What is cryptocurrency?
Cryptocurrency is a digital currency that resides on the blockchain. Cryptocurrency is powered by blockchain technology with some unique attributes like immutability, decentralization, transparency, and other features that solve the vulnerabilities of traditional fiat (Money) and other physical stores of value like Gold. Cryptocurrencies are developed to replace the conventional monetary system, but due to their volatile nature, it is regarded by a few as a Ponzi scheme or a get-money-quick scam.
Cryptocurrencies were developed to serve as a hedge against inflation in our conventional monetary system. The loss of purchasing power of a currency impacts the cost of living for those who use that currency, which has a detrimental impact on the country's economy. Unlike a FIAT currency, cryptocurrency doesn't react to inflationary forces.
Cryptocurrency has a hard-capped supply that does not exceed after creation and more cryptocurrency can’t be injected into circulation discreetly like our conventional FIAT currency. Cryptocurrency cannot be as easily manipulated as fiat by altering interest rates and expanding the amount of FIAT money. There will never be more than 21 million bitcoins created, Bitcoin is a desirable inflation-resistant store of value.
What are Stocks?
Stocks are the units of ownership that make up a company. A single share of stock represents a fractional ownership interest in a company based on the total number of shares the company has. If you own 1000 of a company's 100,000 total shares, each worth $10. This implies that the company is worth $1,000,000 and your investment is worth $10,000.
A stock owner earns returns based on the proportion of the company's stock they own. In the illustration above, the investor owns 1000 of the company's 100,000 shares. This means that the investor owns 1% of the company and is entitled to 1% of the company's profits.
Stocks are bought and traded on stock exchanges. These exchanges are also known as stock markets. A stock market is a marketplace where buyers and sellers of stocks, representing ownership claims on businesses, can transact. Traders who trade shares in a stock market are called stock traders, Investors that invest in stocks for a period of time are called stock investors.
As a stock investor, the value of your share fluctuates as the company's stock price rises and falls. Fundamental analysis is the process by which stock traders choose which stocks to buy and when based on data such as company news, information, and earnings. Technical analysis is another tool used by stock traders to forecast the future value of a company's stock using the stock’s price candle chart.
What are the differences between crypto and stocks?
1. Ownership
Stock investment is the acquisition of ownership in a company or corporation. Cryptocurrency investment does not entail ownership of a company's stock. Crypto investors do not receive traditional dividends from companies like stocks.
2. Transactions
In non-custodial wallets, cryptocurrency transactions can be done in a decentralized way, transactions are completed without a broker or an exchange serving as an intermediary and filling trades. Cryptocurrency transactions are carried out in a peer-to-peer manner, with no central authority governing and regulating them. In stocks, shares cannot be sent from one owner to another in a decentralized and anonymous manner; instead, you must use a broker or a stock marketplace to make transactions.
3. Regulations
Financial institutions regulate stock, and businesses are required to disclose any information that might affect the price of their stock. Stock investors can use this information to make financial decisions on which stock to invest in. Financial institutions do not regulate most cryptocurrencies. The exceptions are stable cryptocurrencies pegged to Fiat currency.
4. Privacy
Cryptocurrency has a feature of privacy; transactions can be made anonymously in a peer-to-peer manner, and the addresses (accounts) can be traced on blockchain explorer but the owner of the addresses cannot be known in decentralized wallets. In stocks, KYC is necessary to be able to trade in stock markets, and the company can know the owners of their stocks.
5. Liquidity
Stocks have more liquidity compared to cryptocurrencies. The ability to quickly exchange your assets for fiat money is known as liquidity. The liquidity in cryptocurrencies varies from one crypto to another. For example, the liquidity in BTC is more than the liquidity in Avax.
6. Volatility
Cryptocurrency is more volatile compared to stocks. Cryptocurrencies can see a crypto trading price decline of 50% in a day which is not the case in stocks. It is not common to see a stock value fall more than 50% in a day.
Pros and cons of investing in crypto and stocks
Pros and Cons of Stocks Investment
Pros and Cons of Cryptocurrency Investment
Crypto vs Stocks, which is the best investment for you?
Choosing the asset to invest in is considered one of the first steps to take as an investor. Investors have different risk tolerances. It is advisable for investors with a lower risk tolerance to invest in stocks considering how less volatile they are compared to cryptocurrency. Investors with higher risk tolerance can choose to invest in cryptocurrency.
For the time being, stocks are far safer to invest in than cryptocurrencies. In stock investing, an investor can gradually build wealth over time as a company grows, and the risk of losing money is lower than in cryptocurrency. Due to the volatile nature of cryptocurrency, most investors follow a technique called Dollar Cost Averaging. Dollar Cost Average (DCA) is an investment technique that entails investing in equal installments regardless of the asset price. This technique helps in reducing volatility impact on an investor's cryptocurrency portfolio
Deciding on the investment's timeframe is another factor that investors should consider. Hundreds of great cryptocurrency projects are emerging that have real-world utility and have the potential to become legal tender in the coming years or even decades. A long-term investor with a high-risk tolerance can choose to invest small sums in these "highly researched" cryptocurrency projects; these small sums have the potential to produce insane gains if left for years or decades, regardless of present volatility.
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