Crypto vs. Stocks. What Is The Best Option For You?
Many investors have dove into the world of investment and started online stock trading and then expanded their investments to crypto currencies, especially during the last few years. Others have begun their journey in the world of cryptocurrencies and remained there.
Unfortunately, some investors dive head first and trade randomly, without taking the time to consider which option is best for them. Now, let’s settle this once and for all:
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Crypto vs Stocks. What is the best investment for you?
Making the right investing decision shouldn’t be taken lightly, so in this article, we will discuss the pros and cons of trading stocks and cryptocurrencies to help you decide which option is the most suitable to add to your portfolio. But, first thing’s first, let’s go over the definition of stocks and cryptocurrencies.
What are stocks?
We’re sure you’ve already heard about stock trading and its lucrative qualities. For your reference, stocks entail fractional legal ownership in a business, where the owner of the stock owns a legal ownership stake that gives them a claim on the assets.
Sometimes, these stocks are called equities. But you should know that the stock price is not stable, it rather constantly moves up and down depending on the performance of the said company.
To make money off stocks, it’s important to have a clearly-defined plan. Wealthface’s fiduciary advisors can guide you on how to wield the power of stocks and turn them into a successful investment using the right instruments!
What are cryptocurrencies?
A Crypto currency, as its name indicates, is a type of currency that exists on the digital front in a digital, encrypted, and decentralized medium of exchange. Cryptocurrencies, or digital money like the world-famous Bitcoin, allow payments to be made electronically.
It’s important to note that cryptocurrencies are organized by a network called a blockchain. Some famous cryptocurrencies include Ethereum, Tether, and Binance Coin!
But to make informed investment decisions, it’s important that you understand the clear-cut differences between company shares and digital assets, like cryptocurrencies.
What are the major differences between stocks and cryptocurrencies?
Although stocks and cryptocurrencies are used by investors to build wealth, there are many differences that set them apart. Some of these differences have to do with the objectives and what they offer investors.
The main differences are:
- Novelty in the market
- Dividends and ownership
Novelty in the market
Cryptocurrencies are relatively newer financial instruments when compared to stocks, which are more included in the group of traditional assets.
Another difference between them is the volatility factor. Stocks are known to offer more stability, but cryptocurrencies are more prone to volatility and risk!
Dividends and ownership
As per ownership, you should also know that investing in crypto doesn't entail ownership in a company, meaning investors won't be receiving any dividends when investing in crypto currencies. Unlike stocks, which enable investors to benefit from dividends.
If you’re looking to know more about dividends investments and the immense benefits they are to investors, please read the following article:
What is Dividend Reinvestment?
The last difference is where and how they're traded, and we're going to discuss that in detail!
Get to know the stock and crypto exchanges
Cryptocurrencies are traded on crypto exchanges while stocks are traded on stock exchanges.
Each cryptocurrency exchange operates differently, but, at its core, it’s an online marketplace that allows investors to buy or sell cryptocurrency. Different exchanges will demand different fees and offer different cryptocurrencies, that's for sure.
On the other hand, stock trading happens on accredited and heavily regulated stock exchanges around the world like Nasdaq and the S&P 500. Buyers enjoy security, stability, and transparency on these exchanges during specified trading hours subject to market closures.
Can investors trade directly on stock exchanges and crypto exchanges?
For those interested in crypto, trading cryptocurrencies can be done directly on crypto exchanges.
However, investors cannot directly buy or sell shares on a stock exchange. They need a broker or to create an account on an online trading platform, like Wealthface, which provides users with stock screening tools and features to help them succeed in their investment journey.
If you’re a newbie to the stock trading venture, it’s important to read 10 tips for choosing your online trading platform.
As with everything in life, everything in life has pros and cons. Let’s settle the debate once and for all, is it stocks or crypto?
What are the pros and cons of investing in stocks?
Investing in stocks comes with positives and negatives, but the positive definitely outweighs the negative.
Pros of investing in stocks:
- Small capital is needed
- High returns over the long term
- Also, dividends
Investing in stocks requires little money
You don't need a lot of money to start stock trading or investing. Many wealth management companies allow you to start investing with little money, starting with $1.
Sometimes, no account minimum is required and investors are able to begin their journey through investing in Fractional Shares, or portions of stocks. Hence, if the stock you want to buy is too expensive, there's a way to still invest in stocks!
Read this comprehensive guide on: How to start investing in stocks
High returns over the long term
Stocks are known for their ability to offer investors high returns over the long term. It's all about patience in stocks. Hence, if you're looking to achieve your long-term goals, go for stocks and wait for the high returns to kick in!
However, as an investor, we need to make sure that these stocks are carefully handpicked. Therefore, monitoring the stocks of the portfolio and taking appropriate selling decisions becomes very essential. Wealthface allows you to do that and much more!
Some stocks pay dividends, which can offer some solace when a drop in share prices occurs. The money could be used to provide more income or even buy more stocks!
Cons of investing with stocks:
The ups and downs
The price of stocks is linked to the general economy and corporate performance, so it's imperative that the price of the stocks you have is going to change continuously, sometimes for the better, sometimes the other way around. Be prepared, investor!
What about the pros and cons of investing in cryptocurrencies?
Let's break down the advantages and disadvantages of investing in cryptocurrencies
Pros of investing in cryptocurrency:
- 24/7 trading
- Inflation beating
- Potential for high rewards
The most alluring aspect of cryptocurrencies is that they can be traded around the clock. You don't have to wait for the markets’ closure or for the markets to open, like the Nasdaq.
Cryptocurrencies can be a good way to keep inflation at bay as they aren’t tied to a single currency or economy. Instead, they are affected by global levels of supply and demand, which don't factor inflation into the equation.
Cryptocurrencies are known for the sudden spike in their prices, and this is something that is common among all cryptocurrencies. Investors usually go for cryptocurrencies because of the quick high rewards that they could get.
Check out the list of: 13 Most Important Cryptocurrencies Other Than Bitcoin
Cons of investing in cryptocurrencies:
- High risk
- Cyber security issues
With high returns, come high risks. Just as cryptocurrencies are famous for their sudden spike in prices, they're also notorious for their extreme volatility!
The crypto market is prone to crashes and extreme fluctuations that affect investors hugely. It's not uncommon for investors to divert their attention away from cryptocurrencies as they don't offer a stable source of value as an investment.
Many investors are in perpetual fear of hackers. This is because the crypto landscape has been subjected to numerous hacks and breaches that have cost investors thousands of dollars.
To ensure the safety of users, continuous security upkeep is needed, making the concept a hassle for some investors!
Before you start trading in the market, it’s always important to find out if there is a definite regulatory structure for protecting investors.
Is the stock market regulated?
The good news is the stock market is heavily regulated. Did you know that the U.S. Congress makes the top of the list of regulators? This is because it's responsible for how the industry operates and allocates the suitable budget.
The SEC is the top regulatory agency appointed by the U.S government, which keeps an eye on the securities industry and all exchanges while ensuring compliance with all strict laws. Hence, investors can rest assured that their money is in good hands.
What is the current state of crypto regulations?
When it comes to crypto currencies, the crypto market is known for its lack of government regulation, thus carrying greater risk than the stock market.
However, President Joe Biden has recently signed an executive order to provide a comprehensive approach to addressing digital assets. Looks like a definite clear-cut regulation is a few steps away!
Naturally, it’s important to invest within the scope of regulation because it provides a safe haven to investors who are putting their hard-earning money to work!
In a nutshell, investing doesn't include only one approach. It is an umbrella term that includes diverse investments, much safer investment options, and financial instruments that have a higher chance of loss.
However, investors don’t have to decide between cryptocurrency vs. stocks — they can include both cryptocurrency and stocks in their portfolios- as they carefully outline their objectives, risks, and goals.
But, it’s a no-brainer that investors who don’t have a huge risk appetite are more likely to lean more on trading in stocks due to the inherently volatile nature of cryptocurrencies.
So, what are your thoughts? Are you keen on adding crypto or stocks to your portfolio, or maybe a mixture of both?
Regardless of your decision, if you’re considering trying your luck in investments or even trading professionally, learning more about the Wealthface platform can be the first step in gaining a solid knowledge of investment techniques and portfolio management.
Wealthface provides investors with a variety of financial services that can address all their objectives and goals, within their specified time frame.
With several considerations to make, such as those above, we hope that the information provided above proves to be worthy to your portfolio.