Cryptocurrency VS Stocks: Which is more worth investing in?

Cryptocurrency VS Stocks: Which is more worth investing in?

 

In 2009, Bitcoin was born. The whole world also knows the digital currency and the blockchain technology behind it. When comparing cryptocurrencies and stocks in the early days, institutional investors who invested in stocks believed that cryptocurrencies were just a niche carnival.

However, the cryptocurrency market has since been advancing by leaps and bounds.

However, this newly born breakthrough technology is also controversial. Although some experts expect that cryptocurrency can bring a rare hedge against traditional financial markets, others fear that cryptocurrency will collapse and even drag the market down. 

In any case, digital currency does have a real impact on the financial market. Just like traditional stock trading, buying and selling cryptocurrency meets the needs of realizing wealth appreciation, so more and more investors are incorporating cryptocurrency into their investment portfolios. According to CNBC research, at least one in ten Americans is investing in cryptocurrency.

Digital assets bring unprecedented convenience to investment. Relatively high volatility means more potential opportunities in the market. Coupled with the advantages of all-weather trading, competitive leverage, low fees, and low trading thresholds, cryptocurrencies naturally attract many new investors and stock trading masters.

This article will give a detailed comparison of the similarities and differences between cryptocurrency and stock investment, as well as the advantages and disadvantages of each.

Is buying cryptocurrency the same as buying stocks? 

Like buying stocks, when buying cryptocurrencies, the market matches buyers and sellers of digital assets and sets prices based on the relationship between supply and demand. The online trading operations of the two types of assets are similar, and both can increase in value and lose money.

The operating mechanism of cryptocurrency and stocks is very similar. If you have done stock or foreign exchange trading, you will feel more cordial when you see the familiar interface of a cryptocurrency exchange.

Although the fundamental analysis of cryptocurrencies or tokens is different from the traditional factors that affect stock prices, the basic trading mechanisms and trading techniques are similar. 

For example, the order type you submit to the two types of exchanges is the same. Market orders to buy or sell at the current market price.

The limit order includes the preset price at which the trader wishes to buy or sell. The stop order single operating mechanism is similar to the market price. It will only be executed when the preset price is triggered. 

Stocks are intraday trading, and cryptocurrencies are spot trading. In this regard, the two have similarities. The stock market is a market-led intraday trading. Short-term operations are carried out in the market, and stocks are bought and sold during the trading day to obtain funds.

The cryptocurrency market never closes. Short-term stock trading strategies are also applicable to cryptocurrencies. For example, intraday trading strategies, including swing trading, range trading, scalping, and arbitrage operations, can all be used in cryptocurrencies.

Market volatility is the key to intraday trading profits, and deep liquidity is also popular. Both are the basic characteristics of many cryptocurrencies.

The biggest difference between cryptocurrency and stocks 

The cryptocurrency market has no lack of rumors of thousands of times earnings in a few weeks. Under the temptation of huge short-term profits and low barriers to entry, in the face of cryptocurrencies and stocks, investors jumped onto the previous train one after another.

Since cryptocurrency can buy scattered units, the barriers to entry are also low. However, under the opportunity of short-term high profitability, there are hidden high risks.

The ups and downs of cryptocurrency prices are like a roller coaster. Many industry experts believe that trading cryptocurrency is not like investing, but more like gambling. The stock market also has price volatility, but the volatility is smaller.

Starting from their respective characteristics, compare the similarities and differences between cryptocurrencies and stocks from the following perspectives.

Liquidity issues

Liquidity measures your ability to buy and sell in any market. In this contest, the stock market has the upper hand. The stock market trading volume is much higher than the cryptocurrency market, so liquidity is also stronger. Relatively speaking, there are fewer active traders in the cryptocurrency market, so there are liquidity problems.

However, the liquidity of different currencies is also different. Since Bitcoin has the largest number of sellers and buyers, it is the most liquid digital currency.

Low market capitalization currencies and small cryptocurrency exchanges often cause liquidity problems, causing large investors to either be unable to invest in the currency or avoid exchanges. In stock trading, similar problems only arise when penny stocks are traded over-the-counter or when working with small-cap stock brokers.

ownership

By buying stocks on the stock market, investors can obtain company rights. Investors holding stocks enjoy various rights, including capital gains or losses, dividends based on company profits, and shareholder voting rights.

However, buying shares through a broker means that the shares are owned by the broker. Few investors will try to buy shares in their name.

Buying cryptocurrency means that you can transfer the ultimate ownership of the tokens to investors. In the early days, cryptocurrencies were traded on exchanges and stored in exchange wallets.

However, you can transfer cryptocurrency to a hardware device ( cold wallet ), which is generally safer than an online wallet. If you keep the private key of the encrypted currency properly, you don't have to worry about the intermediary being attacked by hackers.

High volatility

Volatility is another common denominator of cryptocurrencies and stocks. Because stock prices fluctuate and are difficult to predict, it is almost impossible to accurately determine the timing of buying and selling.

Having said that, investors and traders can still obtain company information on the stock market and decide how to buy and sell securities accordingly. In addition, although stock prices fluctuate regularly, the stock market as a whole tends to grow in the long term. 

The stock market will only fluctuate during a fixed period on a business day. The cryptocurrency market is never closed and fluctuates relative to other digital assets. It's just that cryptocurrency volatility is in cyberspace, and stock prices fluctuate in global stock markets.

Cryptocurrencies are affected by various factors 24 hours a day, and the volatility is higher than that of the stock market. High market volatility indicates that prices are unstable, so institutional investors are reluctant to invest in cryptocurrencies.

At the same time, volatility also creates more buying and selling opportunities for traders, and may even earn huge profits.

Unrestricted cryptocurrency market

The stock market is subject to supervision, and the margin is subject to strict requirements and is closely monitored. The maximum investment limit also prevents traders from abusing leverage. 

The margin trading of cryptocurrency derivatives trading is far more than that of the stock market. The minimum deposit limit for world-renowned derivatives exchanges is $1.

You only need to reach such a low level of capital to trade with leverage. In large digital asset exchanges, the minimum leverage is 2 times and the maximum can be as high as 100 times.

Insufficient diversity

The diversified investment aims to hold assets from different markets with different performances. The diversity of the stock market may not be as diverse as that of cryptocurrencies, because the stock market is mainly affected by macroeconomic development.

Factors such as inflation, currency, and economic policies will all affect stocks and bonds. 

Bitcoin and Ethereum have low correlations with stock market securities and assets, so cryptocurrencies are uniquely attractive as investment portfolio diversification strategies.

Cryptocurrency price trends mainly refer to the prices of relatively stable currencies such as Bitcoin and Ethereum. On the other hand, factors affecting stocks include macroeconomics, individual performance of companies or industries, the relationship between supply and demand of related indexes, and the development of industries and services.

Cryptocurrency VS Stocks: Which is better for short-term investment?

Cryptocurrency has a good short-term investment prospect and has the potential to quickly create huge profits. Of course, the loss rate is also very fast.

The average annual return of the stock market is about 10%, and Bitcoin is the best performing asset in the past decade, with an average annual return of 230%.

However, please keep in mind that digital assets can soar into the sky within a few hours, and can also fall through the center of the earth in a short period. For example, pulling up the shipping operation will cause this situation.

Not all transactions can generate stable returns or guaranteed returns. However, the highly volatile cryptocurrency market is ideal for day traders. They explore the laws and trends of the market and earn profits in no time.

Cryptocurrency VS Stocks: Which is better for long-term investment?

The stability of stock market trading attracts many long-term investors. After all, the S&P 500 Index has been tracking 500 large companies listed and publicly traded in the United States since its creation in 1975. In 46 years, only 10 years have suffered losses. Over time, the index portfolio achieves long-term growth.

In addition to systemic risks such as high volatility, cryptocurrencies also face numerous risks, such as regulatory uncertainties, low mainstream acceptance, and cybersecurity threats. In addition to the above-mentioned risks, if you deepen your understanding of the market and invest prudently, cryptocurrency will also benefit quite a lot.

Regardless of investing in cryptocurrencies or stocks, you should keep your goals long-term, invest steadily, and be cautious step by step. Unless you are a day trader, try to avoid all short-term fluctuations in the market. 

Conclusion:

Comparing cryptocurrencies and stocks to determine the final investment goal depends largely on your professionalism, trading strategy, and investment amount.

If investors are pursuing investments with strong predictability, limited long-term investment growth but low volatility, stocks are more suitable. If investors want to diversify their investment, hedge against unfavorable factors that affect the financial market, such as inflation, cryptocurrency may be the first choice.