The growth of Cryptocurrency has captured the attention of most investors, and this has, in turn, questioned the relevance of stocks in their portfolios.
For some crypto is a better investment than stocks. While for the others, investing in both platforms is a good way to be sure of return for your money.
The truth is both crypto and stocks are two of the major paying investment platforms. And that is why we decided to write this crypto vs stocks article to help you understand better.
Stocks vs Crypto: Overview
Over the last few years, cryptocurrency has taken the world unexpectedly. Ranging from the exchange of goods and services with digital currencies like Bitcoin, Etherium, Litecoin, and other acceptable digital currencies.
According to recent statistics from Bloomberg, the growth of digital currencies has risen to a total value of more than $2 trillion.
CoinMarketCap says out of all the digital currencies, the most popular currency of them all is Bitcoin which is worth more than $1 trillion alone.
These recent statistics have made most investors migrate to the digital gold rush but with just a little knowledge of it and lots of hope.
Now to the main competition – crypto vs stocks, there are several differences between the both of them. The key difference between crypto and stock is that a stock is an ownership interest in a business which means the stock is being backed up either by the company’s assets or cash flow. Crypto on the other hand, in most situation is not being backed up either a company nor a cash flow.
If you are considering investing in cryptocurrency alongside stocks, it is very important that you try to understand the crypto vs stocks criteria.
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Stocks vs Crypto: Which Should you Invest in?
The question of “stocks vs crypto which should an investor purchase?” is a very important question to ask yourself as an investor.
When it comes to such investments, there are risks and rewards which every investor should weigh accurately. This would therefore determine the investment to acquire and how to move the investment towards success.
More so, if you don’t have the right information, it would be difficult to carry out the right calculation.
Hence, to enable an investor make the right decision, he needs to know several key factors about cryptocurrency and stocks.
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While looking at Crypto vs stocks, let’s start by understanding what a stock is about. According to Bankrate, A stock is a fractional share of a company’s ownership.
If you get caught up in the fluctuating stock prices it becomes easy to lose everything. As a stockholder, the stock allows you have a certain right over a portion of the company’s assets and cash flow.
This is because it is a legal ownership position in the company. These provide support for your investment and serve as a foundation for its valuation.
You must have heard investors talk about rising and fall of stocks and you are clueless about how and why it happens.
The reason for the rise and fall of stocks is that the price of a stock fluctuates as investors appraise the company’s future prospects. While short-term investors may become unduly excited about the stock, the stock price is ultimately determined by the company’s capacity to grow earnings over time.
That is, a stock rises over time as a result of the underlying company’s success. The company, in particular, must be willing to perform very well over a long period of time if they want the stock to become a successful investment.
With the exception of specialized stable coins, cryptocurrency, in general, is not backed by any hard assets. And this fact is true for the most prominent crypto coins, such as Bitcoin and Ethereum.
You may be able to use a cryptocurrency to complete particular tasks, such as transmitting money to another person or using smart contracts that execute automatically when certain circumstances are satisfied.
Also in cryptocurrency, we can also experience fall and rise just like stocks but the question is, what is the reason for the fall and rise of cryptocurrency?
The reason for the fall and rise of cryptocurrency is because cryptocurrency is not backed by assets or cash flow and the only thing that moves crypto values are speculation driven by sentiment.
In cryptocurrency, prices fluctuate when public opinion shifts, sometimes dramatically. As a result, cryptocurrency is only motivated by the prospect that someone would acquire it for a higher price sometime in the future – a concept known as the “greater fool theory of investment.”
It is also important to know that for successful investment in cryptocurrency, an investor must be able to find another interested trader willing to buy the crypto from you, for a price greater than you bought it. This means the crypto market must be more optimistic than you are about it.
Key Features: Crypto vs Stocks
It is advisable that an investor should carefully weigh the risks and safety of any market-based investment such as cryptocurrency and stocks before deciding to invest. The investor needs to ask himself some certain questions like:
” Can I deal with the high volatility of these assets?”
” How well do I react to investment gains and losses?”
Below are the risks and safety of crypto vs stocks which every investor should consider before deciding which is better
- In general, the stock market is a well-established method of investing with a proven track record.
- In a situation where an investor dislike a stock, they can decide to sell it and drive the price down, but the stock must eventually go out of operation for it to be worthless.
- And in a situation where investors refuses to buy individual companies, they can decide to invest in funds based on the Standard & Poor’s 500, which has averaged a 10% annual return over time.
- Because stocks represent an ownership interest in a corporation, their long-term performance is determined by the success of the underlying company.
- Equities have a high level of volatility, with many stocks rising 100 percent or more in a year and falling just as quickly.
- Volatility is extremely high in this market, with cryptos frequently gaining or dropping by 50% or more in a year.
- Cryptocurrency has yet to establish itself as an asset class because to its still new.
- Because cryptocurrency is not backed by assets or cash flow, it therefore depends solely on positive sentiment to drive up its price.
- One other risk to consider is that countries could outright prohibit the use of cryptocurrencies, just like China in 2021.
- Because cryptocurrency is not backed by assets or cash flow, it depends solely on positive sentiment to drive up its price.
- The risk of cryptocurrency not being back up by anything might plummet to zero if the traders decide they don’t want to hold it.
Time horizon: Crypto vs Stocks
In determining which is better; crypto vs stocks, a significant criterion is the time horizon or the time at which the money for investment is needed.
The safer your asset should be, the shorter your timetable, so it’s there when you need it. The more volatile an asset is, the less suitable it is for people who have a limited time frame.
Experts have recommended that in general, when investors are in risky assets such as stocks, you are expected to wait at least three years to weather the storm.
Cryptocurrency has risen in value and it is still important that investors understand what they’re getting into.
I hope this crypto vs stocks review helps you to understand which one is worth more of your investment.