Are you an experienced stock trader looking to get into cryptos? If so, you must understand a few vital differences when investing in digital currencies as opposed to stocks.
Only after you have a full understanding of these two assets’ basic differences can you make a solid decision about which one’s right for you. Or, you may choose to diversify and hold both.
Here’s what you need to know about crypto vs stocks to make the most of your investments.
How Cryptos Are Changing Everything
Unless you’ve had your head hand buried in sand this year, you’ve heard about the incredible potential associated with investing and trading in cryptos.
As of June 2020, more than 5,500 cryptos circulated globally, and the market value of digital currencies will reach $1,758 million before the end of the 2020s.
To give you an idea of the incredible growth possible with cryptos, let’s trace Bitcoin’s stellar trajectory over the past couple of months. As of June 2020, Bitcoin sat around $9,165. As of March 2021, this crypto is valued at more than $53,850. Talk about a wild ride!
If you’re longing to get in on a piece of the action, we don’t blame you. That said, we also understand if you’re a bit nervous about sinking a lot of money into crypto investing. After all, the market is known for capriciousness.
Cryptos Go Mainstream
Yet, cryptos, despite having their ups and downs, still perform robustly. Yes, they remain a new frontier in investing. But it’s safe to say that they’re becoming more mainstream every day.
How do we know this? For starters, Wall Street has started taking notice. The next great initial coin offering (ICO) is all the rage, and people can’t stop talking about them. What’s more, investing in blockchain and diversifying portfolios with cryptos have reached an all-time high.
If that’s not enough evidence, consider this. Even big-name investment firms like Merrill Lynch have started offering funds in Ethereum and Bitcoin.
But what continues to trip many investors up? The misguided belief that cryptos and stocks are one and the same.
Before you start investing in this market, you need a thorough understanding of the differences. After all, investing in tokens differs significantly from investing in stocks.
Crypto vs Stocks
What do you need to know about investing in crypto vs stocks? One of the most significant differences between digital currencies and stocks is how they get valued. Legitimate companies back stocks, and they involve physical assets as part of their valuation.
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You can also determine if a stock’s valued properly on market price using math. But it’s another story when it comes to cryptos. For starters, they don’t get backed by companies.
Instead, their value comes from reputation. That said, some do receive their value from functionality, too. Because these factors tend to be more subjective, predicting the value of digital currencies remains trickier.
What else separates cryptos from stocks? Anyone can make their own blockchain ledger.
For this reason, strange coins exist, such as Dogecoin, created by a group of bored programmers. You should also understand that just as anyone can make their own blockchain token, so can any individual launch an ICO.
Of course, the same can’t be said for stocks, particularly those traded on the NASDAQ, Dow Industrial, and NYSE.
What’s the process when stocks get created? They get issued by special groups and must clear governmental agencies and regular audits. They must also adhere to specific regulations before entering the market.
Stocks and Cryptos: Additional Considerations
You should also understand the intent behind the creation of stocks and cryptos. Stocks have a straightforward purpose, fundraising for companies. But the purpose for cryptos may fall into various categories.
For example, some digital tokens are part of the blockchain base for programming and games. But other cryptos may serve a fundraising purpose.
You should also understand that stocks involve paperwork and are ruled by fundraising motifs. But cryptos ultimately represent nothing more than computer code.
Another vital difference between stocks and cryptos has to do with their volatility. Because cryptos are valued solely on reputation, these assets make for a highly volatile market.
They may experience extreme lows and highs, and they generally prove quite unpredictable. What’s more, digital currencies have a reputation for sudden crashes. These factors can make owning digital currencies nerve-wracking.
How does this compare to the volatility of the stock market? Unlike cryptos which may need to get dumped rapidly, most stockholders remain patient during times of trouble. They do this based on the belief that things will eventually hit another equilibrium.
Because crypto holders understand the extreme capriciousness of the tokens and coins they hold, they are far more likely to panic sell. Patience often doesn’t pay off with cryptos, and HODLing for dear life could lead to your funds evaporating before your eyes.
Regulated vs Decentralized Assets
Many investors today feel interested in dabbling in cryptos. And can you blame them? With the performance we’ve seen with Bitcoin, they represent a tantalizing proposition.
But are cryptocurrencies like stocks? Apart from the fact that cryptos may sometimes be used for fundraising activities, the answer remains a firm no.
Stocks are heavily regulated, and they go through annual audits. They also prove less vulnerable to fraud.
As for cryptos, these decentralized assets remain unregulated and come with the potential of exit scams, fraud, and phishing schemes. That said, a handful of crypto brands have risen to the challenge, providing consumers with safer platforms, cutting-edge security features, and a firm knowledge base.
Companies such as SmartCredit.io offer the ability to earn crypto with its “Crypto Fixed Income.” That means you can earn interest on your digital assets while reaping the benefits of long-term growth on cryptocurrency prices. It doesn’t get better than that.
Crypto vs Stocks: The Takeaway
Although you will see more risk with cryptos, coins such as Bitcoin represent an excellent hedge against inflation, and they can also diversify your portfolio. You must also bear in mind that with great risk comes great reward.
Do you want to learn more about borrowing and lending digital currencies? Are you ready to start earning interest on your crypto? Here’s what you need to know about SmartCredit.io and how we can help you successfully branch out into virtual currencies.