It’s a known fact that one of the best ways to build wealth or to be financially stable is to invest the money that you’ve earned from your nine-to-five. However, choosing where to invest your money can be a daunting task as all of the options for investment have their own set of risks involved. While digital currencies have proven over time that they can be extremely volatile, the traditional stock market has experienced its fair share of ups and downs as well. So if both cryptocurrency and traditional stocks can be volatile, which of the two is the better investment option? Here are the top key differences between crypto and stocks.
The first major difference that cryptos and traditional stocks have is their exchanges. For one thing, stock exchanges have existed in one form or another for more than 200 years now, especially the fact that the exchange is famous on Wall Street in New York City. Digital currency exchanges, on the other hand, are relatively new, especially when you consider the fact that the first-ever cryptocurrency, Bitcoin, was released to the public market a little over a decade ago.
For instance, one of the major players in crypto exchanges is Binance, and it was created back in 2012, and now the largest crypto exchange to date was just created in 2017. Furthermore, Binance had recently experienced a daily trading volume of a little over 50 billion dollars in May of 2021. And at the same time, Nasdaq, which is just a small portion of the stock market, had a trading volume that was five times the amount of its usual numbers. To become part of the crypto trading world, visit some of the reliable trading platforms and exchanges such as: Binance or Bitcoin Evolution.
Regardless of how many differences crypto and stocks have, one thing’s for sure is that both of them have volatility and risks involved. With that in mind, both of the assets can either go up or down in market value, and it’s almost impossible for someone to know how to time the market perfectly for the best moment to buy or sell assets. However, the traditional stock market has earned a reputation when it comes to its volatility, as the larger market would eventually go up over time. And since traditional stocks must report on their finances publicly, investors use this opportunity to access numerous sources to make a better decision about their purchase.
Digital currencies, on the other hand, are considered to be the riskiest investment choice of them all. Cryptos are extremely volatile as their market value would undergo quick and sudden changes without any warning whatsoever, leaving some investors as to why this is happening. if you’re investing in stable coins, that’s much less of a concern. However, even though crypto can have sudden crashes in its prices, there’s also a chance when its market value would skyrocket to ridiculous numbers, which could potentially have huge gains with investors who have time, patience, and luck on their hands.
Another major difference between traditional stocks and digital currencies is their ownership. If you need to own a traditional stock asset, you typically need a brokerage account as it’s where you handle stock-related transactions. Your brokerage account is generally verified by essential user information such as your Social Security number, address, signature, and more. With that in mind, your account offers protection for you and your assets if ever there’s fraud or identity theft.
Digital currencies, on the other hand, offer you something traditional stocks can’t, and that’s anonymity. If you buy crypto, especially Bitcoin, all of your digital assets will be kept in a crypto wallet, which can be a virtual wallet or a hardware wallet. However, crypto’s anonymity has many advantages. It also has significant risks involved, like forgetting the password of your crypto wallet or losing all of your funds to hackers. There are also reports that users would lose their hardware wallets where all of their funds are stored, thus losing all of their money in the process.
When it comes to the stock market, there are national agencies, such as the Securities and Exchanges Commission, that oversee that market and the stocks within it. With that in mind, the regulations applied by those national agencies ensure the investors that there’s a particular level of transparency involved within the companies that are publicly traded.
By contrast, digital currencies still remain unregulated. However, it could be a benefit to some investors as they would have mixed feelings about government regulations. Regardless, all digital currencies and crypto exchange platforms still remain at risk of facing sudden elimination or transformation due to government regulations in the future. For instance, in June of 2021, the government of the United Kingdom banned a popular crypto exchange platform, Binance, from operating within the country, leaving a lot of investors to look for new platforms or new ways to transact with digital currencies.
The last key difference on our list between traditional stocks and digital currencies is the trading costs. For instance, every time an investor would purchase or sell stock assets, it’s unavoidable that they would have to pay a hefty fee for each transaction, which could mean that the fees would eat a substantial amount into their returns. Even if investors would choose to purchase an asset with a relatively low fee and with no-load index funds, they would still have to pay fees that would go to the manager.
Digital currencies, on the other hand, can have substantial costs when transacting with cryptos as the crypto exchanges would charge feed with every transaction. Not to mention that there are “gas fees” in the exchange, which are the costs that were extracted by the network for the system to validate and verify the exchange in the blockchain where the particular crypto currently lies. There are even some networks in the market that offer higher gas fees to speed up the transaction process.
To sum it up, if you would choose between traditional stocks and digital currencies, stocks are generally the safer bet. However, that doesn’t mean that you shouldn’t invest in digital currencies. There’s no safer option when it comes to crypto investments. All you have to do is to ensure yourself that you have a high tolerance to the risks involved, as well as have a diversified portfolio as you should only invest in crypto assets with the money that you can afford to lose. Ultimately, if you do your thorough research about the digital asset you’re about to invest in, you can have an educated decision on choosing which one is best for you. Thus it will be easier to balance the potential rewards with the risks involved.