- Cryptocurrencies are digital assets on blockchain networks, whereas stocks represent a fraction of ownership in a company’s assets.
- They are similar in terms of risks involved, market volatility, and possible scams.
- They differ in the underlying regulations, market reach and maturity, trading hours, and ease in trading.
While stocks, bonds, and real estate were traditional investment choices, cryptocurrencies have largely boomed in recent years, becoming a potential new investment option. Although a good investor can make profit from either, it’s better to be well informed of the rewards and risks involved so that it is really an investment and not a gamble.
Defining Stocks and Cryptocurrencies
In simple words stocks are equal to ownership. The more stocks you have, the more fractional ownership you have in the company’s profits and assets. If a company issues 1000 shares and you purchase 200 of them, then you can claim 20% of the company’s profit.
Stocks are generally issued by businesses to raise money for their future projects and investors. Investors buy stocks of a particular company because of their trust in that company’s value.
Common terms:
Stocks > ownership > security > volatile
Cryptocurrencies are digital assets which are based on a blockchain network. As the name suggests, they are more of a currency i.e. exchange tokens, and are used for trading digital assets and for cross-border exchange of money.
They are based on a decentralized platform which focuses mainly on peer-to-peer transactions, eliminating any third party like banks or other financial governing bodies.
Common terms:
Cryptocurrencies > decentralised > digital asset > ridiculously volatile > no security
Similarities Between Crypto and Stocks
Let’s look at some of the common elements among stocks and cryptocurrencies:
Volatility and Risks: Both come with risks and neither can guarantee profit. Both markets are highly volatile, but the factors involved may differ.
Scams and Frauds: Stocks and Crypto are both avenues for potential theft and fraud, if you are not smart or if you are a blind believer.
Investors: Lately, cryptocurrencies are also becoming potential choices for investors who want to diversify their portfolios.
Differences Between Crypto and Stocks
Learning their differences will help to better understand what sets them apart.
Ownership
Crypto: When you buy a crypto token, you are just getting a digital asset exchange of your money and no ownership in the blockchains’ network. Although it helps in the governance by giving voting rights, it’s not a security.
Stock: Buying stocks means buying a fractional ownership in the company’s assets and capital. This makes you entitled to a share of the company’s profit. The company’s success reflects in the price of its stock.
Volatility
Crypto: It is ridiculously volatile with rapid price swings. The whale accounts highly influence the price of crypto. This volatility which scares away some traders attracts those who want high returns in short periods.
Stock: It is volatile but stable when compared to crypto. External factors like political events and natural calamities may affect stock prices.
Regulations
Crypto: There are no legal regulations on cryptocurrencies and being a decentralized platform, the rules are made by the community for the community. The government has no role in its operation.Â
Stocks: Stocks are heavily regulated by government authorities (SEBI) to maintain fair trade and to protect traders and investors. Any company with false claims is heavily penalized.
Trading Hours
Crypto: They are accessible at any time of the day or week, i.e. you can invest 24*7. Trading can be done on public holidays and during major events.
Stocks: They operate during fixed business hours and can be invested during that time period only.
Market Maturity
Crypto: Crypto can be roughly called a decade old, when Bitcoin, the first cryptocurrency, was launched in 2009. They are in a continuous state of research and development to address their scalability, security, and high gas fees issues.
Stock: Stock markets are centuries old and for years have been an investment choice for investors. This also has given rise to dominant traders, who have been in the market for long and who now dominate the market.
Ease to Enter
Crypto: It is easy to enter the market, as all you need is a computer, internet connection, and some tokens. The identity of the user is completely anonymous.
Stock: Considering the underlying rules and regulations, it is pretty hard to begin trading. Finding a trustable broker is itself energy-intensive and a challenge.
