When talking about investing, stocks and cryptocurrencies are the most mentioned and compared asset classes, without beginners really knowing how to define them. And you know? What is the difference between stocks and cryptocurrencies?
Taking a short cut to get to the simplest one, the difference between these two investment methods could be summed up like this:
- Stocks represent ownership of a company,
- Cryptocurrency is a digital or virtual asset that uses cryptography for transaction security.
Cryptocurrencies and stocks are, by definition, solutions to grow your savings and allow you to improve your personal finances. They both have things in common and also differences which we will see in detail.
An action it is a title owned by a company that you can buy or sell through a broker or on a trading platform. When you buy a share, you become a shareholder in the company and are entitled to a portion of the profits (or losses) the company generates.
For example, suppose you buy Apple stock. If Apple is doing well and its stock price goes up, your investment will appreciate. On the other hand, if Apple runs into trouble and its stock price drops, your investment will lose value.
cryptocurrencyon the other hand, it is a digital or virtual asset that uses cryptography to secure its transactions and control the creation of new currency units.
Bitcoin, one of the most popular cryptocurrencies, was created in 2009 as a peer-to-peer electronic money system. Therefore, we can exchange Bitcoins directly without going through a third party. Unlike stocks, cryptocurrency It is not regulated by any government or financial institution.
Instead, it runs on a decentralized network that is powered by blockchain technology.
The main differences between stocks and cryptocurrencies
Now that we have defined what stocks and cryptocurrencies are, let’s take a closer look at some of their key differences:
- Stocks represent ownership of a company, while cryptocurrencies are not backed by any central authority
- Stocks can be traded on centralized exchanges regulated by governments, while cryptocurrencies are traded on decentralized platforms that are not subject to government regulation.
- While stock price is influenced by (earnings reports, forecasts, analyst evaluations), cryptocurrency prices are primarily influenced by supply and demand as well as news.
- A share allows you to receive dividends and participate in the life of the company through the shareholders’ meeting, while cryptocurrencies can be used to buy goods and services from anyone who accepts them as payment.
- There are many types of stocks, while there are only a handful of major cryptocurrencies (Bitcoin, Etherum, BNB, SOLANA)
Market opening hours
One of the key differences between cryptocurrencies and stocks is the trading hours. The way of managing a securities portfolio or an electronic purse are not subject to the same limitation of time or calendar days.
The stock market is a regulated institution that has opening and closing hours.
The cryptocurrency market is open 24/7, that is, it never closes and you can access all exchanges at any time without restrictions. Cryptocurrency trading is a decentralized form of investment as there is no central authority regulating the market. Bitcoin, Litecoin, Ethereum, and Bitcoin Cash are some examples of cryptocurrencies that can be traded on 24/7 trading platforms.
Cryptocurrency volatility: weakness or advantage over stocks?
In recent years, cryptocurrencies have had a boom period. Prices were volatile, but generally trended higher. Some tokens have even seen their value multiply over 1000 times! Imagine investing 10 euros and recovering 10,000 euros.
This has led many investors to view cryptocurrencies as a high-return investment, but also a high-risk one. Compared to stocks, cryptocurrencies are very volatile. Volatility that can be considered a weakness or an advantage, depending on how you look at it.
Volatility as a weakness: For those who see volatility as a weakness, the reasoning is simple: When prices fluctuate constantly, it’s hard to make sound investment decisions. When prices go up, you may be tempted to invest more money than you should, risking the price crashing soon after. Similarly, if prices drop and you sell your crypto, you may miss the bounce. In short, volatility can lead to poor investment decisions that can cost you money.
Volatility as an advantage: Some investors see volatility not as a weakness but as an advantage. Since cryptocurrencies are a very new asset class, they believe that by investing during periods of volatility, they stand a chance of making a lot of money if prices continue to rise in the long run. Furthermore, since cryptocurrencies are highly volatile, investors can also make quick profits by day trading or swing trading during periods of price fluctuations.
In short, volatility can lead to profitable investment decisions if the timing is right.
If you are the type of investor who values stability and wants to avoid big losses, you may want to avoid investing in cryptocurrencies. However, if you are willing to take some losses for bigger profits, investing in cryptocurrencies might be right for you.
The difference between stocks and crypto has advantages and disadvantages. If you are willing to take more risks for higher returns, investing in cryptocurrencies might be right for you.
On the other hand, if you want a more stable investment or limited risk, stocks may be a better option. Whichever path you choose, remember to do your research first!