What are the differences between crypto and stocks? Stocks have been a long time favorite for people to put in their money and earn dividends in return.
However, cryptocurrency, on the other hand, is also a favorite choice of many, though it is a comparatively new phenomenon.
Typically, the goal of the creators of crypto coins was to make it a commonly accepted currency one day both as cash and credit.
Cryptocurrency has been in the market for several years and most of the investors have been using it to grow their money, and you may also be thinking on the same lines.
However, it is evident to know whether or not it is the right type of investment for you or will you be better off with investing in traditional stocks.
Before you step into either of the two fields, it is good to be informed about the two and know that investing in crypto tokens is not the same as investing in traditional stocks.
It is best to start by knowing the difference between the two, traditional stocks and cryptocurrencies. Check out Differences Between Fiat Money and Cryptocurrency.
In this article you will find all those major differences between the two which both, a veteran with stocks and a newbie to crypto should know.
This will help in deciding which particular type of investment they want to go with.
- 22 Differences Between Crypto and Stocks
- 1. Type of Assets
- 2. Asset Ownership
- 3. Earnings
- 4. Asset Issuance
- 5. Basic Economics
- 6. Market Maturity
- 7. Laws and Regulation
- 8. Trading Volume
- 9. Volatility
- 10. Stability
- 11. Trading Time
- 12. Geopolitical Effects
- 13. Accessibility
- 14. Fees
- 15. Creation
- 16. Purposes
- 17. Niche
- 18. Fraud and Scams
- 19. Trading
- 20. Returns
- 21. Investing Horizon
- 22. Future
- Which is Better – Crypto or Stocks?
22 Differences Between Crypto and Stocks
In order to learn more about crypto, here are the differences between it and stocks based on the type of assets, market and more.
You will be better off knowing these differences and use the information for further learning.
However, it is always advised that you take the help of a professional advisor, especially if you are a beginner, before investing or trading crypto coins especially.
1. Type of Assets
This is one of the most significant differences between stocks and cryptocurrencies. Stocks are usually the shares issued by different companies.
While, on the other hand, cryptocurrencies are digital currencies or coins, as these are called commonly, which include Bitcoin, Ether, and thousands of others.
2. Asset Ownership
When you buy the shares traded on stock exchanges it will automatically offer you a partial ownership of the companies and it depends on the amount of shares bought. It actually represents the equity in a company. The value of each share denotes how well the company is doing.
On the other hand, buying crypto coins such as Bitcoin or others, from the crypto exchanges does not necessarily mean you have the ownership of the company that issues them. The value of these coins is more subjective and shows how well the coin itself is doing.
The owners of stocks and shares can earn dividends or shares from profits made by the companies issuing those shares. It is usually offered annually based on the amount of shares owned.
As for cryptocurrencies, you can make profits by selling your holdings at a higher price than at which you bought them.
4. Asset Issuance
Stocks and shares are ideally issued at will by the publicly traded companies, depending however on the company regulations as well as the local laws, in order to raise money as capital.
Alternatively, the issuance of cryptocurrencies usually comes with a cap in terms of the number of coins and tokens issued. Ideally, the number of coins circulating on the market at a given point in time is typically fixed for a crypto coin. However, owning crypto coins is easier than owning stocks.
5. Basic Economics
Related to the point mentioned above and according to basic economics, the value of a crypto coin increases significantly when the demand for it rises. It is not only because it is more viable, but for the simple reason that it is capped and therefore creates more scarcity in the market.
However, as for the stocks, when all other factors remain stable and favorable, the rise in value is not as high as a crypto coin. This is because the rise in demand can be easily met by increasing the supply of it.
6. Market Maturity
Considering the exchanges now, stock exchanges are more mature. This is because, as said earlier, stock exchanges have been in the market for a much longer time.
This is in comparison to the crypto exchanges which are a relatively new phenomenon, and therefore, less mature.
7. Laws and Regulation
The local laws and regulations typically govern the activities performed by the stocks as well as the stock exchanges. They also receive government support.
The crypto exchanges and trading platforms do not have such backing and are usually governed by the consensus of the team members in a specific network on the blockchain. There are no regulatory authorities or any central body to govern their activities.
8. Trading Volume
When it comes to stocks, the trading volumes seem to be much larger in comparison to the crypto assets. The stock market allows some of the traders and investors to dominate a trading circle.
This is a significant disadvantage of the stock market because these larger investors are offered lower fees on trade.
Though the transparency in trades is nearly the same, the relatively young crypto market, on the other hand, has a lower trading volume as compared to the stock markets. This is due to their brief history though they have a diverse range of coins to the tune of tens of thousands.
When you consider the two different markets, stock markets are considered to be less volatile which means it is a more stable market for making investments. However, this also results in a longer wait time to get a financial reward.
The crypto market, on the other hand, is considered to have greater volatility in comparison. There are lots of pronounced highs and lows which makes it a vulnerable marketplace.
The stock markets are considered to be more stable due to a specific reason. It typically has a larger trading volume and therefore its movement is not affected much by the ‘big fish’ traders.
The crypto markets are not as stable as a stock market since the ‘whale traders’ have a strong influence on the price movements of the crypto assets.
11. Trading Time
If you want to trade your stocks, you will need to do it within a specific time period which is usually 10 to 5 every day apart from holidays.
The stock markets, on the other hand, stay open 24 hours and even on Christmas and therefore you can trade, manually or automated, any time.
12. Geopolitical Effects
Cryptocurrencies as well as the market seem to have no effect due to any political influences since these are free from government regulations.
On the other hand, prices of stocks and the share market can drop or rise drastically due to the impact of a geopolitical event.
If you want to buy and sell stocks, you will have to wait a bit because the entire process is quite time consuming. You will have to find a reliable broker first and then get approval to trade. This is quite an energy intensive task as well.
On the other hand, trading crypto coins is pretty straightforward and anybody can have access to it after creating an account quickly with a reliable crypto exchange.
This is another significant point of difference between stock and cryptocurrency. The costs related to stock trading are far too high in comparison to trading crypto coins. There are brokers’ commissions, banks’ fees to make payments, and taxes on capital gains.
On the other hand, though there are tax implications in trading crypto coins, the exchanges have very low fees. And, since there are no intermediaries, you can do away with the commission aspect which will keep the trading costs significantly low.
The creation of crypto coins is quite easy and can be done by literally anyone. All you have to do is make a blockchain token with some knowledge in programming. These are basically computer codes.
The same cannot be said for the stocks, which are basically paperwork, especially those that are traded on national stock exchanges like NYSE or NASDAQ.
It needs to be audited, adhere to the specific set of rules and regulations and get approved by government agencies to hit the market.
One striking difference between crypto coins and stocks is in the purposes. Stocks are usually created and issued for the simple objective to raise funds for the issuing companies.
Cryptocurrencies, on the other hand, can have multiple use cases such as for raising funds with an Initial Coin Offering, buy in-game items in a blockchain-based game, and more.
Investing in stocks is more favored than investing in crypto coins for retirement. This offers stocks a wider demographic use with people from all different walks of life involved in it right from school teachers to teenagers, businessmen to plumbers.
Cryptocurrency is much more for a specific niche. According to research, most investors happen to be males within the age group of 20 to 30, and some college students as well.
18. Fraud and Scams
Stocks are less prone to scams and fraud since these are heavily regulated, duly audited, and protected.
Cryptocurrencies, on the other hand, being decentralized, unregulated, and available in a blockchain, can be hacked easily and stolen. There is also the risk of exchange scandals and exit scams. The fact that trading is made anonymously, adds to these chances.
You can simply use a few reliable investment apps to initiate a stock trade, though the process may be a bit complicated for a newbie.
However, to trade crypto other than Bitcoin or Ethereum, you will first need to register and download a digital wallet, transfer funds into Bitcoin or Ethereum and use them to buy crypto coins. For cashing out, you will have to do several trades as well.
A few long term investors in crypto coins have earned returns from their investment to the tune of 1000% and a few short term traders have gained and ICOs have offered a handsome return of around 150%. However, these are not regular.
On the other hand, stocks provide regular returns to the investors though it is not as high as the cryptocurrencies in terms of percentages.
21. Investing Horizon
Stocks are good for long-term investment and you will come out financially at a profit if you can stick to it for decades.
Cryptocurrency, on the other hand, is most viable and great for short-term investments.
The stocks have become an institution and dictate the economy of a country. This is primarily due to its stable and bright future. It is accepted and backed by all countries across the globe.
The crypto coins are yet to be accepted and adopted by several countries and therefore have not gained the same level of institutionalization as stocks. It is even banned by a few countries.
The future of cryptocurrencies is therefore still uncertain in spite of the fact that major companies have invested in them and are accepting them as a mode of payment.
Which is Better – Crypto or Stocks?
Cryptocurrency and stock have one thing in common, which is, they both facilitate trade. However, that should not be the foundation of your choice between the two when you really have to make one.
When it comes to choice, to be very frank, it is quite hard to mark one as better than the other. It is all about the perception of the investors.
However, since it is all about trading, you should consider the volatility of the market, number, trading value and volume to choose which is better.
Actually, there is no specific set of rules that will put crypto over stocks or vice versa. You may invest in both depending on the purposes. Remember, what may be good for others may not be suitable for you.
The crypto traders and investors however like a few specific facts of the market and its features such as its vast reach, less regulation and fees, and being able to stay unaffected by the global economic and political events.
Also, its huge prospects based on the volatility of the market that incentivizes investors to continue investing give it a certain edge over stocks.
However, if you are looking for a market that is more regulated and backed by the government, it is stocks that you should invest in.
Through the crypto market is on the lookout to build trust among the investors on a large scale, it still has a long way to go for mass adoption.
As of now, considering all factors, it is safe enough to say that investing in cryptocurrencies is a wild ride – full of risks and adventure. It is all about risk tolerance.
However, no matter which option you choose, make sure you do proper research before putting your money in it. Take time to analyze your choice to get into it with more confidence.
Typically, most beginners to crypto do not know the difference between it and traditional stocks and invest simply by getting allured by its prospects. In turn, they end up burning themselves. This article will surely prevent you from that.