Stocks vs. Crypto: How Do They Differ?

Stocks vs. Crypto: How Do They Differ?

People have been investing in stocks since time immemorial. The modern investment structure is traced back to the 1600s. In 1602, the Amsterdam Stock Exchange was founded, becoming the first stock market in financial history. During the following two centuries, other stock exchanges emerge: The New York Stock Exchange was founded in 1792, and the London Stock Exchange in 1801. People had thus been making stock investments for more than three centuries by the time when cryptocurrencies emerged forcing them to master a new investment system.

Stocks and digital money are indeed so different that even seasoned stock investors need to update their investment skills to earn profits in the crypto market. Apart from collecting deep and comprehensive information about cryptocurrency, investors have to adapt to cryptocurrency exchanges that cannot boast the centuries-long pedigree of stock markets. The cryptocurrency exchanges – Coinbase and Binance – have been around only for only a decade. Nor do their trading volumes equal the trading volume of stock markets. Daily trading volumes overall hit $68.3 billion last year. But even the Nasdaq alone, a smaller part of the global stock market, can reach a much higher trading volume.

People investing in digital money and stocks enjoy a different type of ownership. To buy a stock, investors open an account at one of these brokerages – Charles Schwab, TD Waterhouse, or Fidelity, which make trades and hold stocks in the investors’ names. When people invest in cryptocurrencies, by contrast, they do not need to reveal their names but remain anonymous. An owner of cryptocurrencies holds assets in a virtual wallet or on a storage device. But with anonymity comes responsibility: owners of cryptocurrencies themselves have to keep track of their coins. Nor do they have any recourse if hackers steal their cryptocurrencies from their wallets.

Regulatory rules in the stock and cryptocurrency markets are different. Stock investors are protected by the Securities and Exchange Commission (SEC). Companies are required to disclose all information affecting their stock value. Investors thus never take a shot in the dark when they make their investment decisions. Unlike stocks, cryptocurrencies are largely unregulated. No government supervises digital money or sets limits to it. Although some investors appreciate the freedom cryptocurrencies afford them, they have no protection when their investment goes wrong.

Trading costs of stocks and cryptocurrencies are also dissimilar, though neither investment is cheap. People investing in digital coins deal with many costs, including the charge fees and gas fees. Every crypto has its own fees, some of which are more expensive than others. When investors put money in stocks, they pay transaction fees affecting their returns.

Cryptocurrency markets are more convenient than their stock counterparts because their trading hours are longer. Like the Foreign Exchange Market, the crypto market never sleeps. Investors in digital money can trade around the clock. Stock markets are not so vigilant. They have breaks and are open during business hours in their particular home country.

Yet it is unwise to view the essential dissimilarities between stocks and cryptocurrencies solely in a negative light. Experienced investors know that stocks and digital money can conveniently complement one another. Bringing stocks and crypto in one portfolio diversifies it. Stocks are a more stable asset than cryptocurrencies. This is the reason why they have been attracting investors for several centuries. By investing in digital money, people face higher risks, often incurring larger losses. Combined together, however, stocks and cryptocurrencies make a handsome pair. In tandem, they can help balance rewards and risks in an investment portfolio.

Whether people put money in stocks or cryptocurrencies, they are undoubtedly valid investment choices. If investors make smart decisions in the financial markets, stocks and digital coins can bring them substantial rewards.