Six Major Differences Between Crypto and Stocks
There is an abundance of information about crypto and stocks, but do we know the difference between these two investments? People use both to make money, but there is a clear distinction between the two. Let’s explore the six significant differences and how they may impact investment decisions.
It is essential to know the differences between crypto and stocks before you invest. The most important ones are: the assets, the safety of the investments, their volatility, the volumes traded, their liquidity, and the hours of operations of the different exchanges.
Crypto and stocks are both asset classes but fundamentally different. When you buy a stock, which usually represents a share of a publicly traded company, you are obtaining ownership of part of that company. Companies issue and sell stocks to raise money for growth, expansions, or new product lines. With crypto, you are buying a digital currency that you can trade. You are not obtaining physical shares in a business, you are purchasing digital coins or tokens. With stocks, there is no restriction for the number of shares within a company. Just the opposite is true for crypto, since there is a limited supply of most coins. The assets that crypto and stocks represent are not very similar to one another.
The hours when trading can occur differ between the stock market and crypto. The stock market operates during regular business hours Monday-Friday and is closed on public holidays. On the other hand, you can trade crypto 24/7 – every day of the week, every hour of the day or night. Trading crypto is around the clock, whereas the stock market has time restrictions.
Liquidity is the ability to quickly buy or sell stocks without sacrificing the price. In general, stocks are more liquid than crypto. Since the stock market has been around for a longer while, and there are many more traders, it has higher liquidity than crypto. Liquidity differs from one cryptocurrency to another. For example, Bitcoin is more liquid than other smaller coins available on the market.
For both crypto and stocks, there is always the concern of fraud and other safety risks. However, it is improbable for stocks to be fraudulent, since they are highly regulated. Also, public companies go through the scrutiny of quarterly reporting their financials. If a company fails to comply with the regulations, it could be delisted. Crypto is newer and largely unregulated, and therefore, more risky. There are issues with lost or stolen user identity keys as well. Safety is a more significant concern for trading crypto, which is essential to note when investing.
Stock exchanges have existed for more than two centuries. Cryptocurrency exchanges, on the other hand, have only been around for 10 years. That reflects the daily volumes traded on them. The global equity trading was $38 trillion in Q2 of 2021, while all crypto exchanges accounted for less than $150 billion daily in October, 2021.
Volatility can be both positive and negative. There are lots of highs and lows in the market, making it unpredictable. The market is more stable with low volatility, but it takes longer to receive a financial return. Stocks are more likely to follow this ideal, especially since the market is more developed. Crypto is newer and more likely to have more sporadic highs and lows. Since the volatility is constantly changing for the crypto market, people could panic and sell their investments at a loss. Panic selling is more common with crypto due to the unpredictability and lack of stability in the market. Volatility is unforeseeable, making crypto more exposed to change than stocks.
All in all, these are the significant differences between crypto and stocks. If you want to go for a risker, new investment, you should focus on crypto. Stocks would be a safer choice with a longer return on investment. It is essential to take these differences into account so you can determine where you wish to invest.
If you want to get involved with stocks and crypto, Simply Flows could help you determine the best investments to make.