Stocks are a well-known asset class that can produce returns over the long and short terms. Crypto on the other hand is a more recent financial instrument that is prone to risk and price volatility. Even though both instruments attract investors and traders, many people see cryptocurrencies as an alternative to more traditional assets.
What Is a Cryptocurrency?
Cryptocurrency or crypto, in simple terms, is defined as digital currency or electronic money powered by blockchain technology. To verify and secure transactions, cryptos rely on cryptographic techniques.
Cryptos are typically used as a store of value and medium of exchange. Their market is driven by demand and supply, and most cryptocurrencies operate on decentralized networks.
Pros of investing in crypto
· Crypto is borderless and anyone can use it
· Crypto is decentralized, making it resistant to centralized control and censorship
· They are inflation-resistant and are not directly influenced by the monetary policies of central banks
· More flexible as investors can get profit from providing liquidity, staking, yield farming, ad trading
· Many tokens have a value that goes beyond money with fan tokens and governance tokens as examples
Cons of investing in crypto
· Volatility in price as the market is prone to sudden price swings
· Imperfect regulations across regions
· Returns are not guaranteed
· Custody risks such that you could lose your crypto assets if you lose your physical wallet or phrase seed
What Is a Stock?
Stocks, also known as equity, represent partial ownership in a functioning company and reflect the company's value. Units of stocks are referred to as “shares.” Shares entitle the owner to a proportion of the company’s profits and assets in the form of dividends.
A stock’s value can move according to a company's performance and other factors including relevant news announcements.
Pros of investing in stocks
· Increasing accessibility due to the emergence of many mobile apps and online platforms in the market
· Regulated by governments
· Retails have a wide variety of stocks to select from across different sectors and industries
Cons of investing in stocks
· Similar to cryptos, the stock market is vulnerable in the short term to unexpected price changes
· Relatively high fees when compared to crypto trading
· Returns are not guaranteed
What Are the Differences Between Cryptocurrencies and Stocks?
Although cryptocurrencies and stocks belong to different asset classes, they can both be traded and used as investment vehicles. Also, both markets have profitable strategies and can be used by investors to create wealth. Nevertheless, investing in crypto is different from investing in stocks.
Unlike stocks, investing in cryptocurrencies doesn't entitle you to company shares. In the traditional sense, crypto investors do not get dividends. Rather, you can stake or lend your crypto tokens for passive income.
Another difference in both asset classes is the way each is traded. While stock exchanges have restricted opening hours on weekdays, you can purchase cryptocurrency at any time of day or night at any digital currency exchange.
Should I Invest in Cryptocurrency or Stocks?
Investing in both cryptocurrency and stocks has its benefits and limitations. The decision depends on some preferences such as your risk tolerance. In the end, your ability to balance rewards and risks—rather than the investment vehicles you choose—determines whether your investment is a success.
To get the best out of their investment, many seasoned investors diversify their portfolios by investing in both stocks and cryptocurrencies.
There are similarities between crypto and stocks, but they have differences too. Both are valid investment choices that can serve different functions in your portfolio. Nevertheless, ensure that you are aware of the DYOR and associated risks to which one you choose.
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