Reading time: 4 minutes
Cryptocurrency versus stocks, a debate that has been taking large proportions among investors. With the growth of the crypto market, many investors began to consider entering this market, but it is important to be aware that there are important differences between these two assets.
In short, stocks are a percentage of a business. When you buy a stock, you end up also becoming a partner in a company that is going on, regardless of whether it is up or down. The share price directly reflects the company’s market value.
Cryptocurrencies are digitally created and stored assets. When you buy cryptocurrencies, you have a certain amount of currency. The value of each cryptocurrency reflects a variety of factors, such as the supply and demand for the currency. It’s often just about people’s faith in technology.
If you are thinking of investing in one of these markets, here we have separated the main differences between cryptocurrencies and sotcks.
Property
To purchase a share, you must have an account with a brokerage firm, with your personal information, such as name and address, which can be verified at any time. All data is collected in order to keep your account secure against theft and fraud.
Cryptocurrencies offer anonymity to those who buy them. It is possible to purchase and maintain assets through digital wallets, which can be kept completely online or on USB drives.
Such anonymity can create risks, as you can forget your password, or damage your USB drive, and thereby lose all your stored money.
Liquidity
Many factors are capable of affecting the exchangeability of your investments, be they stocks or cryptocurrencies. The ability to trade at will is called liquidity.
Stocks are considered liquid as there are many brokers available in the stock market. In cryptocurrencies, however, this liquidity can vary from one to another, according to the volume of trading.
Both assets can suffer from slippage when it is necessary to sell large amounts of assets in periods of low liquidity, but the risk is greater for cryptocurrency investors, given the lowest liquidity ratios in the market.
Volatility
Volatility is related to the change in asset value. It can happen in both stocks and cryptocurrencies, making it almost impossible to know when a drop or increase in value will occur.
The stock market has been consolidating itself as a low volatility investment, since a lot of information is available for investors’ analysis, which makes it easier when buying or selling securities.
Cryptocurrencies are known for their high volatility indices, showing sudden and drastic changes. This feature of the crypto market can lead to incredible gains and losses.
Commercial Costs
When an investor buys a stock he may have to pay some fees that erode his profits. Even investments with index funds at no cost and low fees will generate expenses, there will be fees to be paid to the administrators.
Trading between cryptocurrencies can also generate substantial costs to investors, charged by platforms to validate transactions. The amounts of these fees vary from one currency to another.
Regulation
In order to carry out trading on the stock market, there are national agencies that supervise and regulate the transactions, ensuring greater transparency for those involved.
Cryptocurrencies do not use any type of regulation. Decentralization is welcomed by many investors, especially those opposed to the limitations of government regulations.
However, there is a risk of a sudden change caused by regulation, many countries even prohibit trading within their territory.
Exchanges
The stock exchanges operate during business hours in your home country, closing on weekends and holidays. On the other hand, the cryptocurrency market, being 100% online, works 24 hours a day, every day of the year.
Diversification
Some investors tend to keep their investment portfolios diversified, with different performances in different markets. Stocks tend to have a performance related to the economy, being affected by factors such as inflation.
The great advocates of the crypto market claim that cryptocurrencies are uncorrelated assets, that is, they are not affected by external factors such as the economy. Many already consider the use of cryptocurrencies as a defense against inflation.
Investing in cryptocurrencies or equities is a decision that should be based on your risk tolerance and financial goals, in addition to your current financial picture. Both assets are different and play different roles within a portfolio.
