This article was last updated on June 10, 2022
Investing is one of the best things you can do for your finances. By setting aside some of your funds and putting them into investments, you can grow your capital and sure up your future. Investing can also be a great source of income that can be either passive or active, depending on your approach. In recent years, investing has become more accessible than it has ever been, thanks to the advancement of modern technology and the widespread use of the internet. This has led to the appearance of many new retail investors who are less experienced and often find themselves wondering what market to invest in. As a result, today, we are looking at two of the most popular investment choices – stocks and crypto, and the differences between the two.
Table of contents
What Are Stocks?
Stocks, also referred to as shares, are a form of security that represents partial ownership of a corporation. While stocks are a more general term of the overall security, shares are the individual units. However, the two terms are often used interchangeably, depending on the tone and style of speaking.
These entitle the holder to a part of the underlying organization’s assets and profits, proportionate to the number of shares. Additionally, in some cases, dividends are also handed out to shareholders. While a shareholder might have ownership of part of a corporation, this does not give them the right to do with it as they please. This is called separation of ownership and control and ensures the operational security of a corporation. Instead, shareholders must appoint officers and managers who will run the company on a day-to-day basis.
Publicly traded stocks can be bought and sold on a stock exchange. There are numerous such exchanges across the world, and most countries have their own ones.
Related: Investing For Beginners
What Is Crypto?
Crypto or cryptocurrencies are a form of digital currency that operates on an automated system known as a blockchain. This is a decentralized network that acts as a sort of digital ledger which records all transactions and changes. Since the entire system is decentralized, there is no central authority or institution. Instead, volunteers maintain the network by contributing computing power in exchange for compensation in the form of tokens. This process is known as mining.
While there are many cryptocurrencies, the most popular one is Bitcoin. As the first cryptocurrency to be developed, Bitcoin introduced this revolutionary new technology and created the first decentralized blockchain. Since then, many other projects have emerged, seeking to expand and build on the concepts introduced by Bitcoin. The most successful of these later projects has been Ethereum, which is the second most valuable cryptocurrency.
Since most cryptos are a form of currency, they can more easily be likened to the forex market. However, there are also some notable differences between the two as well. While they may be currencies, crypto projects usually have a larger underlying project which uses the network. Examples include automated smart contracts and various other applications of decentralized technology.
Investors can trade cryptocurrencies on online exchanges. These act as intermediaries between holders and allow them to exchange cryptocurrencies for other ones or fiat money. As a result, a large speculative market has emerged around this new form of currency that rivals traditional financial markets.
Stocks Vs. Crypto
- Stocks Are Comparatively Slower Than Cryptos
- Stocks Are Constrained By Market Working Hours While Cryptos Are Available 24/7
- Cryptos Operate On A Decentralized Network With No Central Control
- Cryptos Are Not Constrained By Institutions
- Stocks Are More Stable And Reliable
- Cryptos Have Multiple Uses
- Cryptos Operate On A Global Scale
Differences Between Stocks And Crypto
While the crypto market might have some common characteristics with forex, it has far fewer ones with the stock market. The two assets are quite contrasting and act very differently from one another. Below, we have outlined some of the main similarities and differences between the two markets and what influences them.
Purchasing Crypto and Stocks
Right from the start, there are some key differences in how you buy each asset. In order to buy stocks, you will need to set up an account with a brokerage service and deposit funds into it. You can then buy shares of any company that is publicly listed on a supported stock exchange. While you can make more complex moves, the basic process is fairly simple.
Meanwhile, for cryptocurrencies, there are several prerequisites that you will need to meet before you can start trading. Apart from setting up an account on an exchange, you might also need to set up a crypto wallet to hold all of your assets. While many platforms have this built-in, it is advisable to set up a third-party one as it is more secure.
Additionally, while popular cryptocurrencies can be purchased with fiat money, the more obscure ones can only be exchanged for other ones. This means that you might have to go through a lengthier process of exchanging several cryptos until you can acquire your desired one.
Factors That Affect The Price Of Crypto And Stocks
A number of different factors determine the price of stocks. These include the company’s revenues, yearly or quarterly performance, structure and business model, future prospects, the market it is operating in, the general state of the economy, and many more. By looking at these, analysts and investors can determine the intrinsic value of a company and conclude how it will do in the short or long term.
Meanwhile, cryptos are a much newer form of financial asset. This makes determining their intrinsic value more difficult and uncertain. While there are fundamentals that you can still analyze, speculation is much more prevalent in this market. When it comes to cryptos, investors will usually look at the underlying project behind the token, its viability and goals, the development team, and their approach to public relations. Additionally, cryptos are also affected by the economy as a whole, the prices of other tokens, the general attitude towards cryptocurrencies, and other political and social factors.
All of these factors can affect the price of cryptos at various levels. The popular token Shiba Inu, for example, has a price that is a fraction of a cent. As such, the slightest shift in price can make a huge difference for holders. Many of these are enthusiastic that Shiba Inu will soon reach 1 cent.
When it comes to investing, volatility is one of the main factors that experts will look at. This determines the viability of an investment and helps them weigh the potential positives versus the negatives. While volatility is present on the stock market, it varies from asset to asset. However, because the stock market is so well-established and heavily regulated, volatility is much tamer. While drastic changes in a stock’s value can occur from time to time, especially in times of crisis, these are usually one-off instances.
Meanwhile, because the cryptocurrency market is unregulated and speculation is rampant, drastic fluctuations are a daily occurrence. It is commonplace for crypto prices to fall or rise by 50 or even 100% in a single day. Larger fluctuations are also very frequent thanks to uncertainties in the market, high levels of speculation, social movements, and the large number of scams.
Working hours also differ between the stock and crypto markets. This can be a significant factor for some as longer working hours allow for greater flexibility and versatility. For stocks, the working hours depend on the exchange you are looking to trade on. Usually, they will operate between 9:30 AM and 4 PM, Monday to Friday. Stock exchanges do not usually work on weekends or holidays and also have early-closure days, which end around 1 PM, around holidays. Do note that these working hours are in the exchange’s local time and will vary depending on your location.
Meanwhile, since cryptocurrency exchanges are decentralized, they remain operational 24/7. This means that you will be able to buy and sell tokens at any time of day, regardless of the date. This makes crypto trading much more convenient and accessible. Because there are no working hours, you can easily fit investing into your schedule. Additionally, you will be able to easily liquidate or exchange your assets at any time, should the need arise. However, this constant operating can be a double-edged sword, as it means that the market can shift at any time, leaving you behind if you are not careful.
Additional Reading: Best Starter Cryptos To Invest In
Which Is More Profitable?
While many will ask which market is more profitable, there is no simple answer to the question. When looking at stock and crypto markets, you will quickly realize that both can be highly profitable. However, where they differ is the nature of investment strategies that are employed on either.
When it comes to the stock market, most investments are long-term ones. In such cases, investors will look at the intrinsic value of the company and make assessments of its viability in the long run. As such, profits are often delayed and can come months or years later. Of course, day traders are also present on the stock market, however, they make up a much smaller portion of it as there aren’t that many opportunities for this approach.
Meanwhile, the crypto market is a much more fast-paced one. Here, you will see a more even mix of both long and short-term investors. Like with forex, the crypto market creates an ideal environment for day traders who can employ a variety of tactics to make a profit. While you could be very successful by simply buying and selling pairs, there are numerous other approaches that you can take. For instance, crypto arbitrage is a method that takes advantage of inefficiencies in the market and is quickly gaining popularity here as well.
Whichever of the two markets you do decide to trade on, the key takeaway here is that they are both highly profitable and viable options. However, they do differ in some aspects. On the one hand, you have the stock market. This has been around for much longer and, as a result, is much more stable. Price fluctuations are less than you would see with crypto, and regulations are tighter. This means that your investments will generally be safer on the stock market in the long run.
However, since the market is tamer, the potential for profits is also more balanced. While there are certainly instances where the price of a particular stock has sharply dropped or risen in a matter of hours, such cases are few and far between. Instead, investments on the stock market require in-depth research, knowledge, and business sense.
On the other hand, there is the crypto world. This is a much younger market that has grown exponentially over a handful of years and now rivals much older and well-established markets like the stock exchange. However, because it is so young, the crypto market is much less predictable or reliable. Instead, it is highly volatile, and steep fluctuations of 50 to 100% are a daily occurrence.
Moreover, the crypto market is far more treacherous, as it is unregulated and highly reliant on technology. Novice investors who want to venture into this market often fall prey to scams due to poor technical knowledge and a lack of understanding regarding how the market works.
As such, while there is no better market to invest in, it is always important to do the proper research beforehand and make informed decisions. Regardless of your preferred market or asset, the most important investment you can make is in knowledge.