stocks requires a certain degree of research, analysis, and patience. That said, stocks have been around for ages so there’s credibility to turn to when it comes to the company and its stock’s history.
On the other hand, crypto is fairly new but has produced remarkable returns for investors with new and improved ways to trade and benefit from an asset. Thus, there’s no such thing as easy and both crypto and stocks pose challenges in their own way.
Cryptocurrencies and stocks share certain similarities. Both can be traded on an exchange, their prices fluctuate largely due to investor behaviour, and so on. But, the interesting bits lie in the differences between crypto and stocks.
Cryptocurrencies can be traded 24*7, 365 days a year. Stocks can only be traded during market hours on weekdays. A cryptocurrency’s price is purely speculative and intangible while a stock’s price is tied to the health of the company and tangible goods and services.
Crypto can be bought using fiat currencies. But is it legal tender? Not in any country except El Salvador where Bitcoin is legal tender. However, crypto can be used to pay for certain goods and services.
Note: Facts & figures are true as of 01-12-2021. None of the information shared here is to be construed as investment advice. Exercise caution when investing in unregulated assets like cryptocurrency.
Ultimately, the optimal investment strategy may involve a combination of both asset classes to achieve diversification and manage risk effectively. It's vital to evaluate your financial situation, risk tolerance, and investment goals carefully. Consulting with a financial advisor and staying informed about market trends is essential in making informed decisions when choosing between crypto and stock investments
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**24 hour gains are true as of writing this blog on 01-12-2021.
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