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Investing in Crypto versus stocks

Investing in Crypto versus Stocks || 5 Best Differences

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  • Post last modified:June 17, 2022

Investing in Crypto versus Stocks

Many people face the dilemma of choosing between crypto and stocks for investment and trading purposes.

Today in this article we aim to help our readers in solving this conundrum of investing in crypto versus stocks.

It’s an interesting topic that has caused debates between the 2 groups of investors: crypto investors and stock investors.

So we have decided to put an end to this as we logically deduce the differences between the 2 asset classes and then decide on the best course of action.

Yes it’s true cryptocurrency has taken the world by storm with its soaring prices and it’s also true it’s shunned by leading investors and government structures due to the plummeting of its prices in a very short duration leading to significant losses for investors.

Hence we feel it is very important to help our readers to solve this dilemma of whether to invest in stocks or cryptos

Keep scrolling down as we move to more interesting topics below as we deep dive into the topic of investing in crypto versus stocks

Before we move into the differences between crypto and stocks let’s first understand in detail crypto and stocks.

What is cryptocurrency?

A cryptocurrency is a digital form of currency that is based on blockchain technology its unregulated and not conventionally accepted by most governments across the globe.

It has no physical existence and is owned using software technology. Currently, there are over 1000 cryptocurrencies across the globe.

History behind

Although it became famous and well known over the last decade it was originally introduced in the year 1983 by David Chaum and was called ecash, in 1995 he implemented it as Digicash.

The now-famous Bitcoin was developed in 2009 and slowly but gradually its price skyrocketed leading to a surge in the number of cryptocurrencies we witness today and an absolute craze behind investing in it.  

What are Shares and Stocks

A stock also known as a share or equity can be defined as a fraction or portion of a company and owning a stock means you own a part of that company.

Stocks are sold and brought through the stock market in which stocks of various companies are listed and their prices change dynamically based on demand and supply conditions which fluctuate every second.

History behind

Stocks are historically older compared to cryptos and are known to be in existence since 1250 in France where 100 shares of a Milling company were traded based on the profitability of the mill.

The earliest recognized joint-stock company known and recorded was the East India Company of the UK.

Pros and Cons: Investing in crypto versus stocks

So now we are aware of the meaning of stocks and cryptos we will now try to compare both the assets based on their pros and cons to make a decision of investing in crypto versus stocks.

Investing in Cryptocurrency: Pros

  • Hedge against conventional currencies: One of the key benefits of investing in crypto is its decentralized structure which practically means the Govt. can’t interfere and print more money to increase inflation. Thus investing in cryptocurrency allows investors a hedge against inflation caused by an increase in the printing of fiat currency.
  • High Gain Potential: One of the primary reasons for people buying a digital currency that is unregulated, and not recognized by the governments of several countries is the possibility of higher returns post the prices of bitcoin soared heavily.
  • Growing options of Investment: A high number of cryptos have been added post the success of bitcoin allowing investors to choose from several options

Investing in Cryptocurrency: Cons

  • High Volatility: One of the concerns in the minds of investors is the wild swings in the prices of cryptocurrencies, the extreme volatility allows investors to make a fortune in a short duration but also creates a possibility to lose it all in a day.  
  • Risks associated with Cyber Security and Hacking: One of the biggest issues arises due to cryptos not being backed by govt. of most of the countries in the world and hence in case of stolen funds by hackers means a situation of no recovery with no authority to help you.
  • Zero Intrinsic Value: The biggest risk of cryptos is the fully digitalized version of existence with zero underlying value of its own.
  • No recognition and High Taxes: Most central govt. And the IMF shuns cryptos which reduces the trust factor to invest in cryptos. Apart from the country of El Salvador, there is hardly any recognition given by any govt. to cryptos.

Investing in Stocks: Pros

  • High Intrinsic Value: The key property which differentiates a stock investment is the existence of the intrinsic value of a share. Share awards your ownership in the company based on the number of shares you have invested. In fact when companies initially list shares they have to go through a process called valuation to decide on the initial listing price.
  • Govt. Regulation and Recognition: Governments of all countries recognize and regulate stock markets and it makes your investment in stocks less risky as compared to investment in cryptos.
  • Less Risky: Investment made in stocks varies in risk based on the company’s business and its financial stability. Allowing investors to choose based on their risk appetite.

Investing in Stocks: Cons

  • Low Probability of high gains: In general a huge gain in stock markets is not easy and takes a very long duration of time as compared to cryptos.

How to choose between Cryptos and Stocks

We just finished the pros and cons of cryptos and stock giving you some idea of what investing in them could get you into.

Now we would like to discuss the several factors one must consider before making the decision of investing in crypto versus stocks.

We will provide you with our analysis and recommendation based on each factor to make your decision easy.

  • Profitability: Cryptos do provide a possibility of high returns as compared to stocks so if your top criteria of investment is earning high one may choose to invest in crypto rather than stocks
  • Time Horizon of Profit: Not only does crypto earn more but they are generally able to generate returns in a shorter duration of time compared to stocks.
  • Security and safety: One of the key advantages one gets by investing in stocks is decent returns with a higher level of trust and strong regulations as compared to cryptos whose value can collapse and pose a high risk of significant losses.
  • Options avalaiable: Stocks provide higher numbers of options to invest in. Also one can look to invest in ETFs and mutual funds for getting more safe returns.

FREQUENTLY ASKED QUESTIONS (FAQ)

How is cryptocurrency different than stocks?

The basic difference lies in the fact that crypto is a type of currency(digital in nature) while stocks are a form of fractional ownership in a company whose price changes dynamically based on the company’s performance.

Is earning from stocks and cryptos taxed in the same way?

It differs from country to country but in the United States of America, both crypto and stocks are taxed in the same way i.e you have to pay taxes at the same rate if you realize gain after selling stocks or crypto.

Bottomline

We have completed this article on the topic of investing in crypto versus stock. So what do you think should be the pick for your investment?

It’s true a number of cryptocurrencies’ prices have soared in the last 2 to 3 years but so is the case with stocks.

One of the key factors to understand is asking the question to yourself, why am I investing? It could help in solving the dilemma of selecting between a cryptocurrency or a stock.

One must understand investing in either stocks or cryptos is not a sure-shot jackpot one needs to carry out research about each asset class and analyze its ability to perform well to help you earn money.

Another important aspect of investing is your risk appetite and financial needs in the near future one must always invest emergency funds in safer forms of investment options and then look to earn high returns in risky options.

The key to solving this conundrum of investing in crypto versus stocks is not about finding the best of the two but rather finding answers to your financial goals and future plans.

We recommend that one must create a diverse portfolio of assets which must include a mix of different asset classes to balance high-risk assets like cryptos.

Hence the answer to investing in crypto versus stocks is not about selecting one but rather balancing your portfolio with both based on risk appetite and financial goals.

Hopefully, you enjoyed reading this article and would like to read it more than once.

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