Stock Market vs Cryptocurrency Market: What's Good For You
Stocks: A Quick Recap
Stocks or shares of stock represent a percentage of equity ownership of a business. While stocks and sectors may change, the store itself still is a portion of the functioning company value is portrayed in the stock’s price proportionately.
Cryptocurrencies: Simply Digital
When you buy a cryptocurrency, you own a set amount of that digital currency. The value of a digital currency reflects multiple factors.
Cryptocurrencies and Equity stocks are not only two entirely different financial products; they have significant differences too, such as in the cases mentioned below:
1. Ownership: When you trade in the stock market, it is facilitated by a stockbroker account to handle transactions. That account carries your verified details with the transaction. This is a measure to prevent identity theft or fraud. Cryptocurrencies offer a certain degree of anonymity, which are kept in a digital wallet and can be entirely online or in a USB drive or hard drive, keeping it completely anonymous.
2. Exchanges: inherent to every transaction is an exchange, which in some form or the other have been there close to 2 centuries. Cryptocurrency exchanges are relatively new. The daily trading volume is still low as compared to the stock exchanges.
3. Liquidity: Smaller trading volume also affects your ability to trade in or trade out of your asset. The ability to convert an asset into cash is called liquidity. Since there are many stock traders in the world, Stocks are generally considered more liquid. In scenarios of slippage, both stock investors and crypto investors would have to sell large amounts of assets due to low liquidity; even so, risks for Crypto investors stand higher, owing to low liquidity levels in the Crypto Market.
4. Volatility: Volatility is present both in crypto and stocks, with nearly impossible to time either of the markets to know when to buy or sell. On the one hand, the stock market has earned the reputation of being volatile; public stocks reveal financials that help investors make insightful decisions. On the other hand, Cryptocurrency is more likely to undergo highly sudden changes in value, sometimes without any warning. More than 1600 currencies have vanished suddenly owing to volatility.
5. Trading fee: Each time an investor buys or sells a stock, they would have to pay a transactional fee, which eats up their returns. Even in the case of index funds, a fee would have to be paid to the manager
Crypto also comes with a substantial fee, which is paid to the exchange and the gas fee given to the blockchain. These fees vary from crypto to Crypto
6. Regulation: Regulatory bodies such as the Securities and Exchange Board of India in India and the Securities Exchanges Commission in the U.S. oversee stocks and stock markets.
Contrary to it, Cryptos are mainly unregulated; India is currently finding a middle way around the regulation. Essentially, Decentralized networks that run the currency have protocols that maintain the technology and ensure the currency's integrity. Exchanges and cryptocurrencies are still at risk of being banned, like how few countries, especially China, have been doing for a bit.
7. Trading Hours: Stock markets open from Monday to Friday through specific hours, and remain closed on the weekends and holidays. On the contrary, the crypto market runs around the clock with most of the turnaround events happening on weekends.
8. Diversification: Most of the investors plan out their portfolios to perform in different market scenarios by keeping foreign assets that perform other roles within the portfolio. Some people believe cryptos, unlike stocks, are non-correlated assets and could act as a hedge against inflation. Also, adding it as a counterweight to the portfolio can work wonders for inflation-sensitive assets.
9. Security: Stocks are secured from hacks and frauds, cryptos are not; since the stock market is widely regulated by government agencies and is subjected to yearly audits. Owing to this heavy scrutiny, chances are less for the stocks to be rigged. Cryptocurrencies being decentralized could indeed expose investors to fraud or scams in some cases.
Cryptocurrencies indeed have soared in price, but the understanding is still relatively new. Still, investors need to understand what they’re investing in instead of rushing and having a herd mentality. Investing in crypto is subject to one’s risk profile and financial needs. If an investor makes enough with stocks, he or she will not touch Crypto with anything. However, as situations change more people are interested in getting to know about the market and investing a part in cryptocurrencies too.